[Vision2020] A Paradox

[nickgier at roadrunner.com]

Hi Roger,

I've replied to you so many times about water boarding and torture in general, now even more fully documented than before, I'm not sure if it is worth continuing the debate.  But, just for you, I've chosen to do next week's column on Gitmo and how humane it could have been under the original management, but how bad, bad, bad it became under Bush-Rumsfeld's insistence that there were no innocents there and that the "gloves had to come off. 

Yes, Rumsfeld did finally withdraw his "I stand 8 hours a day" torture memo but only after ethical GOP attorneys in the administration (there were a few but they did not last very long)begged him to.  But enhanced techniques still were practiced in CIA black sites all over the world and even worse torture was inflicted on detainees sent to Syria, Egypt, and Morocco.

But first, I'll respond to your putting the blame on the financial crisis solely on the Democrats and Fannie and Freddie.  Below is an excerpt from a column written by Nobel Prize winner Paul Krugman. Your theory does not have even a peg leg to stand on.  And, Roger, your raw partisanship is just too shrill and brittle, quite apart from your positions being unfounded.  You guys lost; you lost big time; so give it a rest, OK?

Paul Krugman, "Frannie, Freddie, and You," The New York Times, July 12, 2008:

. . . But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. [with 4 GOP and one Demo Senators complicit] In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble. 

Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income. 

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.

In that case, however, how did they end up in trouble?

Part of the answer is the sheer scale of the housing bubble, and the size of the price declines taking place now that the bubble has burst. In Los Angeles, Miami and other places, anyone who borrowed to buy a house at the peak of the market probably has negative equity at this point, even if he or she originally put 20 percent down. The result is a rising rate of delinquency even on loans that meet Fannie-Freddie guidelines.

Also, Fannie and Freddie, while tightly regulated in terms of their lending, haven’t been required to put up enough capital — that is, money raised by selling stock rather than borrowing. This means that even a small decline in the value of their assets can leave them underwater, owing more than they own.

And yes, there is a real political scandal here: there have been repeated warnings that Fannie’s and Freddie’s thin capitalization posed risks to taxpayers, but the companies’ management bought off the political process, systematically hiring influential figures from both parties. While they were ugly, however, Fannie’s and Freddie’s political machinations didn’t play a significant role in causing our current problems.

Still, isn’t it shocking that taxpayers may end up having to rescue these institutions? Not really. We’re going through a major financial crisis — and such crises almost always end with some kind of taxpayer bailout for the banking system. 

And let’s be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole. 


---- lfalen <lfalen at turbonet.com> wrote: 
> People are right to celebrate the election of Obama as a historic event. It truly is. It has been along hard struggle to archive the equality that is stated in the constitution. A lot of brave men have been involved in the struggle. Lincoln, Frederick Douglass, Booker T. Washington, Medger Evers, King and may others. Some have given their lives. This is a bitter sweet victory, but wont be truly won until the color barrier is completely erased. A time when ones color is no more of an issue than being Irish or German and race is not even mentioned. The tragedy is that Obama's economic views are so horribly wrong. What he is doing will prolong the recovery. I will be in the poor house before the economy recovers. Already people are saying medical care will have to prioritized. An old codger like me will be considered to have lived long enough. Any ailment will be allowed to run its course. 
> Obama blames Bush, talking about the failed polices of the last eight years. Bush certainly bares some of the blame. The main cause however lays with Acorn, Obama himself, Carter, Franks Dodd and Clinton. Franks and Dodd were warned about the problem with Freddie and Fannie and said that everything was fine. Dodd and Obama are the two largest recipients of contributions from Freddie and Fannie. Thes are now the people in charge of fixing the problem. This is like putting the fox in charge of the hen house.
> Obama calls for a bipartisan effort to pass his program. If he want bipartisan support he first needs to rain in Rham Emanuel. Emanuel wamts to take the census away from the Commerce Department and put it under his control This is to politicize it. The goal is to ensure democratic control forever. Obama is saying to the republicans in essence "I want to destroy you and I would like this to be a bipartisan effort". The Republicans would have to have a death wish to go along with it. totally aside from the harmful effect to the country.
> Roger
> 
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