The Big Obama Administration Thread

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No, LKD didn't. Chandos is right. Selling crap and deceiving buyers about its crap quality by labelling it with a AAA rating and make the buyer pay real money for it, this is fraud. So I disagree with you - the government ought to have done something about these crimes long ago. The loan practices by mortgage brokers in many cases also amounted to fraud, as they gave loans to people of whom they knew that they couldn't possibly pay them back - in doing that they not only drove the loan takers into debt, they basically also defrauded the banks on whose behalf they sold those loans when they cashed in their bonus for a basically worthless loan contract. There are laws against predatory lending.

In that sense, Gee Whiz geniuses turning bad loans into investments is the primary problem, as their demand created the market that was served by the fraud that became so rampant later. I think you forget how such things usually develop. It didn't necessarily start off as a nefarious investment scheme cooked up by an evil Wall Streeter. Probably there were some bankers who thought about how to make money, and generate bonuses out of the company's assets, including the poorer loans they held. I am pretty confident that they bundled their less than premium loans, in the tradition of hedging (i.e. not all of them will default), and used their good name, say Goldman Sachs, that allowed them to credibly label the bundle as AAA. It simply was so profitable that investors thought that it could work again and be as profitable, if not more, with slightly worse and then really bad loans. Once it did work, and once it was profitable, it was repeated until the company rean out loans and a demand for new loans, good or bad, emerged. It was fed by the market and the whole process was then repeated until the bubble burst.

The development went cog in wheel with the situation after 9/11 when the Bush Whitehouse wanted to keep the economy running at full steam. They wanted that money be cheap to fuel the economy. In 2003 the federal Office of the Comptroller of the Currency invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also officially announced new rules that prevented states from enforcing any of their own consumer protection laws against national banks. It's not hard to see what thinking was behind that. When the financial sector was booming, that couldn't possibly be bad for the economy, could it? And if you ask Republican anti-government jihadis like Grover Norquist - for a long time he wanted to see consumer protection laws dead anyway.

Until 2003 the state laws against predatory lending were being enforced. After that there was only 'individual responsibility'. Question: Is that an obligation only for the loan taker? What about the other side of the loan contract? What about the 'due diligence' of the lender for checking the loan takers financial situation? A mortgage contract is serious business for both paties to it. The mortgage brokers sold off their loans as soon as they got the papers signed for a reason. Pious invocations of 'individual responsibility' amount in the context of not enforcing consumer protection laws to a 'blame the victim'. If 'individual responsibility' was a reliable regulatory tool, there wouldn't need to be laws against drunken driving.

I see in this conscious regulatory inaction. That is underlined by the feds obstructing the New York attorney general, Eliot Spitzer, investigating into financial fraud, whose taste for hookers didn't prevent him from seeing that train coming in 2001 already, when he started his investigations in New York (here, I want to digress to say that a reported taste for hookers didn't prevent General Hooker from becoming a Civil War hero).

The OCC under the Bush administration has been actively preventing the enforcement of existing and relevant state laws (putting to lie the claim that Republicans are all about 'law and order'). Enforcing New York laws against peredatory lending, Spitzer forced Household International to pay $484 million - at the time the largest settlement for victims of predatory lending. After the OCC statement and the lawsuits about it they were unable to continue doing that. The OCC decision must also have been influenced by the Bush administration's dogma that the market best regulates itself, and that individual responsibility makes dispensable consumer protection laws. That spirit and the decision by the OCC must have been greeted with approval from finance lobbyists, and with relief by companies like Household. Interesting side note, OCCs view was just struck down by the US Supreme Court, with the surprise vote of Anthonin Scalia.

 

This is a pretty good explaination as well:

http://atlantis2.cbsnews.com/video/watch/?id=3756665n


I'd be very interested to hear what all of you think about the different sides of this issue. We surived economic bubbles in the past, the .com bubble comes to mind. One of the interesting aspects, at least for me, was how individuals who took out the loans, were willing to make the same kind of calculated and selfish business decisions that business makes everyday. But what I liked about this clip was that there was very little politics in its content. Sometimes bad business is just that, the fault of bad business practices, incompetence and greed.

 

You guys are too serious. Why can't we talk about Obama checking out that Brazilian girl's ass....

I know... I know; he was actually turning to help someone down the stairs and the ass was just a bonus, but checking her out certainly brought up his street cred.

 

The French dude next to him was hilarious.







http://tpmtv.talkingpointsmemo.com/?id=2922741

 

"Dude"? You mean the President of the Republic of France? I think he might object to being called "the French dude"

I was just coming into this thread to post about the picture but T2 beat me to it.

 

By the way, the Washington Post has an interesting article on how Sotomayor felt about her Puerto Rican roots back in college. I think it is a good read; you can find it here.

 

I'm sorry to nitpick, but when did I ever say that the subsequent behaviour of the people who sold this crap was not fraud? I never said that. What I did say (or tried to say) was that giving loans to people who clearly cannot pay in the first place is the start of the problem. It is by no means the end, and I apologize if I came across that way.

To restate my position in a hopefully more clear manner, the government should regulate corporate entities that provide loans to ensure that A: Usury is not charged and B: Loans are not made that the borrower has no possibility of repaying.

Subsequent to that, of course people who sell a product, deceiving their buyers about the value of that product, should be charged with fraud.

 

One of the more shocking things that Chandos provided in the link was one of the de-regulations was that a borrower applying for a loan did not have to show proof of income. The example that they gave in the video was you could walk into a bank and claim that you made $400,000 - and they would give you a loan based on that declarative statement.

I cannot believe any bank would give someone a loan without knowing how much money they were making. (Actually I can - the bank had no intention of holding onto the loan.)

 

I want to play "devil's advocate" for a moment here. I don't believe that the bank is actually doing anything wrong. As long as they weren't breaking any banking regulation, they weren't doing anything wrong. Just because Fannie, Freddie, and the investment banks would buy the loan doesn't mean that they did anything wrong. An economist put it this way, if someone rang your doorbell and said they would pay $100 for a glass of water, wouldn't you sell it to him? You may think he is crazy, and you clearly have no idea why he would pay so much for it, but you would be the fool to not make the sale.

 

Whoever made that de-regulation, be he Republican or Democrat, was an idiot. Plain and simple.

 

TGS - The banks didn't care because they were selling the loans off to someone else. If they had to keep those subprime loans, they probably would never have done business in such a manner. You can be sure they would have checked that "declared income" pretty carefully if they were the ones holding them. The fact they were able to get a AAA ratings on such loans is astounding.

 

Well this would be a pretty correct analogy if the buyer would not have noticed later on that instead of getting the glass of water they ordered they got a glass of deadly poison.

 

Exactly. It's like someone comes to your door for a glass of rare wine and offers you 100.00, and you sell them tap water in a wine bottle.

 

Well no matter what everyone says about all this policy stuff -- Bush throws a better fast ball, Barack couldn't even hit the strike zone last night.

 

I was very disappointed in the camera angle they showed this from. I don't think we have enough information to grade it. Although, you are correct, Bush did set a pretty high standard by which all future President's arms will be judged.

 

At least he pitches better than he bowls.

That said, who the hell plays baseball anymore, anyway? Obama almost certainly has a better jump shot than Bush, and I'd rather have Obama than bush in a pick-up football game, too.

 

I cannot resist - it was a change up we can believe in...

 

I guess no one is disputing Bill Jeff's prowess at tonsil hockey...

 

I think Obama is more of a basketball guy, all in all. Didn't he play some pretty good games during his campaign?