5 responses so far ↓

• 1 Jack king // Sep 28, 2008 at 9:38 pm

  Actually, I think Stewart missed the nail and hit his thumb. The problem stems from the 1995 revision of the Community Reinvestment Act (Clinton was in office) which requires banks to lend money to the underserved: to minorities, to the poor, to borrowers with insufficient income, credit, or collateral etc..

  The only way that banks could comply with the law and keep from losing money on bad loans was to concentrate their subprime lending in housing and pass the mortgages along to Fannie and Freddie before they went bad. Congressional meddling in banking regulation was the primary cause of the problem, but the banks were by no means blameless. When they found they couldn’t lend in a prudent fashion, they played the system to their own advantage and raked in more money than they would have by observing sound lending practices. Congress continued to make the system worse by continually caving to lobbyists from the banking industry.

  This from Wikpedia about Senator Christopher Dodd, Democrat from Connecticut and Chairman of the Senate Banking Committee:

  As part of Dodd’s overall mortgage bill, the Housing and Economic Recovery Act of 20008 before Congress in the summer of 20008, Treasury Secretary Hank Paulson sought provisions enabling the Treasury to add additional capital and regulatory oversight over these government sponsored enterprises. These provisions were part of the bill signed by President George W. Bush. At the time, it was estimated that the federal government would need to spend $25 billion on a bailout of the firms.

  During this period, Dodd denied rumors these firms were in financial crisis. He called the firms “fundamentally strong”, said they were in “sound situation” and “in good shape” and “to suggest they are in major trouble is not accurate”. He suggested observers were panicking “There’s some sort of panic going on today, and that’s not what ought to be. The facts don’t warrant that reaction in my opinion.”

  In early September, after the firms continued to report huge losses, Secretary Paulson announced a federal takeover of Fannie Mae and Freddie Mac. Dodd expressed skepticism of the action, which the Treasury estimated could cost as much as $200 billion.

  It has been reported that Dodd is the number one recipient in Congress of campaign funds from Fannie Mae and Freddie Mac. Critics also charged Dodd has ignored repeated warnings that these firms were in need of major reform.

• 2 Stan // Sep 29, 2008 at 5:25 pm

  I’m not sure I get your point, Jack, or the relationship to Stewart’s point. He’s talking about the use of scare tactics to sell policy, almost a knee-jerk reaction with the current administration.

  If your point is that there’s plenty of blame to go around, point taken. I went to Thomas (the legislative search engine) and searched for Community Reinvestment Act and what I got was the Gramm-Leach-Bliley Act. The provisions you mention which have since been twisted by the current administration and their formerly favorite bankers, was a minor provision thereof. The real deal is in the first section–the repeal of the Glass-Steagall Act, the basic bank regulation statute from the Depression, brought to you by, of course, Mr. DeRegulator, Senator Phil Gramm, who recently noted what a nation of whiners we are.

  As for Dodd’s remarks, I suspect he may have attempting to calm the waters as John McCain was doing a couple of weeks ago with his “fundamentals are strong” mantra. Both looked foolish, don’t you think?

• 3 Jack king // Sep 29, 2008 at 7:58 pm

  Thanks for your response to my comment, Stan. If Stewart’s point was to belittle Bush’s “scare tactics” then maybe he was wrong and those who weren’t scared should have been. The market suffered its biggest point-drop in history today, and millions of elderly Americans each lost thousands of dollars from their retirement accounts, and investors as a whole lost more than a trillion, far more than the bailout would have cost.

  If you want reams of information on the Community Reinvestment Act, try Google. You won’t be disappointed.

  I agree with you that Dodd and McCain both made foolish remarks, but I think Dodd’s were the more foolish of the two. Any attempt to “calm the waters” with outright denial of the facts in the face of in incoming tsunami reveals far more ignorance of the facts than should be expected from the Chairman of the Senate Banking Committee.

  As for McCain’s statement that the fundamentals of the economy are strong, a case can be made for that argument. The American worker is more productive that ever, all the physical infrastructure of American industry is still in place and more of it is cutting-edge than anywhere else on the planet, and the stores and shops are still open for business. It’s not the fundamentals that’s killing us. It’s the greed and corruption at the top where earnings and assets have been so blatantly misrepresented for so long in an effort to boost share prices that it’s just not going to work any more. The time was overdue for a market correction and that’s what we’re going through right now. The con artists are being discredited, fired, and some cases imprisoned, and once all the bad debt is written off and the market settles, it will start to work in our favor again. But that won’t happen so long as Congress fails to restore some liquidity to the system. Could it be that, like Senator Dodd, they are still in denial of their own complicity?

• 4 Stan // Sep 30, 2008 at 1:31 am

  “millions of elderly Americans each lost thousands of dollars from their retirement accounts”

  Absolutely true. But if we’re a free market economy, of which the first rule is buyer beware, then it is their own fault for not being better stewards of their resources and doing the diligence that was due. That’s a harsh view, but if we really were free-marketers, that’s what we’d say. But we’re not. We’re something else. Of course, if we were Christian folks, we’d forgive them their debts as they had forgiven their own debtors.

  This is a rebellion by the capitalists. They’re hanging tight to the remaining funds and won’t let them go. Yes, absolutely, over the last thirty years we have given up and let them write their own rules, and Gramm’s bill pulled out the last nails holding the lid on their shipping container.

  But who knew? We were watching Seinfeld and Law and Order. The massive power of the corporations, particularly through repetitive advertising, to create the appearance of competence, to convince even the fairly well-educated that this new-fangled version of the the Ponzi scheme is a legitimate loan arrangement, to befuddle by repeating (the power of talk radio, by the way, the “muscle guys” of the collective corporations, i.e., the state. Just to get the terms straight.

  As far as belittling Bush’s rhetorical tactics, with fear as his major tool, maybe his only effective tool, he’s become the little boy who cried wolf. Does he mean it this time?

  Well, I’ll hold that the problem with liquidity is the money boys tying up the purse strings. hoarding capital. The banks have money. They just don’t trust anyone enough to lend it to them.

• 5 Stan // Sep 30, 2008 at 1:31 am

  And maybe after the dust has settled, we’ll re-invent local banking.

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