IndyMac collapse

[southsider2k5]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

 

The simple answer is exactly where they should be... clueless. The Congress has no business worrying about banking, finance, trading, or any of the other things like this that they oversee. Our financial system is way to complex for these politicians to understand. It really needs to be under the arm of the federal reserve bank to regulate these sectors, not Congress. We don't need a committee for each of these and a regulating body to match. It is a waste of manpower, and all you have to do is look at recent history showing this regulating bodies asleep on the job to understand this. There is way too much partisian interest here for these groups to be managed correctly. Look no further than an idiot like Chuck Schumer not understanding that it isn't a good idea to talk about a specific bank failling. In the 11 days after he opened his yap, depositors took $1.3 billion out of IndyMac. Don't tell me he didn't have an effect on them going under. That is the reason guys like Greenspan, Paulsen, Bernanke and company measure their words and talk in general terms! They know that their words move markets. Congressmen are too busy worrying about the 30 second soundbyte to care about the effects of what they say. Congress needs to be stripped of all of their responsibility and oversight for our entire financial sector, as they just can't handle it.

[lostfan]

There is way too much partisian interest here for these groups to be managed correctly.

Ding ding ding

[NorthSideSox72]

The simple answer is exactly where they should be... clueless. The Congress has no business worrying about banking, finance, trading, or any of the other things like this that they oversee. Our financial system is way to complex for these politicians to understand. It really needs to be under the arm of the federal reserve bank to regulate these sectors, not Congress. We don't need a committee for each of these and a regulating body to match. It is a waste of manpower, and all you have to do is look at recent history showing this regulating bodies asleep on the job to understand this. There is way too much partisian interest here for these groups to be managed correctly. Look no further than an idiot like Chuck Schumer not understanding that it isn't a good idea to talk about a specific bank failling. In the 11 days after he opened his yap, depositors took $1.3 billion out of IndyMac. Don't tell me he didn't have an effect on them going under. That is the reason guys like Greenspan, Paulsen, Bernanke and company measure their words and talk in general terms! They know that their words move markets. Congressmen are too busy worrying about the 30 second soundbyte to care about the effects of what they say. Congress needs to be stripped of all of their responsibility and oversight for our entire financial sector, as they just can't handle it.

Well, I don't think its practical, or a good idea, to strip Congress' oversight of the financial industry. They need to have a looking glass. And frankly, its the FRB and regulatory agencies that deserve more blame here than Congress anyway - they are the ones responsible for raising red flags, and suggesting paths to fix problems. Congress should just be monitoring things, and acting to fix problems per their recommendations.

 

But of course, part of the issue here is funding. I don't know about the FRB or the SEC, but I know for a fact that the CFTC has been getting tighter and tighter budgets. This while derivatives trading of all kinds has skyrocketed.

 

[jackie hayes]

If you want to go into second and third levels of costs, that isn't right on either account. First of all you know there is more to cost than just getting the money paid back. There are all of the set costs of what the banks are going to lose that we are going to absorb. There is also the opportunity cost of not being able to use that trillion dollars for something else, just like the Iraq War. We are most likely also losing money on the loans themselves because I doubt we are taking the money from somewhere else. We are borrowing the trillion from someone, and loaning back to the banks for a smaller interest rate with almost certianty. Then we are hoping they pay it back eventually. Until then that trillion dollars is gone. It is a cost until that loan is repayed. Remember mortgages are a 30 year commodity.

 

Secondly when you can't make a narrow assumption of the banking money showing up eventually so that is OK, but the Iraq War money just disappearing, which is pretty much economically impossible. In fact a case could easily be mad that the war spending is good for the economy as well. That money isn't just going into a void. It is being spent mainly on defense contract, which provides some of the highest paying jobs in the country. People need to build all of those tanks, bullets, etc. All of the troops over there are getting paid. All of the jobs they left at home are getting filled by people who might not have them in the first place. You can go into the multiplier effect there as far as you want. The idea that they money isn't "coming back" is laughable. That money is a lot more relevant in the current economy than the banking money which is truely disappearing until the banks maybe repay most of it. The multiplier effect is lost here because this is money just to cover the money that has already been lent out.

The cost of the loans certainly was accounted for. I said the government would absorb bank losses. I wasn't assuming any particular interest rate on the loan; everything I said holds for an interest rate of zero, even. And the opportunity cost is the interest expense, which I pointed out -- any "something else" that the government wants to do can be done with borrowed money, so the cost is the interest on that loan. You seem unable to understand the notion that the government can borrow money ("the banking money which is truely disappearing until the banks maybe repay most of it"), but, no, really, it can.

 

We are talking about the cost to the federal govt. A loan (albeit on unfavorable terms) to Fannie and Freddie leaves the government with an asset, an outstanding loan. Iraq war spending on services leaves the government with no assets, obviously. The same is true on spending on goods, although you have to be careful with the numbers (goods that are unused should not be accounted for as Iraq war spending). From an accounting perspective, that money is GONE.

 

Your economics is wrong too (but the part on the troops), but that's neither here nor there. The fact is, the cost of the bailout isn't going to even approach $1 trillion, nor the cost of the Iraq war, and nothing you've said has refuted that.

[jackie hayes]

The simple answer is exactly where they should be... clueless. The Congress has no business worrying about banking, finance, trading, or any of the other things like this that they oversee. Our financial system is way to complex for these politicians to understand. It really needs to be under the arm of the federal reserve bank to regulate these sectors, not Congress. We don't need a committee for each of these and a regulating body to match. It is a waste of manpower, and all you have to do is look at recent history showing this regulating bodies asleep on the job to understand this. There is way too much partisian interest here for these groups to be managed correctly. Look no further than an idiot like Chuck Schumer not understanding that it isn't a good idea to talk about a specific bank failling. In the 11 days after he opened his yap, depositors took $1.3 billion out of IndyMac. Don't tell me he didn't have an effect on them going under. That is the reason guys like Greenspan, Paulsen, Bernanke and company measure their words and talk in general terms! They know that their words move markets. Congressmen are too busy worrying about the 30 second soundbyte to care about the effects of what they say. Congress needs to be stripped of all of their responsibility and oversight for our entire financial sector, as they just can't handle it.

Because you don't plan on listening to anything that doesn't agree with what you already believe.

 

But I'm glad you finally gave that speech about how regulation is bad. Awesome.

[southsider2k5]

Because you don't plan on listening to anything that doesn't agree with what you already believe.

 

But I'm glad you finally gave that speech about how regulation is bad. Awesome.

 

I'm glad your reading skills are as good as your economic skills.

 

I never said regulation was bad, I said the way we regulate wasn't working. I would love to see where I said regulation itself was bad. When an institution has a self-interest in how something is run, and lots of time their re-elections depend on whose skids they are greasing, the system doesn't work. I would love to hear your case for how we are doing things now is working.

 

I have said forever that the system where we have a regulating body for each piece of the financial sector which is completely disconnected from the others doesn't work. It has led to a needlessly complex and overburdening system complete with contradictatry rules as you move from sector to sector. Those posts you can find all over the buster.

[southsider2k5]

The cost of the loans certainly was accounted for. I said the government would absorb bank losses. I wasn't assuming any particular interest rate on the loan; everything I said holds for an interest rate of zero, even. And the opportunity cost is the interest expense, which I pointed out -- any "something else" that the government wants to do can be done with borrowed money, so the cost is the interest on that loan. You seem unable to understand the notion that the government can borrow money ("the banking money which is truely disappearing until the banks maybe repay most of it"), but, no, really, it can.

 

We are talking about the cost to the federal govt. A loan (albeit on unfavorable terms) to Fannie and Freddie leaves the government with an asset, an outstanding loan. Iraq war spending on services leaves the government with no assets, obviously. The same is true on spending on goods, although you have to be careful with the numbers (goods that are unused should not be accounted for as Iraq war spending). From an accounting perspective, that money is GONE.

 

Your economics is wrong too (but the part on the troops), but that's neither here nor there. The fact is, the cost of the bailout isn't going to even approach $1 trillion, nor the cost of the Iraq war, and nothing you've said has refuted that.

 

Expected tax receipts aren't an asset? Geesh, there is really no point. You are going to believe whatever you want to believe, and really aren't going to listen to anything else, and just make up the rest.

[jackie hayes]

I'm glad your reading skills are as good as your economic skills.

 

I never said regulation was bad, I said the way we regulate wasn't working. I would love to see where I said regulation itself was bad. When an institution has a self-interest in how something is run, and lots of time their re-elections depend on whose skids they are greasing, the system doesn't work. I would love to hear your case for how we are doing things now is working.

 

I have said forever that the system where we have a regulating body for each piece of the financial sector which is completely disconnected from the others doesn't work. It has led to a needlessly complex and overburdening system complete with contradictatry rules as you move from sector to sector. Those posts you can find all over the buster.

You said Congress should have nothing to do with banking. ("The Congress has no business worrying about banking, finance, trading, or any of the other things like this that they oversee.") Any conceivable body that could have authority over those things is brought into existence and is at the whim of Congress. But Congress shouldn't even be involved. Alrighty then. I guess the FDIC and the Fed would have willed themselves into existence. Banks would graciously submit to their demands, even without Congressional mandates.

[jackie hayes]

Expected tax receipts aren't an asset? Geesh, there is really no point. You are going to believe whatever you want to believe, and really aren't going to listen to anything else, and just make up the rest.

You're really grasping at straws now. But it's good to know you're such a huge proponent of massive government spending. Anything to get that multiplier going.

 

The cost of the bailout is not going to be anywhere close to $1 trillion dollars. The cost of the bailout is not going to be anywhere close to the cost of the Iraq war. You can huff and puff anyway you want, your comparison was a joke.

[Cknolls]

Laughable. And you're the one talking about faux outrage.

 

Show me a credible source of your claim that Fannie and Freddie will cost the federal government $1 trillion. Not that they'll have financing available, blah blah blah, but that the END COST will be $1 trillion. You are comparing it to other costs, so unless you're just being flagrantly dishonest, that's what you should mean. Can't wait.

 

If you look at what IMB itself said in the wake of Schumer's comments, the worst case version of the story goes like this -- IMB was already teetering on the brink of failure, and Schumer's comments triggered a fairly small number of withdrawals which pushed them into an area where automatically-triggered additional regulation prevented them from being able to raise capital. They certainly would have failed anyway (they'd been losing money for a long time, reflected in the stock price plummeting 80-90% over the last 6 mo; the default rate on their mortgages was most recently at 8%, and there was little hope it would get better soon). A think-tank report blasting IMB that came out the following Tuesday would have been enough, or a moth flapping its wings in Sacramento.

 

Can't wait for you next post of Republican cant: how this all could have been avoided with lower taxes and less regulation.

 

 

Since you say they would have failed anyway, what does your crystal ball tell you about the closing price of the Dow today?

[Rex Kickass]

haha he's on the committee. he should have said something or done something. i do like how you guys are defending him though.

 

He did actually.

 

“Preserving liquidity in financial markets is important, but it does not solve the fundamental problem of the weak and worsening conditions in the mortgage market, particularly the subprime mortgage market. Unfortunately, the regulators have not adequately addressed the seriousness of our mortgage market troubles thus far,” Schumer wrote to the regulators. “Yet until we deal with the widespread uncertainty about the depth and seriousness of the problems in the mortgage market, we will not ease the crisis of confidence in the broader credit markets, no matter what actions are taken to address the credit crunch.”

Sep 2007

 

U.S. Senator Charles E. Schumer (D-NY), chairman of the Joint Economic Committee (JEC) and chairman of the Senate's Housing Subcommittee, introduced the first major legislation to deal with the subprime foreclosure crisis as a weakening U.S. housing market threatens the overall economy. Sen. Schumer's two-step solution includes $300 million in proposed federal funds and separate legislation to upgrade standards that mortgage brokers and originators must abide by when making new loans to borrowers. Sen. Schumer was joined by Senators Sherrod Brown (D-OH), Bob Casey (D-PA) and representatives from community-based non-profit groups engaged in helping homeowners navigate the complicated nexus of lenders, banks, counseling and legal services to modify their home loans and ultimately save their homes from foreclosure.

 

Sen. Schumer said, "$300 million in federal funds, and hopefully even more private money, to community groups that specialize in foreclosure prevention will not only help hundreds of thousands of families save their homes, but it will save billions in spillover foreclosure costs. This seems like a cost-effective investment to me, and one that will help restore confidence in our shaky housing market. And to ensure that we don't get into this mess again, we need to seal the cracks in our regulatory system to prevent future widespread lending abuses."

May 2007

 

So its not like Schumer was suddenly vocal on this issue last week. He's been talking about it and trying to do something about it for 15 months, whether or not his actions are correct is not something I can tell you.

[Cknolls]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

 

Getting loans fron Fannie.

[StrangeSox]

Since you say they would have failed anyway, what does your crystal ball tell you about the closing price of the Dow today?

 

Recognizing bad fundamentals and a failing business = predicting outcome of the Dow?

[Cknolls]

Recognizing bad fundamentals and a failing business = predicting outcome of the Dow?

 

How much money was withdrawn by customers before the distinguished Senator from New York opened his pie hole?

[Texsox]

Recognizing bad fundamentals and a failing business = predicting outcome of the Dow?

 

I think both have their accurate point. Some of the biggest advances have come from what would have been considered, or where considered, bad fundementals. IIRC, when ISPs went to "all you can consume for $19.95, they were expected to fail, and fail quickly. They didn't. But it is true, I cannot recall a business model that involves taking on poor credit risks, and charging enough interest to cover the bad, that has worked (legally). When proper business tries to cut in on loan sharking, they do so without some of the benefits that the non regulation, neighborhood loan shark has. Your need for knee caps.

 

As far as elected leaders speaking out. If they yell from the beginning, they are alarmists, trying to score political points, etc. When they wait too long, they are in the pockets of certain groups. This is not an exact science, and I cannot be too worried about his entire history of comments on this subject. It certainly seems as if his interest and rhetoric has matched the general populations. Whether or not he is setting the pace, or following, is unclear.

 

But no doubt we have a problem. People living beyond their means, and not properly planning for the future has been a societal problem for decades. Dating back to at least Reagan. (and I use him as an historical yardstick). We had a terrible economy and people could not have the things that Madison Avenue was selling on TV. Once the economy improved, consumption felt good, we were raised to believe success was a Lincoln, a larger and larger home, bigger vacations, silver, gold, and platinum cards. It was never having enough saved for a comfortable retirement, a rainy day.

[Texsox]

The Congress has no business worrying about banking, finance, trading, or any of the other things like this that they oversee. Our financial system is way to complex for these politicians to understand.

 

I think we are overlooking that Congressmen have staffs of very well qualified individuals who can help them to understand. Looking over the personal wealth of most of our elected officials, I believe they have the resources and intelligence to understand. We ask our officials to govern on *everything*. I am not saying they are the most approriate or not, I do not have the background to say, but I have worked with several Senators and Congressmen staffs and they hire the resources they need.

 

I have not been to impressed with self regulation. Especially if the reason is the subject is just too complex for anyone outside of the group to understand. If they cannot explain it in a manner that intelligent college grads with economic degrees who work as staffers, and the officials we are very successful in their careers can understand, then the so called experts probably do not understand it either.

 

Again, I'm not disagreeing that congress is or is not the best tool to use, I just happen to disagree with this reason.

 

/carry on.

[jackie hayes]

How much money was withdrawn by customers before the distinguished Senator from New York opened his pie hole?

I'd be interested in the data, if you have them. IMB reported that in the two days following the comments, $100 mil was withdrawn, and then said that on Monday, withdrawals were "substantially lower" (or something like that, I don't have the exact quote in front of me). Shortly before Schumer's comments, the ratings on IMB's bonds were lowered, and on Tuesday a policy group report was issued that blasted IMB's mo. A little later, IMB laid off half its employees. The bank was losing money and its mortgage default rate had exploded, and all this was public knowledge. It was already little better than a penny stock. Yet you think IMB's only problem was Schumer's comments?

[jackie hayes]

He did actually.

 

 

Sep 2007

 

 

May 2007

 

So its not like Schumer was suddenly vocal on this issue last week. He's been talking about it and trying to do something about it for 15 months, whether or not his actions are correct is not something I can tell you.

He also remarked on the issue in March 2007,

 

http://schumer.senate.gov/SchumerWebsite/p...?id=272752&

 

But that was still too late to really do anything. I think he deserves some credit for talking about the issue earlier than most, but he didn't seem to see the problem as it was happening.

[Balta1701]

But that was still too late to really do anything. I think he deserves some credit for talking about the issue earlier than most, but he didn't seem to see the problem as it was happening.

Aside from a handful of liberal crazy tinfoil hat bloggers and far left economists, none of whom deserve any respect because we're so far outside the mainstream that they keep being, um, right...who did?

[jackie hayes]

Aside from a handful of liberal crazy tinfoil hat bloggers and far left economists, none of whom deserve any respect because we're so far outside the mainstream that they keep being, um, right...who did?

I'm not saying anyone did.

[bmags]

and so also chuck schumer is the only one to blame for our banking collapse, now, right? Before in here it was the consumers fault for taking on loans they'd never be able to pay back, but now, that a democratic senator can be blamed, it is his fault then, oi?

[StrangeSox]

and so also chuck schumer is the only one to blame for our banking collapse, now, right? Before in here it was the consumers fault for taking on loans they'd never be able to pay back, but now, that a democratic senator can be blamed, it is his fault then, oi?

 

Chucky retro-actively made Bear Sterns fail with these comments.

[Balta1701]

I'm not saying anyone did.

I'd actually say a lot of people did...they're just not the people who get jobs on CNBC or interviews and columns in the Washington Post. Half of my writings from that era have vanished, but I was saying this was going to be a mess back in 2003-2004. It was all those crazy liberals who were just trying to make George W's great economy look bad by pointing out that it was built on a housing market of cards.

[mr_genius]

He did actually.

 

 

Sep 2007

 

 

May 2007

 

So its not like Schumer was suddenly vocal on this issue last week. He's been talking about it and trying to do something about it for 15 months, whether or not his actions are correct is not something I can tell you.

 

in 2007 it was already a crisis. i think just about everyone knew about the problem.

[mr_genius]

and so also chuck schumer is the only one to blame for our banking collapse, now, right? Before in here it was the consumers fault for taking on loans they'd never be able to pay back, but now, that a democratic senator can be blamed, it is his fault then, oi?

 

who said that? i mean there are people here defending Schumer or any Democrat on the banking committee as if they didn't do anything wrong. but anyone who knows about this should be blaming the GOP the most.

Edited July 16, 2008 by mr_genius