Incredible Disappearing Brokerages

[we vs us]

quote:Originally posted by Conan71

quote:Originally posted by we vs us

quote:Originally posted by iplaw

I think we should be calling on the government to stop bailing these idiots out instead of wasting time creating more regulations which don't get followed which don't get enforced in the first place  If a CEO wants to play fast and loose with the rules, do you think Congress is going to stop them?  Let the market punish them, it's better at dealing with these people than government regulations.

Fixed that for you.

The problem with letting the market do its job is that everybody gets punished for this, not just the CEO, not just the Board of Directors, not just the company, and not just the shareholders.  The taxpayers of the United States are the ones who ultimately get punished here.  And really, if I'm one of the ones who's taking the hit, then I'm going to change my financial situation to make sure I don't take the hit again, just like any other player in a free market.  Since I don't get to make the decision to NOT back Lehman up -- the Fed is gonna do that with or without me  -- it means the thing I have left to moderate my exposure is through demanding aggressive regulation. It's the only lever I have, and I intend to use it via my vote.  

Government bailout removes the element of risk to the corporation and doesn't make the investor whole.  Remove the concept of risk and their greed will just dig a deeper pit because they know in the end the government will print more money to prop them up.

Government dictating that lenders needed to stimulate home sales and the construction trades by more permissive lending practices led to over-inflated home prices and the greatest number of under-qualified mortgagees in our country's history.  That's a perfect example of the unintended consequences of gov't regulation.

Well the thing is, gov't will ALWAYS bail out business if there's any threat to the economy at large, no matter if there's a Democrat or a Republican in the Whitehouse.  It's the "provide for the commmon good" thing. So there's already no risk involved.  I know that, you know that, and the Wall Street guys definitely know that.  They know that so well that AIG, one of the overnight failers I talked about at the top, actually passed on a private equity buyout, and instead insisted that the Fed provide it with a low interest bridge loan to see if they could save themselves.  So they're skipping over market mechanisms to see if the gov't can help them, too.  It's shameful.

As to the mortgage collapse, the federal gov't's only role was to pump cheap money into the system via Greenspan's many interest rate cuts; to date, I've not heard one accusation that the gov't "dictated" that mortgage brokers make bad loans.  It was the mortgage brokers choice to do that.  Just like it was Lehman's choice to stock its asset sheet with those iffy loans.  

Finally, you're right to bring up risk as a central element to the current troubles; but I'd say finding ways to assess risk and make it more transparent would be the first role a revised regulatory system might take on.  The reason these banks are collapsing is that no one knows how to value their portfolios, including the banks themselves.  No one knows just how bad they are, because no one understands how the securities in their portfolios truly work and with whom the risk truly lies.

That's where government actually does have a role.  Being a fair, independent, and well-funded calmer of the waters.  We trust the gov't to assess so many other parts of the business world that the securitized mortgage world shouldn't be any different.  

[Conan71]

Clinton/Gore ran on this homeownership progress in 1996:

"The President understands that homeownership is the key to empowering local residents and giving them a stake in the community. HUD Secretary Cisneros, has worked tirelessly with the private sector to see home ownership reach a 15-year high. In fact, we are experiencing the longest uninterrupted expansion of homeownership in 30 years - a record 66.3 million American households now own their own homes. And homeownership initiatives are now working in cities like Detroit, Buffalo, New York City and Baltimore.


In fact, Fortune Magazine just rated Baltimore as one of the 15 best cities to live in. Significant improvements in the quality of life in Baltimore are due in large part to the partnership that developed between local officials and the Clinton-Gore Administration. The Clinton Administration's commitment to reclaiming abandoned industrial sites, improving access to capital and making homeownership easier has created jobs and at the same time made more people want to live in the cities of America again."

The whole article is an interesting historical perspective on Detroit.  

http://www.usmayors.org/USCM/us_mayor_newspaper/documents/10_28_96/documents/_Clinton_Urban_Policy_Helps_Move_Cities_Ahead_111396.html

"Faith in the benefits of homeownership—along with low interest rates and a range of governmental incentives—have produced a surge in the number of low-income homeowners. In 1994 Bill Clinton set—and ultimately surpassed—a goal to raise the nation's overall homeownership rate to 67.5% by 2000. There are now 71 million U.S. homeowners, representing close to 68% of all households. By 2003, 48% of black households owned their own homes, up from 34.5% in 1950. Much of this gain has been among low-income families.

Government efforts to increase homeownership for low-income families include both demand-side (e.g., homeowner tax credits, housing cost assistance programs) and supply-side (e.g., developer incentives) strategies. Federal housing programs insure more than a million loans a year to help low-income homebuyers. Fannie Mae and Freddie Mac—the large, federally chartered but privately held corporations that buy mortgages from lenders, guarantee the notes, and then resell them to investors—have increasingly turned their attention to low-income homebuyers as the upper-income housing market becomes more saturated. Banking industry regulations such as the Community Reinvestment Act and the Home Mortgage Disclosure Act encourage homeownership by reducing lending discrimination in underserved markets."

http://www.dollarsandsense.org/archives/2007/0507karger.html

The National Homeownership Strategy began in 1994 when Clinton directed HUD Secretary Henry Cisneros to come up with a plan, and Cisneros convened what HUD called a "historic meeting" of private and public housing-industry organizations in August 1994. The group eventually produced a plan, of which Mason sent me a PDF of Chapter 4, the one that argues for creative measures to promote homeownership.

The very worst idea in the plan, which fortunately never gained approval, was to let first-time homebuyers freely tap their IRA and 401(k) retirement-savings plans with no penalty to scrounge up a downpayment. That, HUD estimated, would have "benefited" 600,000 families in the first five years.

Plenty of other ideas in the plan did become reality, though. Knowing what we know now about the housing bust, the earnest language in the document seems faintly ridiculous. Here's an excerpt. Read it closely and you can see the seeds of disaster being planted:

For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.

Note the praise for "creativity." That kind of creativity in stretching boundaries we could use less of. Mason puts it well: "It strikes me as reckless to promote home sales to individuals in such constrained financial predicaments."

http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

This is one example of a government policy or initiative which was flawed.  It pretty much dictated that homeownership would be easier, and then left the lenders to their own devices.  You know by now, it's rare I ever make assertions without knowing my facts first.  FWIW, I don't blame the whole mess on Clinton, Bush was stupid for not starting to rein in this nonsense when he took office, but he would have looked like a troll if he'd started to cut back on first time buyer programs.

It's another example of how low-income vote buying is costing the rest of us billions and billions of $$$.

That's all I see in Obama's promise to cut taxes and impliment UHC.  More unintended consequences to the economy and the health care industry and the rest of us pick up the tab for the debacle.

[iplaw]

quote:Being a fair, independent, and well-funded calmer of the waters.

Too bad the founders didn't enumerate that role for the government in any of our founding documents.

Fair?  

Independent?  

WELL FUNDED?

Someone is in fantasy land...

[we vs us]

quote:Originally posted by iplaw

quote:Being a fair, independent, and well-funded calmer of the waters.

Too bad the founders didn't enumerate that role for the government in any of our founding documents.

Fair?  

Independent?  

WELL FUNDED?

Someone is in fantasy land...

Someone's still living in the Gilded Age.

For the last eight years, our President has been cutting regulatory budgets and downsizing departments.  At the same time, at least in other fields, his Administration as actually fostered closer, and in lots of cases compromised ties with business (for instance, check out out who the kids at the Department of the Interior were partying and sleeping around with . . . representatives of the oil industry!)  As for the fair part, well . . . this might be the time to point out that you get the government you vote for.

[FOTD]

quote:Originally posted by iplaw

quote:Being a fair, independent, and well-funded calmer of the waters.

Too bad the founders didn't enumerate that role for the government in any of our founding documents.

Fair?  

Independent?  

WELL FUNDED?

Someone is in fantasy land...

Neoconned Again?
Bush, Greenspan, and Bernake....All of our economic statistics are skewed, or "republicanized."

We are now halfway through this mess....next up?
Regional and local banks! Then the credit market drags down the Auto industry further. Then the airlines. So, do we continue to bail out poor judgement from 8 years of playing politics instead of over seeing the financial system? Yes you pin heads. America has no choice. When will the people finaly make a stand and demand that which rightfuly is due to them. What DO we pay taxes for? Apparently to support illegal wars and huge pay outs to politicians,corparations,lobbyists and hookers (no offense to hookers).          

"I tried to warn everybody, but could not get across" (Zimmy)

(neo-con motto)
"reduce the size of the US government until it will drown in a bathtub of water". Nordquist


Vote for the stupid old white guy over the smart black guy if you want more hurt.....

[Gaspar]

This is always the fate of heavily regulated industries.

In the end this will be healthy.  

To bad the fed decided to take over Freddie and Fannie.  They need to be allowed to fail.  It was government's fault they existed, and it should be the mark on government that they fail.

Sometimes you have to let your children scuff their knees.

The banking industry will suffer but not for long.

[iplaw]

quote:Originally posted by we vs us

For the last eight years, our President has been cutting regulatory budgets and downsizing departments.  

Could you provide us with some proof that he's cut regulatory budgets that led to the Fannie or Lehman fiascos?

quote:
At the same time, at least in other fields, his Administration as actually fostered closer, and in lots of cases compromised ties with business (for instance, check out out who the kids at the Department of the Interior were partying and sleeping around with . . . representatives of the oil industry!)  As for the fair part, well . . . this might be the time to point out that you get the government you vote for.

This might be a good time to point out to you that our "government" is run by politicians from both parties.  Does your democratic congress take no blame here, or are you content just to blame Bush?

The government doesn't have the resources, nor does it have competence to police every facet of life.  

This is not a nanny state, nor should it be.

[nathanm]

quote:Originally posted by Gaspar

This is always the fate of heavily regulated industries.

So, let me get this right? You think the cause of the current problems with certain big banks and brokerage houses are due to regulation? Not due to risky trading and the repeal of Glass-Steagall? (bad Clinton! bad Republican Congress!)

[we vs us]

quote:Originally posted by iplaw
The government doesn't have the resources, nor does it have competence to police every facet of life.  

This is not a nanny state, nor should it be.

And so somehow taking a shot at making sure this blowout doesn't happen again is wussifying us?  Somehow takes away our precious essences?

[iplaw]

quote:Originally posted by we vs us

quote:Originally posted by iplaw
The government doesn't have the resources, nor does it have competence to police every facet of life.  

This is not a nanny state, nor should it be.

And so somehow taking a shot at making sure this blowout doesn't happen again is wussifying us?  Somehow takes away our precious essences?

I don't have the slightest clue as to what you're talking about Shadows.

[Gaspar]

quote:Originally posted by nathanm

quote:Originally posted by Gaspar

This is always the fate of heavily regulated industries.

So, let me get this right? You think the cause of the current problems with certain big banks and brokerage houses are due to regulation? Not due to risky trading and the repeal of Glass-Steagall? (bad Clinton! bad Republican Congress!)

No far more basic.  The separation of industries and the repeal of Glass-Steagall is not at fault here. Securities firms operated largely outside of Glass-Steagall anyway.

What is at fault is that banks have been required to grant credit to the NOT CREDIT WORTHY.  This has created an industry of buying and selling debt.  The regulation and requirement put on these institutions by the federal government to grant loans (sizable loans) to people who cannot pay these loans is at fault.  The bigger handicap is that their now exists the huge mechanisms for packaging, marketing, and selling bad debt.  

In other-words we are now enjoying the bloom from the seeds of regulation.  This was inevitable and everyone knew it.    

Glass-Steagall was to stop conflict of interest and inflatory speculation.  Separating bankers from brokers.  It really didn't touch bad debt.

[USRufnex]

quote:Originally posted by Gaspar

This is always the fate of heavily regulated industries.

In the end this will be healthy.  

To bad the fed decided to take over Freddie and Fannie.  They need to be allowed to fail.  It was government's fault they existed, and it should be the mark on government that they fail.

Sometimes you have to let your children scuff their knees.

The banking industry will suffer but not for long.

Thanks Gaspar.  I never wanted a house anyway.  I hope that first time homebuyers FHA isn't available for me.... after all, I'm just some spoiled brat sucking at the gubmint's teets...

Can ah shine yo' shoes, massah?!?

[Gaspar]

quote:Originally posted by USRufnex

quote:Originally posted by Gaspar

This is always the fate of heavily regulated industries.

In the end this will be healthy.  

To bad the fed decided to take over Freddie and Fannie.  They need to be allowed to fail.  It was government's fault they existed, and it should be the mark on government that they fail.

Sometimes you have to let your children scuff their knees.

The banking industry will suffer but not for long.

Thanks Gaspar.  I never wanted a house anyway.  I hope that first time homebuyers FHA isn't available for me.... after all, I'm just some spoiled brat sucking at the gubmint's teets...

Can ah shine yo' shoes, massah?!?

So the government guaranteeing your loan is the only way you could ever hope to own a home?

Let me rephrase, US (meaning me and everyone else) cosigning for you is the only way you could ever hope to own a home?

Well sure we'll be happy to co-sign for you, but we'd like to review your financials and make sure you have the ability and intent to repay the loan.  No problem.

You see that's where the problem lies.  SO MANY loans were granted to people who couldn't even scrimp and save one penny of down payment.  People who, by any sane means of accounting, would only be able to afford the home by some stroke luck in the lottery.  People who the banks knew had transient employment, but were bound to grant these loans anyway.  

Yes the FHA system helped millions own homes, and create equity that they would have otherwise had to wait until later in their lives to accomplish.  

But it was an unhealthy economic practice.  There is no other way to portray it.  It taught generations of individuals that "the government can be your economic business partner."  

And yes you probably will not be eligible for FHA any more.  Millions who have now been trained like circus monkeys to stick their hands out for peanuts, will now have their hands slapped.

As Robert Higgs puts it:

Our political economy is rife with such catastrophes in waiting, yet the public always seems startled, and outraged, when the day of reckoning can no longer be deferred, and another apartment collapses in the state's Hotel of Impossible Promises, loading onto the taxpayers more visibly the burden of sheltering the previous occupants.

Each of these time bombs has at least one element in common: it promises current benefits, often seemingly without cost; but if it must acknowledge a substantial cost, it places that burden somewhere in the distant future, where it will be borne by somebody else. From the standpoint of society in general, every such scheme is a species of eating the seed corn. It satisfies the public's appetite to consume something for nothing right now, with no thought for the morrow. It represents the height of irresponsibility by permitting people to live higher today than they can truly afford, financing this profligacy by borrowing recklessly and by taxing politically weak and ill-organized people in order to shower benefits on politically strong and well-organized special interests.

The architecture of the Hotel of Impossible Promises is not arcane. All competent economists understand these things. Ludwig von Mises explained as early as 1920 why a centrally planned economy could not work as a rational system of allocating resources. The reasons why Social Security, especially its Medicare component, and many other such government programs contain the seeds of their own destruction have been explained time and again. Are the politicians who construct these structures really such idiots that they cannot understand the logic of what they are doing?

Not at all. But they are not striving to create economically viable institutions that serve the general public interest; they are feathering their own electoral nests in the only way they can in the context of our political institutions. As H. L. Mencken explained back in 1940, the politicians "will all promise every man, woman and child in the country whatever he, she or it wants. They'll all be roving the land looking for chances to make the rich poor, to remedy the irremediable, to succor the unsuccorable, to unscramble the unscrambleable, to dephlogisticate the undephlogisticable," because they understand that "votes are collared under democracy, not by talking sense but by talking nonsense."

If you care to read more:
http://www.independent.org/blog/?p=186

[waterboy]

Gas you posted this on another thread. Now I feel obligated to re-post my response and thread inflation ensues.  

Edit: my response-
Thanks for the motivational speech. Kind of the opposite of Roosevelt's "nothing to fear, but fear itself".

If a leading liberal of the day had written in this manner (I know, indulge me a fantasy) he would have been castigated as seditious and unpatriotic. The writer is angry that so few are as enlightened as himself. Well, he could move to a Scandinavian country where all these things he thinks will never work...are working. Maybe its scale, maybe its education, maybe its heritage, but he draws the conclusion that its system. Or he could note our system has worked with these social programs for close to 100 years.

Rather than point out some other misleading and problematic thinking of the writer, I'll just say that we will endure these failings of our political system. We will not allow old feeble people to suffer because they failed to save or failed to stay healthy. We will provide education for those deemed unworthy of it. We will offer credit to those who haven't learned yet how to handle it. And we will encourage homebuying for those who don't even know why they should buy a home. Not because we are soft hearted but because it serves the common good, it serves to bolster our economics and because people in our past did it for us until we understood the value of those things. Our spirituality keeps us from executing a truly perfect economic system but keeps us from hardening into Spartans.

I do agree however that a system with multiple parties that included the Libertarians would be a good idea and worth pursuing. Just like on this forum, being challenged by differing mindsets is healthy for all.


You made your point that you think government regulation is the problem. Myself and others who have benefited from programs like FHA that allowed us to buy our first homes, which in my case included a 10% downpayment, see it differently. FHA served as an incentive for builders to serve our market. That's the point you seem to be missing. Many of these programs and regulations are set up at the bequest of, and for the benefit of, business development. Banks, S&L's, builders, developers all benefitted. Home ownership has many benefits that expand into the society.

The problem then is not the nature of stimulation and regulation of an economy, rather the quality, committment and execution of its regulations. For instance, when I was first buying a house, only S&L's and mortgage companies could make real estate loans. A hangover from the depression era. The regulations were changed to allow banks to compete and the market was enhanced by the change in regulations.

Another would be the change in allowing loans to be assumed. Pre-1980 a buyer could save up their money, find a good VA, FHA or conventional loan and assume the existing loan by buying the sellers equity. The buyer got a low interest loan and avoided a lot of fees and closing costs. Of course the loan originator got cut out of the deal so that had to stop. The buyer didn't have to qualify for the loan so the mortgagee interest also was not secure.

[Gaspar]

No WB, I have no argument with you on the point of stimulation.  Many many government programs serve to stimulate this market or that market, but the way they are constructed does not provide sustenance.  

When the government inflates a market mechanism without subtracting from that mechanism, then the money must come from somewhere else.

For decades these systems functioned without the natural laws of supply and demand regulating their growth and expansion.  

Now we have to pay.  There is no way to get around it.  You can attempt to pin blame here or there, but this is the way it will always work.  Always.