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Nazareth, Pa., United States

Wednesday, September 17, 2008

Is Wall Street Kaput?

According to a news release from LV Congressional candidate Sam Bennett, "failed Republican economic policies" are the root cause of Wall Street's collapse on Monday. Communications Director Gary Ritterstein points to a "lack of oversight by the Republicans in Washington" that have endangered pensions for many hard-working people. "Worse, when it comes time to making it harder for companies to freeze or eliminate those pensions, Dent says NO. He believes in bailing out corporations, but refuses to help folks facing foreclosure. When it comes to funding $15 billion to help families stay in their home, he votes NO to that too.”

Campaign manager Shawn Millan tells me Charlie Dent actually voted in favor of the Pension Protection Act, which helps insure that employers fully fund worker benefits. So I think Gary got that part wrong.

But Gary has an unlikely ally - John McCain - who acknowledges the "casual oversight" on Wall Street. McCain has previously supported market deregulation.

While the left blames the right and the right blames the left, Washington Post op-ed columnist Robert J. Samuelson posits a more basic explanation for the crisis - greed and fear, which transcend ideologies. "Greed and fear, which routinely govern financial markets, have seeded this global crisis. Just when it will end isn't clear."


Anonymous said...

this is what Charles W. Dent believes with McCain & Palin:

Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

- John McCain, July 7, 2008

Screw your Social Security based on the Republican doctrine advocated by the Republican party!!!

Anonymous said...

There are bargains out there. Smart investors are going to do well by bargain-shopping.

Anonymous said...

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

How is this statement factually incorrect, by the way.

Anonymous said...

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

The statement, if made about Social Security is correct. This is not a disgrace but here are some facts:

First,the system is unsustainable over the long term. As older generations live longer, and younger generations have fewer children to enter the workforce, the ratio of workers to retirees will decline. This means that there will be fewer working people to support the retirees.

The idea, considered more than seventy years ago is flawed due to huge changes that have occured over the years. When FDR set up the Social Security system, what was the average life-expectancy of an Amerian male? Try 58. What was the minimum age that was set for a person to receive Social Security payments? That answer would be, 65. So one has to wonder, did FDR ever mean for anyone to actually receive Social Security, or was it just a scam to get more money into government coffers? Even today, any excess Social Security money that's not paid out to retirees just goes into the general government coffers, and gets spent on useless government programs.

The idea was nice but like anything else, it needs to be updated. None of the presidential candidates goes near this issue because it has become a political football. According to experts, FDR deliberately politicized Social Security so that it would be almost impossible to ever repeal. Even today, it's used as a vote-buying scheme by both of the major political parties. Anytime any politician mentions anything about needed reform, the opposing politician will scream, "Don't vote for him! He wants to take away your Social Security!"

M.McShea said...


(what would Ronald Reagan do?)

Form a committee?

Anonymous said...

Both parties and a lot of people are to blame for this fiasco.

The Ds drove Fannie and Freddie to expand their programs to expand home ownership. this resulted in bad loans being made (not criminal loans, bad loans). This started in the 90's during the Clinton Administration and was one of Barney Frank's pet projects.

The Fed kept interest rates too low for too long, resulting in a huge bubble in home prices and a significant increase in risky loans being made to generate higher yields. This was under the current Bush Administration.

The real estate market bubble (created both by the Fed's rate policy and Fannie/Freddie and public market programs) brought many unscrupulous people into the mortgage brokerage business. It was insanely easy to be a broker, make $100,000 / year and you didn't worry a lick about what happened after you got paid. So if you needed to "stretch the truth" on a mortgage application to get your client the deal, what's the harm in that?

There are many other points to be made here, but I've written enough. This kind of thing happens every 20-25 years or so, and it is driven by greed.

The Banker

Bernie O'Hare said...

Banker, I was hoping to get your perspective on this. Thanks.

Anonymous said...

The subprime mortgage crisis is an ongoing event likely to affect buyers who purchased homes in the early 2000s for a long time. These effects will translate to changes in the housing market, consumer spending, changes in lending practices, and perhaps, revamping of the home loan system. What is meant by the subprime mortgage crisis is that many home loans taken out during a housing bubble occurring on the two US Coasts, from 2000-2005, were given at a subprime rate, and have now led to extensive foreclosures on home loans, and people having to leave their homes because they can’t afford the payments.

The housing bubble, meant that for a time, houses sharply increased in value and consumers often borrowed at a subprime (less than the lowest) rate believing that the price of their homes would rise and they could thus refinance for lower payments. Many people didn’t just refinance for lower payments but also for consumer spending. Inflation of house prices meant people in possession of a home suddenly had more equity in their home. They could access some of that equity by refinancing, and spend the money as they chose.

Unfortunately, the bubble began to burst in late 2005 and houses began to decline in price. People who refinanced, especially those who did so with variable interest rates, suddenly had homes valued at much less. Many with variable rates and interest only loans ended up unable to continue making payments on their home, flooding the market with more homes for sale than usual and further lowering home values.

Banker is also correct about unscrupulous lenders....all of this cries for more regulation, not less.

Anonymous said...

My pleasure Bernie. There are so many different aspects of this (i.e., Liar Loans, the bond rating agency fiasco, no-money-down loans, property flipping, etc.) I could go on for hours.

It's been building up or years and is driven by greed - and always remember, greed is universal, it's a non-partisan force. Anyone who tries to make this a partisan issue is either uninformed or a party flack.

We're fortunate though. The Lehigh Valley has definitely been impacted, but not nearly as hard as Florida, California and the Upper Midwest.

The Banker

Bernie O'Hare said...

"Banker is also correct about unscrupulous lenders....all of this cries for more regulation, not less."

Agreed. Obamas spoke quite powerfully about this yesterday, pointing out instance after instance in which McCain voted for deregulation.

McCain himself seems to recognize now that the deregulation went too far.

I do think Banker and the WP op-ed make the most sense - this is friven by fear and greed.

Anonymous said...

I admit I'm typically for less regulation than more, but for the mortgage industry more is needed. Too much has happened.

However, I do think that the States should handle it, not the Federal Government.

For example, in PA mortgage brokers are currently governed by the State Dept. of Banking, but they're not funded sufficiently to get this part of their job done well. Give them the tools and funding needed to enforce the law.

We don't need to create another Federal bureaucracy, just use the existing State bureaucracy more effectively.

The Banker

Anonymous said...

Deregulation Sucks!

And has destroyed America!

You feel same today - what about tomorrow?

Anonymous said...

Anon 1146am, not sure exactly what you're trying to say?

The Banker

PavlovsDog said...

Mr.Samuelson has it right!!!!

Greed! Greedy capitalists (regardless of party affiliation) that make their money at the expense and exploitation of others.

....That was my socialist alter ego talking.

Anonymous said...

Thank Dollar Bill Clinton and his community development schemes in the 90s. Freddie and Fannie were virtual retirement homes for old Clinton cronies who knew they'd make quick coin from all the new lending to a pool of previously unqualified borrowers. Why do you think they were calling it a bubble after so many years?

They knew it would collapse. When Bush tried to tighten the practices, he was thwarted and called mean spirited for wanting to stop the bad loans. We're finally paying the bill for his hope, growth, and prosperity. Not everyone belongs in college and not everyone belongs in home ownership.

And now I'm mean spirited too, I guess.

Anonymous said...


Some good points. I would argue the causes are government, government & greed.

First, congressional do-gooders thought they could influence the markets to achieve a 'good' goal. Allowing people to buy homes who might not qualify under the 'normal' rules. Hence, the Community Revitilization Act which promoted lending to people who would not normally qualify. There were also subtle threats about investigating 'red-lining' which, of course was called racist. However, it simply meant if you don't have a stable income, your not getting a mortgage.

Then, the Fed kept interest rates too low for too long.

Last, there were a number of greedy operatives in the financial world. They loaned money to anyone. BECAUSE they could sell the paper to Freddie and Fannie. Kaching - instant profit with little riske. Or other financial institutions bought bundled mortgages and booked them at face value. From these they sold derivative packages, borrowed other money, padded earnings, etc.

As the value of this paper declined, they kept it off the books. Then the day or reckoning arrived.

Government does similar things. Borrowing money and counting it as revenue. Showing fund balances that seem to be composed of IOU's instead of actual cash. Hiding or underfunding long term liabilities.

Harrisburg and Allentown provide excellent examples of these poor fiscal practices.

What's the difference? Executives go to jail when caught. Politicians don't - look at the politicians who ran Freddie and Fannie!

Anonymous said...

Agreed Joe.

When it was passed, the CRA had a noble purpose, but it has since been twisted into something it wasn't intended to be.

When Federal regulators evaluate a bank for compliance with the CRA, they're very quick to say they don't want you to approve bad loans. But they won't listen if you don't have enough loans booked in low/moderate income areas. The interpretation of the regulation by the regulators forces a bank to book bad loans in order to comply. It's crazy.

A wise old banker once told me, "When people are more worried about the retun ON their money instead of the return OF their money, it's time to duck." We hit that point.

The Banker

Anonymous said...


In domestic matters, government should not be in the business of "noble purposes" - as our Founders intended.

I am working up a list -
Joe's Government Principle #?:

Government almost always fails and these failures always cost a lot of money.

Anonymous said...

Joe, in ordinary business I agree w/ you. However, banking is supported by the govt (I'm speaking of FDIC insurance, not the crap that's going on now), and in return has to meet certain standards set forth in regulations. It's a trade the industry accepts because deposits would be very hard to get without FDIC insurance.

I've been in banking for over 20 years, and I'm ok with the original intent of the CRA (as are most bankers I know), but we are not ok with what it has devolved to.

The Banker