surreal moment for America

[Lukey]

Since I think the free market is largely a figment of the imagination, the distinction doesn't matter to me. Every market is influenced by governmental regulations and a role for the government as a market participant.

Yes, I am aware of the "we're all socialists now" argument in favor of ever more market interventions. So you admit there is no interest rate market function beyond government manipulation. Um, I think that was my point...

 

[Days]

That brings me to a related topic. We had such an easy opportunity to address our deteriorating infrastructure in the aftermath of the crisis. We had borrowing costs that were so low they literally went negative in real terms -- we could have paid back less value than we borrowed. And we had lots of unused economic capacity sitting idle, including huge number of unemployed people. All we needed to do is borrow and use the money to hire up people to maintain and improve our infrastructure, with direct government employment programs along the lines of what we had during the New Deal.

That would have gotten the economy growing robustly again, it would have decreased our long-term costs (an ounce of prevention being worth a pound of cure), and it would have enhanced our long-term economic potential, while making it more ecologically sustainable. Best of all, it would have meant that the generation of kids who spent the last seven years sitting in their parents' basement playing XBox and hoping to hear back on one of their resume submissions would instead have spent that time developing a work ethic, in-demand skills, connections, and a solid track record to attract employers.

Sadly, we listened to the mindless panic of the anti-deficit crowd, who insisted on premature fiscal austerity, screwing us over. We had a once-per-century opportunity to take a huge leap ahead -- we could have exited the crisis early, with the best infrastructure and best-skilled workforce of any major wealthy nation, and instead we've lingered in a depressed state while our infrastructure deteriorates and a generation of young workers loses the expectation that they should be employed.

Here, we are in large agreement. Desperate times call for desperate measures. I was 100% for the corporate bail-outs (forget the bank bail-outs, that was fiction, the banks were "bailed out" by the FED, not the govt) and I was 100% against the austerity... still am. You don't get out of a hole by digging deeper, austerity is stupidity on steroids.

Govt work programs tend to fizzle out in the long run, Lukey's point is well taken, but what about the short run? And the long run benefits from the short run? Besides, when you put people to work in a field, funny things happen. There's a ship builder in Europe who started out fishing plastic from the canals to clean them up; now he builds ships at a profit with the plastic he fished out, besides that, he ignited a fad, fishing out plastic from canals, that has cleaned the entire system. Now tourism is booming.

 

[Lukey]

Here, we are in large agreement. Desperate times call for desperate measures. I was 100% for the corporate bail-outs (forget the bank bail-outs, that was fiction, the banks were "bailed out" by the FED, not the govt) and I was 100% against the austerity... still am. You don't get out of a hole by digging deeper, austerity is stupidity on steroids.

Govt work programs tend to fizzle out in the long run, Lukey's point is well taken, but what about the short run? And the long run benefits from the short run? Besides, when you put people to work in a field, funny things happen. There's a ship builder in Europe who started out fishing plastic from the canals to clean them up; now he builds ships at a profit with the plastic he fished out, besides that, he ignited a fad, fishing out plastic from canals, that has cleaned the entire system. Now tourism is booming.

While not a big fan of government spending, I am not opposed to all efforts to overcome economic distress. I opposed the corporate bail outs but interestingly not completely against the bank bail outs except for how they were done - the Bush Administration's idiotic decision to bail out Bear Sterns and then just a few months later NOT do one for Lehman Bros. is what turned the downturn into a full scale "financial crisis." Either do both or neither but the effect of doing one and then not the other induced the mother of all economic uncertainty.

And suddenly everybody's balance sheet went kaput as bids for mortgage backed (and eventually all commercial) paper dried up. Nothing was worth anything in that environment and even sound banks became technically bankrupt. Then when Goldman Sach's CDSs with AIG became shaky, the bailouts were back so they could get 100 cents on the dollar in those instruments.

None of Obama's "stimulus" did any good because none of it was geared toward restarting capitalist endeavors. Nor were they used to keep money moving while the economic drags were addressed. In fact, he added to them. As a result the Fed was forced to maintain ZIRP and do serial QE to keep the appearance of a functioning economy as Obama and his minions stuck their shives in the economy again and again.

And so, here we sit, seven years later with no real recovery to show for any of it.

 

[Days]

While not a big fan of government spending, I am not opposed to all efforts to overcome economic distress. I opposed the corporate bail outs but interestingly not completely against the bank bail outs except for how they were done - the Bush Administration's idiotic decision to bail out Bear Sterns and then just a few months later NOT do one for Lehman Bros. is what turned the downturn into a full scale "financial crisis." Either do both or neither but the effect of doing one and then not the other induced the mother of all economic uncertainty.

And suddenly everybody's balance sheet went kaput as bids for mortgage backed (and eventually all commercial) paper dried up. Nothing was worth anything in that environment and even sound banks became technically bankrupt. Then when Goldman Sach's CDSs with AIG became shaky, the bailouts were back so they could get 100 cents on the dollar in those instruments.

None of Obama's "stimulus" did any good because none of it was geared toward restarting capitalist endeavors. Nor were they used to keep money moving while the economic drags were addressed. In fact, he added to them. As a result the Fed was forced to maintain ZIRP and do serial QE to keep the appearance of a functioning economy as Obama and his minions stuck their shives in the economy again and again.

And so, here we sit, seven years later with no real recovery to show for any of it.

Well, I saw the mortgages from the perspective of an industry insider. The whole collapse was engineered. We were told fives years before it happened exactly what the big banks were up to; and it turned out to be exactly what they did. But the panic happened from what was done to the banks by the mafia; and we watched them do it for 5 years in amazement. That whole story about what collapsed the financial sector was bull shit. We did do a lot of B+ paper, but none of it was costing the banks a penny. The banks pointed at all those mortgages because they didn't want to admit that the mafia was stinging them with fraud on a scale unimaginable. At one point, Citibank was writing off $10 Billion a quarter in new paper losses... zero of that was subprime loans. It was all fraud, only fraud can be written off, because only fraud is a write-off, any real mortgage is insured by Title and backed by the property; there's no write off with mortgages, only fraud gets written off. Initially, the fraud was centered in the A+ paper market, and that was the housing sector that fell first; jumbos plummetted, bringing the entire market down with them. The mafia didn't do subprime loans, they did million dollar loans, you think they would work building brokers and Title just to do a $100,000 loan? Hell no, the fraud was all 1/2 million and up.

After the jumbo market crashed and the biggest banks in the world were all insolvent (citibank stock dropped to $one dollar per share - that bank actually was bailed out), after the stock market crashed bringing down mutual funds that commercial loans draw from, after credit was tightened beyond anything heretofore imagined, and after all those jobs were laid off in the millions... then subprime loans went bad because the owners lost their jobs to the crash. and what happened? write-offs? None at all. The same thing happened that's always happened when a real mortgage goes bad, the loan is foreclosed upon. That's when the foreclosure tsunami hit... after the crash.

Quantitative Easing was just the FED insuring the mortgage market by buying derivatives. In essence, they bought all the instruments that back mortgage insurance. This doesn't loan dollar one to homeowners, it merely keeps the insurance the banks require for their own protection, up and running.

When Geinthner was handed authority to purchase $700 Billion in subprime loans that were going bad on the banks, the whole charade was a sham to pretend that subprime loans caused the collapse. The banks had already signaled that they were not going to let the real loans go for less than 100 pennies on the dollar, because the real loans they were holding are backed by property, duh. So Geinthner had a blank check to buy mortgages for no reason whatsoever. But, as fate would have it, major corporations were collapsing before their eyes and that money could come in handy bailing out the nation's commercial infrastructure. Had they not done that, we would be in more than a housing depression, we would be in the whole enchilada. Thank God we had a communist in the White House and the boss of the NYFED as his Treasury Secretary!

They should have done the works programs also. And made all the Mexicans who would have worked them legal citizens. Our nation would be so better off now for it. God forbid anyone in the lower class rises to upper lower class, or even lower middle class.

Meanwhile a funny technological advance was changing the banking landscape behind the scenes. The internet that was such a disaster at first, turned out to be a very useful tool over time. citibank used to do 85% of our commercial credit card processing (the stores used them to run the cards) but now we have the square from the same guy who invented twitter... you can process credit cards from your cell phone, no credit check, no capital requirement, no cost or fees of any sort, it sure made doing business easier for the small business owner... its like the rats on the ship found a way to survive while the ship sank. The government sees the stock exchange and thinks their whole salvation is coming from there, but main street is scrambling, people still like survival, so there's a hidden resiliency to this economy that govt deserves zero credit for, but reaps all the benefits.

 

[Lukey]

Well, I saw the mortgages from the perspective of an industry insider. The whole collapse was engineered. We were told fives years before it happened exactly what the big banks were up to; and it turned out to be exactly what they did. But the panic happened from what was done to the banks by the mafia; and we watched them do it for 5 years in amazement. That whole story about what collapsed the financial sector was bull shit. We did do a lot of B+ paper, but none of it was costing the banks a penny. The banks pointed at all those mortgages because they didn't want to admit that the mafia was stinging them with fraud on a scale unimaginable. At one point, Citibank was writing off $10 Billion a quarter in new paper losses... zero of that was subprime loans. It was all fraud, only fraud can be written off, because only fraud is a write-off, any real mortgage is insured by Title and backed by the property; there's no write off with mortgages, only fraud gets written off. Initially, the fraud was centered in the A+ paper market, and that was the housing sector that fell first; jumbos plummetted, bringing the entire market down with them. The mafia didn't do subprime loans, they did million dollar loans, you think they would work building brokers and Title just to do a $100,000 loan? Hell no, the fraud was all 1/2 million and up.

After the jumbo market crashed and the biggest banks in the world were all insolvent (citibank stock dropped to $one dollar per share - that bank actually was bailed out), after the stock market crashed bringing down mutual funds that commercial loans draw from, after credit was tightened beyond anything heretofore imagined, and after all those jobs were laid off in the millions... then subprime loans went bad because the owners lost their jobs to the crash. and what happened? write-offs? None at all. The same thing happened that's always happened when a real mortgage goes bad, the loan is foreclosed upon. That's when the foreclosure tsunami hit... after the crash.

Quantitative Easing was just the FED insuring the mortgage market by buying derivatives. In essence, they bought all the instruments that back mortgage insurance. This doesn't loan dollar one to homeowners, it merely keeps the insurance the banks require for their own protection, up and running.

When Geinthner was handed authority to purchase $700 Billion in subprime loans that were going bad on the banks, the whole charade was a sham to pretend that subprime loans caused the collapse. The banks had already signaled that they were not going to let the real loans go for less than 100 pennies on the dollar, because the real loans they were holding are backed by property, duh. So Geinthner had a blank check to buy mortgages for no reason whatsoever. But, as fate would have it, major corporations were collapsing before their eyes and that money could come in handy bailing out the nation's commercial infrastructure. Had they not done that, we would be in more than a housing depression, we would be in the whole enchilada. Thank God we had a communist in the White House and the boss of the NYFED as his Treasury Secretary!

They should have done the works programs also. And made all the Mexicans who would have worked them legal citizens. Our nation would be so better off now for it. God forbid anyone in the lower class rises to upper lower class, or even lower middle class.

Meanwhile a funny technological advance was changing the banking landscape behind the scenes. The internet that was such a disaster at first, turned out to be a very useful tool over time. citibank used to do 85% of our commercial credit card processing (the stores used them to run the cards) but now we have the square from the same guy who invented twitter... you can process credit cards from your cell phone, no credit check, no capital requirement, no cost or fees of any sort, it sure made doing business easier for the small business owner... its like the rats on the ship found a way to survive while the ship sank. The government sees the stock exchange and thinks their whole salvation is coming from there, but main street is scrambling, people still like survival, so there's a hidden resiliency to this economy that govt deserves zero credit for, but reaps all the benefits.

I agree with all that of that. But I don't think it was only "Mafia" but also many dishonest people who were buying homes on loans they didn't qualify for to speculate (assuming they could sell in a few months at a profit).

I would have liked to have seen a bank "bailout" more like what Iceland did. Putting the bankers who were complicit in the fraud in jail, nationalizing them, sterilizing the bad loans and reselling what was left back to the free market.

Bailing out the auto companies was realy a bailout of the UAW, as there was no way all those auto brands were worthless. Someone would have bought the assets and resurrected them (like was done in the past with Rambler.

I agree also with the "amnesty." Make them citizens so they can shoulder their share of the nation's liabilities.

 

[Days]

I agree with all that of that. But I don't think it was only "Mafia" but also many dishonest people who were buying homes on loans they didn't qualify for to speculate (assuming they could sell in a few months at a profit).

I would have liked to have seen a bank "bailout" more like what Iceland did. Putting the bankers who were complicit in the fraud in jail, nationalizing them, sterilizing the bad loans and reselling what was left back to the free market.

Bailing out the auto companies was realy a bailout of the UAW, as there was no way all those auto brands were worthless. Someone would have bought the assets and resurrected them (like was done in the past with Rambler.

I agree also with the "amnesty." Make them citizens so they can shoulder their share of the nation's liabilities.

What the Mafia did was start honest brokerages and Title companies. Legit. and it takes big money to do that. Then they put through completely fraudulent loans for two months; maybe 300 million to 500 million in business. All jumbos of course. They then closed the loans through their own Title which they self insured (requires big bucks in reserve but it all disappeared after they closed the loans) ... when Iceland opened the loans that Goldman Sachs bundled and sold them, 1/2 the paper was fraud, there was no borrower, no home, and when they went looking for the Title insurance that guarantees the loan against fraud, the Broker and title were empty office space. So they sued Goldman Sachs for complicity in the crime and Goldman Sachs pretended they knew nothing!

Flipping homes is not a crime. But when the market crashed on a dime, those people were left holding properties that plummeted in value, so they went poor the same way they were getting rich. Ce La Vie.

GM had a cash flow problem, they had no capital to stay operational. There was no reason in the world not to bail them out, anyone would have if they had the money to do so. That was smart money by Obama, and if you ask me, it was a no-brainer. Bailing out AIG was much more of a give-away, but the state is the back stop to the nation's insurance, it always has been, they bite that bullet in normal times.

Greedy corporate owners want illegal workers so they can pay them less for the same work. It isn't good for the economy. Henry Ford is rolling over in his grave. Then to add injury to insult, politicians want to waste all kinds of money on the border.

 

[Lukey]

What the Mafia did was start honest brokerages and Title companies. Legit. and it takes big money to do that. Then they put through completely fraudulent loans for two months; maybe 300 million to 500 million in business. All jumbos of course. They then closed the loans through their own Title which they self insured (requires big bucks in reserve but it all disappeared after they closed the loans) ... when Iceland opened the loans that Goldman Sachs bundled and sold them, 1/2 the paper was fraud, there was no borrower, no home, and when they went looking for the Title insurance that guarantees the loan against fraud, the Broker and title were empty office space. So they sued Goldman Sachs for complicity in the crime and Goldman Sachs pretended they knew nothing!

Flipping homes is not a crime. But when the market crashed on a dime, those people were left holding properties that plummeted in value, so they went poor the same way they were getting rich. Ce La Vie.

GM had a cash flow problem, they had no capital to stay operational. There was no reason in the world not to bail them out, anyone would have if they had the money to do so. That was smart money by Obama, and if you ask me, it was a no-brainer. Bailing out AIG was much more of a give-away, but the state is the back stop to the nation's insurance, it always has been, they bite that bullet in normal times.

Greedy corporate owners want illegal workers so they can pay them less for the same work. It isn't good for the economy. Henry Ford is rolling over in his grave. Then to add injury to insult, politicians want to waste all kinds of money on the border.

Nice inside look. Not really that much different from their pump and dump penny stock "brokerages." But I tend to disagree - flipping home is illegal if you commit mortgage fraud to obtain the mortgage (liar loans). They were buying three four five ten homes and the debt would have barred them from borrowing more if they reported it. And if they were zero down, they only lost the mortgage payments they made (if they even made them). Not all crime is "organized." But you sound like you know more about it than me.

GM had an unsustainable business model by having more retirees than employees (including those who just reported to the factory each day and sat around reading and watching TV because they didn't have enough work and couldn't lay them off). They've been given a reprieve by the bailout and NIRP (sub-prime auto loans) but the next downturn they will be back for another handout. A bankruptcy would have let them reorganize and reopen with non-union labor (like all the foreign manufacturers who have factories here).

 

[Days]

Nice inside look. Not really that much different from their pump and dump penny stock "brokerages." But I tend to disagree - flipping home is illegal if you commit mortgage fraud to obtain the mortgage (liar loans). They were buying three four five ten homes and the debt would have barred them from borrowing more if they reported it. And if they were zero down, they only lost the mortgage payments they made (if they even made them). Not all crime is "organized." But you sound like you know more about it than me.

GM had an unsustainable business model by having more retirees than employees (including those who just reported to the factory each day and sat around reading and watching TV because they didn't have enough work and couldn't lay them off). They've been given a reprieve by the bailout and NIRP (sub-prime auto loans) but the next downturn they will be back for another handout. A bankruptcy would have let them reorganize and reopen with non-union labor (like all the foreign manufacturers who have factories here).

Committing mortgage fraud when they flip the home is illegal, yes, or really, it is illegal period, no matter what you are doing. That's what I didn't like about the business, it was impossible to close loans without breaking laws, the laws are so screwed up, the process is too complicated to regulate. But the home flipping did not produce the kind of fraud that could be written off as a complete loss; there was real property involved in home flipping and real owners and valid Title insurance... it just suffered the same way the whole industry suffered when home values plummeted.

GM still has old age conundrum with too many retirees to support, it is like a ball and chain for the business model to drag around. But that wasn't what caught them flat footed in 2008, they didn't plan ahead for the entire commercial paper to freeze up, and once it hit, they couldn't liquidate assets to raise revenue. Ford planned ahead and sold off assets so they had cash to operate through the crash. GM was actually #1 in sales in China at the time, in what soon became the largest car market in the world... so they had every reason in the world to keep their doors open.

 

[Lukey]

Committing mortgage fraud when they flip the home is illegal, yes, or really, it is illegal period, no matter what you are doing. That's what I didn't like about the business, it was impossible to close loans without breaking laws, the laws are so screwed up, the process is too complicated to regulate. But the home flipping did not produce the kind of fraud that could be written off as a complete loss; there was real property involved in home flipping and real owners and valid Title insurance... it just suffered the same way the whole industry suffered when home values plummeted.

GM still has old age conundrum with too many retirees to support, it is like a ball and chain for the business model to drag around. But that wasn't what caught them flat footed in 2008, they didn't plan ahead for the entire commercial paper to freeze up, and once it hit, they couldn't liquidate assets to raise revenue. Ford planned ahead and sold off assets so they had cash to operate through the crash. GM was actually #1 in sales in China at the time, in what soon became the largest car market in the world... so they had every reason in the world to keep their doors open.

Well it goes back to what I said - the Bush Administration was responsible for the seizing up of the commercial paper market so I suppose an argument could be made that the government needed to provide credit for those that couldn't obtain it as a result of the Treasury Secretary's ef up. That part I wasn't opposed to. Again it was the Obama execution of the thing that I didn't like - enshrining the UAW as part of the process.

 

[Days]

Well it goes back to what I said - the Bush Administration was responsible for the seizing up of the commercial paper market so I suppose an argument could be made that the government needed to provide credit for those that couldn't obtain it as a result of the Treasury Secretary's ef up. That part I wasn't opposed to. Again it was the Obama execution of the thing that I didn't like - enshrining the UAW as part of the process.

You knew Obama was going to enshrine the UAW, those are his political base. But we had a real problem with a frozen commercial paper that had nothing to do with mortgages; people didn't understand what was happening there.

I'm not sure I agree that Bush was responsible for the market crash that set mutual funds reeling (they actually loss money; money market savings accounts that had been so popular completely emptied out; there was nothing left to loan to short term commercial operations) ... Bush was complicit, but if I had to place the blame, it has to go back on the FED for building another stock bubble.... then exacerbating it with a housing bubble. When the housing bubble popped, it popped the stock bubble, which in turn triggered the collapse of Lehman Brothers, a dead bank walking ever since the collapse of the USSR (Lehman held those bonds which went to zero, and also bought a lot of the mafioso fraud paper during the boom when the Lender's first went to internet processing (2003-2006).

 

[Lukey]

You knew Obama was going to enshrine the UAW, those are his political base. But we had a real problem with a frozen commercial paper that had nothing to do with mortgages; people didn't understand what was happening there.

I'm not sure I agree that Bush was responsible for the market crash that set mutual funds reeling (they actually loss money; money market savings accounts that had been so popular completely emptied out; there was nothing left to loan to short term commercial operations) ... Bush was complicit, but if I had to place the blame, it has to go back on the FED for building another stock bubble.... then exacerbating it with a housing bubble. When the housing bubble popped, it popped the stock bubble, which in turn triggered the collapse of Lehman Brothers, a dead bank walking ever since the collapse of the USSR (Lehman held those bonds which went to zero, and also bought a lot of the mafioso fraud paper during the boom when the Lender's first went to internet processing (2003-2006).

The Fed built the bubble - no question. But the chaos in the commercial paper market, as bad as it was, would likely have worked through that. In fact, was working through it, until the Lehman debacle. After Bear Sterns, the short sellers were looking for the next weak link, and Lehman was it (because of their leverage). When the Bushies decided to let Lehman go under (because of long simmering bad blood between Paulson and Fuld) the market went ballistic and bids for all commercial paper dried up. That is what led to the prospect of money market mutual funds "breaking the buck" which then forced the Fed to step in and start extraordinary policy maneuvers to keep that from triggering a complete financial markets meltdown. So the Fed was the dynamite and the idiots in the Bush Administration lit the fuse. And we've been suffering economically ever since from the wounds of that explosion. But the Obama Administration shares the blame for using that mess as an excuse to indict capitalism as the culprit (even though it was government coming and going) and instead of fixing the structural barriers to production inherent in all that massive interventionism, he too advantage of it to push a highly anti-capitalist agenda, which meant there was no way for the Fed to extract itself from the interventions or the economy would have imploded. It is what it is and what it is not is a "failure of capitalism" as the left would have us believe.

 

[Days]

The Fed built the bubble - no question. But the chaos in the commercial paper market, as bad as it was, would likely have worked through that. In fact, was working through it, until the Lehman debacle. After Bear Sterns, the short sellers were looking for the next weak link, and Lehman was it (because of their leverage). When the Bushies decided to let Lehman go under (because of long simmering bad blood between Paulson and Fuld) the market went ballistic and bids for all commercial paper dried up. That is what led to the prospect of money market mutual funds "breaking the buck" which then forced the Fed to step in and start extraordinary policy maneuvers to keep that from triggering a complete financial markets meltdown. So the Fed was the dynamite and the idiots in the Bush Administration lit the fuse. And we've been suffering economically ever since from the wounds of that explosion. But the Obama Administration shares the blame for using that mess as an excuse to indict capitalism as the culprit (even though it was government coming and going) and instead of fixing the structural barriers to production inherent in all that massive interventionism, he too advantage of it to push a highly anti-capitalist agenda, which meant there was no way for the Fed to extract itself from the interventions or the economy would have imploded. It is what it is and what it is not is a "failure of capitalism" as the left would have us believe.

It was more like capitalism at work, not failing, but functioning at full speed. And there was one more element that made it all work; giant trust funds, they called them hedge funds, and that provided the muscle to punish the banks for their insolvent conditions. And I agree, once the axe fell on Lehman Brothers, no one was willing to bail them out. You can blame the Bush administration for that much, but I was responding to whether the Bush administration was to blame for what destroyed Lehman stock in the first place, and the Bush admin was complicit because they changed the laws that allowed the huge trust funds to be built. Mutual funds were the hedge funds of old, but these new hedge funds were enormous in size, main street banking was merged with Wall Street again, same as it had done in 1920's. Bush even wanted to sink the Social Security wage taxes into the stock exchanges; imagine what that would have created.

2008 was the ultimate perfect storm of a whole lot of financial cluster fu<k happening at once.