What Was Lost When Political Economy Became Economics?

georgephillip said:

That market disappeared because the non-depository banking system produced millions of mortgages based on widespread "accounting control fraud" by lenders and loan purchasers:
Friday, September 17, 2004 Posted: 5:44 PM EDT (2144 GMT)

WASHINGTON (CNN) -- Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an 'epidemic' of financial crimes which, if not curtailed, could become 'the next S&L crisis.'"
http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/

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From your link:

Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values...

That fraud arrived on the heels of bad government interest rate and real estate subsidy policies. Again, fraud did not "cause" the financial crisis. Was there fraud associated with it? Yes, but absent the bad policy, the fraud would not (indeed could not) have occurred.

Lukey said:

That fraud arrived on the heels of bad government interest rate and real estate subsidy policies. Again, fraud did not "cause" the financial crisis. Was there fraud associated with it? Yes, but absent the bad policy, the fraud would not (indeed could not) have occurred

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How does the existence of low interest rates justify unscrupulous lending practices? Millions of fraudulent "liars loans" had become common by 2006 due to private lenders choosing to exploit low interest rates by engaging in massive fraud.
" The data also demonstrate that even minimal underwriting of the loan files was sufficient to detect the overwhelming majority of such fraudulent liar’s loans. No honest, rational lender would make large numbers of liar’s loans. The epidemic of mortgage fraud was so large that it hyper-inflated the housing bubble, which allowed refinancing to further extend the life of the bubble (and the depth of the ultimate Great Recession."
Do you find it troubling that not one single high ranking banking executive has faced criminal prosecution for his role in causing the Great Recession?
http://www.washingtonsblog.com/2011/12/the-fbi-estimates-that-80-percent-of-all-mortgage-fraud-involves-collaboration-or-collusion-by-industry-insiders.html

georgephillip said:

How does the existence of low interest rates justify unscrupulous lending practices? Millions of fraudulent "liars loans" had become common by 2006 due to private lenders choosing to exploit low interest rates by engaging in massive fraud.
" The data also demonstrate that even minimal underwriting of the loan files was sufficient to detect the overwhelming majority of such fraudulent liar’s loans. No honest, rational lender would make large numbers of liar’s loans. The epidemic of mortgage fraud was so large that it hyper-inflated the housing bubble, which allowed refinancing to further extend the life of the bubble (and the depth of the ultimate Great Recession."
Do you find it troubling that not one single high ranking banking executive has faced criminal prosecution for his role in causing the Great Recession?
http://www.washingtonsblog.com/2011/12/the-fbi-estimates-that-80-percent-of-all-mortgage-fraud-involves-collaboration-or-collusion-by-industry-insiders.html

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Are you suggesting there was never any mortgage fraud until the mid-00s? That is absurd!

Mortgage fraud has been around since mortgage loans came into existence. It became more attractive on the heels of the low interest rates and subsidies that fueled the housing bubble. Your post says that very thing:

Millions of fraudulent "liars loans" had become common by 2006 due to private lenders choosing to exploit low interest rates by engaging in massive fraud.

Bush's move to guarantee no down payment loans (that's regulation, not deregulation) is what pushed so many unscrupulous people to get into the mortgage loan business using "liar loans."

So it was not "deregulation" and it wasn't the fraud that CAUSED the crisis. It was the rush to exploit the low rates (as you pointed out) and the guarantee of these "liar loans" (most of which weren't actual "fraud") that fueled the bubble and ultimately caused the original crisis. The crisis became a panic after the Bush Administration bailed out Bear Sterns and then six weeks later refused to bail out Lehman Brothers, essentially drying up all bids for mortgage backed paper and rendering almost every banking entity technically insolvent.

And hell yes I find it troubling that not one single high ranking banking executive has faced criminal prosecution, but that's the problem with "fraud" - you have to prove the intent to deceive and it's hard to do without a confession. That's why leaving the banks with a fiduciary responsibility is important. You have to make sure they will suffer financially if they make bad loans, by letting the bad banks go bankrupt. We still haven't moved in that direction.

fairsheet said:

Baloney. If we accept your angle, we concede that we're helpless victims of the "ruling class". I don't concede that. Some Economists are "tools" of someone other than me. Some aren't. It's my responsibility to make the distinction. BTW....those that AREN'T my friends, aren't necessarily wrong because of it. And, my friends aren't always right! Damn...I'm left with making that distinction as well.

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You desperately need an intellectual father figure. To cover up that immature desire, you blindly claim that you are independently strong enough and mature enough to make your own choices. But in the real world, the individual against these powerful and concentrated cliques doesn't stand a chance. Obviously, they also have the power to make you deny your powerlessness.

I'm not advocating that we have to be pessimistic, fatalistic, or submissive. But if we are weaklings who want to escape to a childish illusion of being Superman, we might as well jump off a tall building and prove that we can fly.

The Sage of Main Street said:

You desperately need an intellectual father figure. To cover up that immature desire, you blindly claim that you are independently strong enough and mature enough to make your own choices. But in the real world, the individual against these powerful and concentrated cliques doesn't stand a chance. Obviously, they also have the power to make you deny your powerlessness.

I'm not advocating that we have to be pessimistic, fatalistic, or submissive. But if we are weaklings who want to escape to a childish illusion of being Superman, we might as well jump off a tall building and prove that we can fly.

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Your silly condescension aside, I haven't suggested that any individual should be standing outside baying at the moon, by his lonesome. You come from a place where fear/hatred of
"the other", is king. I know you and yours are made to feel especially smart (thus your nic) in that you're somehow privy to "reality", where others are not. I come from a different place and certainly won't be apologizing for it!

Lukey said:

Mortgage fraud has been around since mortgage loans came into existence. It became more attractive on the heels of the low interest rates and subsidies that fueled the housing bubble. Your post says that very thing:

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Mortgage securitization changed the incentives in the 1970s, and Wall Street banks used their influence over government and the Fed to maximize their fees and bonus pools while transferring any risk to taxpayers.
" However, securitization created a moral hazard — the bank/institution making the loan no longer had to worry if the mortgage was paid off[136] — giving them incentive to process mortgage transactions but not to ensure their credit quality.[137"

"Investment banks however, wanted to enter the market and avoid competing with the GSEs.[136] They did so by developing mortgage-backed securities in the riskier non-conforming subprime and Alt-A market. Unlike the GSEs[140]the issuers generally did not guarantee the securities against default of the underlying mortgages.[6]"

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Securitization

georgephillip said:

Mortgage securitization changed the incentives in the 1970s, and Wall Street banks used their influence over government and the Fed to maximize their fees and bonus pools while transferring any risk to taxpayers.
" However, securitization created a moral hazard — the bank/institution making the loan no longer had to worry if the mortgage was paid off[136] — giving them incentive to process mortgage transactions but not to ensure their credit quality.[137"

"Investment banks however, wanted to enter the market and avoid competing with the GSEs.[136] They did so by developing mortgage-backed securities in the riskier non-conforming subprime and Alt-A market. Unlike the GSEs[140]the issuers generally did not guarantee the securities against default of the underlying mortgages.[6]"

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Securitization

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I understand all that but no where in this post of yours does it say anything about "fraud." Moral hazard and fraud are two different things. I'm not trying to defend investment banking here, it's a snake pit. But as long as the taxpayer isn't backing up their book of business, why should we seek to control what products and services they can create? Everybody knew they were buying paper backed by sub-prime loans but they did it anyway because they were starved for yield in the low interest rate environment that the Fed concocted to try and keep the economy going despite the big government weight it was trying to pull. And yes, the model for grading this paper was flawed (and perhaps criminally so but it can't be proved). But I didn't own any of it - did you? We can't save every idiot from themselves. All we can do is see to it that they lose when they ef up so a) they learn their lesson and b) they don't take the rest of us out when they go down. The Bush Administration should have let these investment banks sink or swim on their own. Lehman Brothers had a bid from a Korean Bank in the weeks before they went under, but Dick Fuld assumed he'd get the "Bear Sterns" treatment so he took his chances on putting together a better deal, and when he couldn't find one and the government said "no dice" it created a huge panic in the commercial paper markets that dried up all bids and rendered much of the banking industry insolvent on a mark-to-market basis against a market with no bids. That is NOT the result of fraud OR deregulation. It was incompetent and/or inconsistent policy from the Bush Treasury and the Fed.

Lukey said:

Lehman Brothers had a bid from a Korean Bank in the weeks before they went under, but Dick Fuld assumed he'd get the "Bear Sterns" treatment so he took his chances on putting together a better deal, and when he couldn't find one and the government said "no dice" it created a huge panic in the commercial paper markets that dried up all bids and rendered much of the banking industry insolvent on a mark-to-market basis against a market with no bids. That is NOT the result of fraud OR deregulation. It was incompetent and/or inconsistent policy from the Bush Treasury and the Fed.

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Lehman's failure is a story of fraud. Lehman's principle source of imaginary income and real losses stemmed from its subprime and "liars loans" (Alt-A) operations originating primarily from its subsidiary Aurora Loan Services. Liars loans are criminogenic, turning moral hazard into epidemics of mortgage fraud because they create powerful incentives to provide false information on loan applications; Dick Fuld and his cronies should have faced the same legal fate as Charles Keating. Blaming low interest rates for mortgage fraud is like blaming fire insurance for arson.
http://en.wikipedia.org/wiki/William_K._Black#Testimony_before_Congress_on_the_bankruptcy_of_Lehman_Brothers

georgephillip said:

Lehman's failure is a story of fraud. Lehman's principle source of imaginary income and real losses stemmed from its subprime and "liars loans" (Alt-A) operations originating primarily from its subsidiary Aurora Loan Services. Liars loans are criminogenic, turning moral hazard into epidemics of mortgage fraud because they create powerful incentives to provide false information on loan applications; Dick Fuld and his cronies should have faced the same legal fate as Charles Keating. Blaming low interest rates for mortgage fraud is like blaming fire insurance for arson.
http://en.wikipedia.org/wiki/William_K._Black#Testimony_before_Congress_on_the_bankruptcy_of_Lehman_Brothers

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A Huffington Post writer? Seriously? Is that whose opinion I'm supposed to accept as definitive on this matter? "Dick Fuld and his cronies" shoulda woulda coulda?

The low interest rates, especially the ultra-low "teaser" rates drove the speculation in housing, as greedy individuals sought to buy as many houses as possible and "flip" them in a short time for a profit, and these loans made it more profitable to do so, which ramped up the price increases in some markets to ridiculous levels. That (speculative frenzy in housing "investments") drove the use of Alt-A and "liar loans" by unscrupulous people trying to cash in on the housing price inflation to overstate their income, or take on more credit than they could afford on their income, to qualify for more or bigger loans. Technically that is "mortgage fraud" but not the traditional version where a criminal uses falsified paperwork to obtain a mortgage for more than a property is worth in order to default and make off with the excess proceeds. The fact is that the vast majority of the people using this technique intended to sell the home for a profit and pay off the loan. So in the way that you could make the case that an absence of fire insurance would eliminate pretty near 100% of arson for profit, you can also make the case that normalized interest rates would have prohibited the rapid housing price inflation that drove this (technically fraudulent) use of these kinds of mortgage products.

Lukey said:

A Huffington Post writer? Seriously? Is that whose opinion I'm supposed to accept as definitive on this matter? "Dick Fuld and his cronies" shoulda woulda coulda?

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What "Huffington Post writer" are you imagining?
"William Kurt Black (born September 6, 1951) is an American lawyer, academic, author, and a former bank regulator.[1] Black's expertise is inwhite-collar crime, public finance, regulation, and other topics in law and economics. He developed the concept of 'control fraud', in which a business or national executive uses the entity he or she controls as a "weapon" to commit fraud."
http://en.wikipedia.org/wiki/William_K._Black#Testimony_before_Congress_on_the_bankruptcy_of_Lehman_Brothers

georgephillip said:

What "Huffington Post writer" are you imagining?
"William Kurt Black (born September 6, 1951) is an American lawyer, academic, author, and a former bank regulator.[1] Black's expertise is inwhite-collar crime, public finance, regulation, and other topics in law and economics. He developed the concept of 'control fraud', in which a business or national executive uses the entity he or she controls as a "weapon" to commit fraud."
http://en.wikipedia.org/wiki/William_K._Black#Testimony_before_Congress_on_the_bankruptcy_of_Lehman_Brothers

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He writes for Huffington Post - so yes, that's what he is. A liberal ex-bureaucrat with an anti-capitalist agenda and an axe to grind.

Lukey said:

He writes for Huffington Post - so yes, that's what he is. A liberal ex-bureaucrat with an anti-capitalist agenda and an axe to grind.

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Black's writings are posted and re-posted on numerous sites across the political spectrum; you seem to focus more on where his opinions appear than on his content.
"William K. Black earned his J.D. from the University of Michigan Law School and Ph.D. in criminology from the University of California, Irvine. He is an Associate Professor of Law and Economics at the University of Missouri-Kansas City, where he teaches white-collar crime, public finance, antitrust, law and economics..."

"On April 20, 2010, Black testified before the House Financial Services Committee in a hearing titled 'Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner' about the role that Alt-A mortgages on residential real estate played in the downfall of Lehman Brothers.

"Dr. Black was a central figure in exposing Congressional corruption during the 1980's Savings and Loan Crisis.

"His written notes of the 'Keating Five' meeting were later published in the press, and brought the event to national attention and a congressional investigation."

http://www.modernmoneynetwork.org/william-k-black.html

georgephillip said:

Black's writings are posted and re-posted on numerous sites across the political spectrum; you seem to focus more on where his opinions appear than on his content.
"William K. Black earned his J.D. from the University of Michigan Law School and Ph.D. in criminology from the University of California, Irvine. He is an Associate Professor of Law and Economics at the University of Missouri-Kansas City, where he teaches white-collar crime, public finance, antitrust, law and economics..."

"On April 20, 2010, Black testified before the House Financial Services Committee in a hearing titled 'Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner' about the role that Alt-A mortgages on residential real estate played in the downfall of Lehman Brothers.

"Dr. Black was a central figure in exposing Congressional corruption during the 1980's Savings and Loan Crisis.

"His written notes of the 'Keating Five' meeting were later published in the press, and brought the event to national attention and a congressional investigation."

http://www.modernmoneynetwork.org/william-k-black.html

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He's a frigging "progressive" fer crap's sake. I am not going to accept his opinion as fact. Get over it! This guy is an ardent anti-capitalist.

Hahaha! He likes Krugman!!!

http://neweconomicperspectives.org/category/william-k-black

Hahahahahahahahaha! He's a dad gummed commie!

http://www.hermes-press.com/counterfeit_progressives.htm

Lukey said:

I'm not trying to defend investment banking here, it's a snake pit. But as long as the taxpayer isn't backing up their book of business, why should we seek to control what products and services they can create? E

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Because fraud that doesn't put the taxpayers at risk collectively is still a crime. When Bear Stearns began pledging the same mortgages into multiple investment bundles, a clear case of fraud, shouldn't we have brought criminal charges against the guilty parties?

georgephillip said:

Because fraud that doesn't put the taxpayers at risk collectively is still a crime. When Bear Stearns began pledging the same mortgages into multiple investment bundles, a clear case of fraud, shouldn't we have brought criminal charges against the guilty parties?

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Where did I say don't prosecute criminals? Where did I suggest they should be allowed to defraud investors? Yes, if they did that they should be prosecuted. So why haven't they been? Obama's DOJ too busy pushing a phoney "disparate impact" reverse racism agenda? Or is this just a meme the anti-capitalist left has constructed to justify additiona regulation that isn't necessary to prosecute such obviously fraudulent acts?

fairsheet said:

Your silly condescension aside, I haven't suggested that any individual should be standing outside . You come from a place where fear/hatred of
"the other", is king. I know you are made to feel especially smart (thus your nic) in that you're somehow privy to "reality", where others are not. I come from a different place and certainly won't be apologizing for it!

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You follow the leader because before that you were confused and felt inadequate. The gurus whom the two factions of the ruling class appoint to mislead follower types are so sure of themselves that they are able to convert people who need to have their pathetic lack emptiness filled up by being absorbed into a political cult.

Lukey said:

He's a frigging "progressive" fer crap's sake. I am not going to accept his opinion as fact. Get over it! This guy is an ardent anti-capitalist.

Hahaha! He likes Krugman!!!

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Where did you get that idea?

1. "MSNBC '. . . MSNBC has a warring imperative--its hosts worship Obama and are awash in endorphins as a result of his re-election. . . Every host, every journalist, and every guest on the programs who discussed the [austerity] issue took it as a given that it was essential and urgent that Obama and Boehner agree to austerity and severe cuts in the safety net. There was no discussion of the merits. It was treated as obvious. The consistent message was that it was essential that we support our President unreservedly.' William K. Black, 'Will MSNBC Continue to Shill For the Great Betrayal?'"

Bill Black was among the first authentic progressives to point out the Hope and Change of Goldman Sachs's investment in Obama's 2008 campaign.

http://www.hermes-press.com/counterfeit_progressives.htm

Lukey said:

Obama's DOJ too busy pushing a phoney "disparate impact" reverse racism agenda? Or is this just a meme the anti-capitalist left has constructed to justify additiona regulation that isn't necessary to prosecute such obviously fraudulent acts?

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We're in agreement concerning Obama's spineless subservience to power, but it's not like Democrats are the only corporate enablers:
" But yes, the United States could crack down in many different ways on these tax havens, and it was about to do so in cooperation with a bunch of European nations in what's called the Organization for Economic Cooperation and Development, the OECD. And then President Bush got elected, and one of the first things his transition team did, even before Bush became president, was to signal that the United States would become the leading opponent of the effort to crack down on the tax havens."
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13531

georgephillip said:

We're in agreement concerning Obama's spineless subservience to power, but it's not like Democrats are the only corporate enablers:
" But yes, the United States could crack down in many different ways on these tax havens, and it was about to do so in cooperation with a bunch of European nations in what's called the Organization for Economic Cooperation and Development, the OECD. And then President Bush got elected, and one of the first things his transition team did, even before Bush became president, was to signal that the United States would become the leading opponent of the effort to crack down on the tax havens."
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13531

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Bush hasn't been President for over six years. Rather than cracking down on (legal) tax avoidance, the US could also revise its tax code to one that supports capital formation and profit making in the USA. Maybe we'd find that increases job formation as well, ya think?

georgephillip said:

Where did you get that idea?

1. 
   
   
   • "MSNBC '. . . MSNBC has a warring imperative--its hosts worship Obama and are awash in endorphins as a result of his re-election. . . Every host, every journalist, and every guest on the programs who discussed the [austerity] issue took it as a given that it was essential and urgent that Obama and Boehner agree to austerity and severe cuts in the safety net. There was no discussion of the merits. It was treated as obvious. The consistent message was that it was essential that we support our President unreservedly.' William K. Black, 'Will MSNBC Continue to Shill For the Great Betrayal?'"

Bill Black was among the first authentic progressives to point out the Hope and Change of Goldman Sachs's investment in Obama's 2008 campaign.

http://www.hermes-press.com/counterfeit_progressives.htm

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Yes, he's a soldier in the progressive army marching the US to a future steeped in socialism. Even the commies like him fer crap's sake.

I'm certainly NOT going to take him as an authority on anything to do with the capitalist system.