Fausta’s Podcast: “Financial Affirmative Action”

Fausta’s podcast is on right now, and her topic touches on the current financial crisis as well as what AMDG talked about in his post about government financing of the left.

She says that her guest “Matthew Vadum, senior editor at Capital Research Center, will explain how Financial Affirmative Action came about and how it works.” He will particularly explain the practice of “greenlining”, the loaning of money to members of minority groups who would not otherwise qualify.

The proposed “bailout” of America’s financial institutions is now deeply intertwined with a hard-left political shakedown racket.

It’s an hour-long program today, and a very interesting podcast. Also: if you tune in live, you’ll be able to call in to the show.

You can listen directly from Fausta’s blog, or at the Blog Talk Radio site.

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18 thoughts on “Fausta’s Podcast: “Financial Affirmative Action”

  1. This is quite a stretch, Baron. The triumph of unregulated free market machinations is morphed and spinned into the “hard-left political shakedown racket.”

    Stick to posts about how bad Islam is. You’re clearly out of your league here.

  2. While Gordon might be a tenured member of the Chicago Economic School faculty, I have grave doubts about it.

    It does take something of an ignoramus to uphold the government-backed, politico-staffed and taxpayer-supported institutions of Fanny and Freddy as examples of free market failures. Not because they weren’t failures. But because they were a case study in how government should _not_ mess with the free market.

    It takes an even worse form of ignorance, however, to come down hard on people who got it right when you’re as lost in the woods as Gordon is.

    Of course, I could be wrong and Gordon could have seen further than most of us. In which case, I’m sure, he’ll be happy to outline how FM & FM were free market entities given the strictures and regulatory framework they worked under. Of course, that might turn out to be harder than random sniping in the commentator field, so I confess to not expecting much.

  3. Looks like a good opportunity to get my links on the subject rounded up. Even though they have a certain, ehm, potential for annoying Former Gordon. Here goes:

    World Net Daily:
    Guess again who’s to blame for U.S. mortgage meltdown

    Investor’s Business Daily:
    Congress Lies Low To Avoid Bailout Blame

    Here’s from Nicolas Sarkozy, whom I thought would try to teach the French to work. No such luck. He obviously was not told (guess his advisors suck) that state regulation caused the crisis and is NOT the solution:

    ‘Laissez-faire’ capitalism is finished

    The current Secretary of the Treasury, Henry M. Paulson, formerly highly paid chief of Goldman Sachs Group, is well suited to press for a ‘Rescue package’.

    City Journal:
    Mark-to-Market Isn’t to Blame

    A Crisis of Global Statism

    Mises.org also has a full book about the causes of the Great Depression online: America’s Great Depression. Note in particular Chapter 7, PRELUDE TO DEPRESSION: MR. HOOVER AND Laissez-Faire.

    Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

    Truthout have many articles like this:
    Is the Bailout Needed? Many Economists Say “No”

    Michelle Malkin:
    Kill the bailout

    Finally Trifkovic, who could lean back and largely repost a column he wrote in spring, arguing that the basic issues are not, in any way, being addressed by the US government:
    The Big One Is Nigh!

    It takes some reading to form a qualified opinion. Mine is:

    The ‘Bailout’ is a scam and deserves to be shot down.

  4. The Baron and Henrik are both absolutely right and the bailout is a Socialist take-over and an attempt of installing a government controlled economy.

    the Editorial of investor.com summs it up:

    One of the sticking points in resolving the crisis was a poison pill in the Dodd/Paulson compromise that would move 20% of profits from the bailout into the Housing Trust Fund, a slush fund for political action groups such as ACORN (the Association of Community Organizations for Reform Now) and the National Council of La Raza.

    Sen. Lindsey Graham told Greta Van Susteren of Fox News that Democrats had other priorities than just solving this crisis: “And this deal that’s on the table now is not a very good deal. Twenty percent of the money that should go to retire debt that will be created to solve this problem winds up in a housing organization called ACORN that is an absolute ill-run enterprise, and I can’t believe we would take money away from debt retirement to put it in a housing program that doesn’t work.”

    Groups such as ACORN and La Raza lobby to secure government-funded services for their members and seek to move them to the voting booth. The housing bill President Bush signed in July contained a similar funding mechanism for the HTF — a tax on mortgages backed by Fannie Mae and Freddie Mac.

    The rottenness of Fannie Mae and Freddie Mac is also explained here already posted earlier in GoV Soviet-style collapse in America’s future?

    To meet its obligations under the U.N.’s Racial Discrimination Treaty, the Clinton administration instructed Fannie Mae to expand loans to low-income borrowers, according to Franklin D. Raines, Fannie Mae’s chairman. Thus, the “sub-prime” market was born, and government guaranteed-loans were extended to millions of families who could not qualify for a mortgage in a free market economy, but easily qualified under the new socialist scheme.

    In 2005, Republican senators saw the danger and tried to reform these institutions with the Federal Housing Enterprise Regulator Reform Act (S.190), but Democrats blocked the bill.

    Both Fannie Mae and Freddie Mac were institutions that were neither purely socialist, nor purely free market – a blend that is best described as communitarian, in that they allowed private investors to buy and hold shares in the corporations, but were also guaranteed by the federal government. That is, until recently, when the federal government took over both institutions. Now, the federal government essentially owns all those properties – a result that is as socialist as had the government nationalized those properties by force.

    AIG, the international insurance giant, and other Wall Street and international financial institutions bought the bundles of mortgage securities that Fannie Mae and Freddie Mac offered. Everybody involved made a ton of money, and housing for low-income families expanded exponentially – just as the Treaty on Racial Discrimination and the proponents of sustainable development had predicted. With all the new loans being made, the home building industry flourished, the real estate industry flourished, all industries related to housing flourished – until the market became saturated.

    Home values stopped rising. Housing inventories began to rise. Home values began to decline. Foreclosures began to rise. Homebuilding slowed, housing-related industries began to lay off workers. Energy prices began to rise. Paychecks fell short of family needs. Foreclosures skyrocketed. Suddenly, there was little or no value in the bundles of security Fannie Mae and Freddie Mac had packaged. Financial institutions found themselves in possession of massive “assets” that had no value. Creak, crumble, crash! The financial markets came tumbling down.

    Also the New York post.

    New York Post

  5. Well, I see that the right-wing spinners and obfuscators brigade is out in force.

    I would suggest sitting down and actually watching this lecture on youtube: http://www.youtube.com/watch?v=Wj_JNwNbETA.

    I haven’t even watched the last half, which involves the political policy prescriptions of Paul Krugman (from the left) and Alan Blinder (from the right). Instead, I have watched the first half, which consists of actual economics professors actually explaining in some detail the reasons for the current crisis.

    And “Fannie Mae and Freddie Mac were stalking horses for world communism” was not one of those reasons …

  6. By the way, I don’t disagree that Fannie Mae and Freddie Mac have a hand in abetting the current collapse.

    But the real problem was not the packages of mortgages – the real problem was the slicing and dicing of these securitized packages into so many complex “tranches” by Wall Street wizards that, when some of the underlying mortgages become faulty, no one can figure out what the securities are actually worth. So they become essentially worthless.

    If the original Fannie Mae or Freddie Mac package of mortgages was still intact, it would be relatively easy to figure out what they were worth. If, say 5% of the monetary value of the package consisted of defaulting mortgages, the market would price the package down 5%. Perhaps a little more for uncertainty about how many more of the mortgages are going to go bad.

    But a 5 to 10% markdown is not a 100% markdown, which the Wall Street wizards have wrought with their work.

    Only 3% of all U.S. mortgages are currently in default. And that number may rise over the next few years, but it’s not going to get anywhere near 100%of all mortgages.

  7. Former Gordon, thanks for the video. YouTube is such an amazing tool for getting information like this out to everyone.

    Now, for the contents. These people are pros, and they know their financial tools, the mechanisms, the dynamics in and out. Except by their own admission, but that’s not important. Princeton University? You don’t get them much better than this.

    They do a wonderful job explaining the financial mechanisms that led to the instability we’ve seen, like when day-to-day financing is cheap, but risky – thus a competitive advantage that will eventually cave.

    They make one point very clear, which I had so far assumed, but is now solid: The housing bubble is what triggered the current crisis.

    What these people do not assess, and I think it would have been politically risky for them to do so, is the larger issue of systematic deficit spending, both by the federal government and in a nation-wide deficit. Buying your oil from the Middle East, manufactured products from China, eventually will deplete your cash. That’s fundamental. You can then pump out more cash (low interest rates for years), issue bonds to get the cash back, but that doesn’t replace the real thing: Doing work that makes money.

    At 0:34:00 in the video, there is an interesting slide that details some of the mechanism to deal with this. New measures of financial solidity makes sense – and it is worth noting that this constitutes Transparency, not Regulation.

    You can regulate all you want – the Soviet Union did so – but if you want a health, corruption-free market, you need transparency. Adam Smith said so, and it is true as of today, too. I’m not in favor of regulations, but I _am_ in favor of transparency. Which is what we need, and that may well be state-ordained. Rule of Law is a task of the state – this makes sense.

    At 48:10 there is another central slide, and I quote:

    Section 8: Decisions by the Secretary [of Treasury] pusrusant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

    The professor, very critical about this clause in the (3 page) rescue plan, makes this comment:

    (L’etat, c’est Hank?)

    This is typical of the stuff you’d put into something that absolutely has to be rushed through, before the critical press (well, that’s us) gets an opportunity to sink its teeth into it:

    Unaccountable power

    At 52:20, where he evaluates the idea that the state should pay more than market price for the assets, he states “[this] looks like a substantial taxpayer risk”. Now, people here may think that shifting the risk from the banks to the average citizens might be a good idea – what are citizens anyway, except consumers and suppliers of cash to the financial elite?

    I disagree, of course, and believe that citizens have first rights to their earnings, and that the financial wizards are secondary.

    And there is an assumption underlying this risk-shifting that I really do not like: It is assumed that the federal government, and the FED (the federal bank) are too big to fail.

    Imagine what happens if/when they fail?

    The federal government of the USA just cannot burden more liabilities. The debt is enormous.

    Further, if Bush had shown fiscal responsibility, he’d have said, concerning Iraq: “It’s a nice war, but we can’t afford it.”

    The real risk here is that the entire federal system, taking over every lesser risk left and right, might burden itself to the point where the confidence in its currency, the dollar, fails. If that happens, no amount of dollars will purchase any ‘confidence’ in the financial system.

    I know it’s a nightmare scenario. But if you want the federal government to survive, don’t let it take over any more financial liabilities.

  8. Henrik, you make many good points in your response. I notice that one of them is NOT “Fannie Mae and Freddie Mac were stalking horses for world socialism.” For which I thank you profusely.

    You are correct that the economic condition of the U.S., far beyond the mere housing bubble, is fundamentally unsound. We can debate for a long time who is responsible and when. You and the Baron and Fausta can blame “socialist” Democrats for foisting higher spending and regulation, I can blame George Bush and the Republicans for deciding to pay for a war in Iraq, even if it were necessary, with funds borrowed from future U.S. generations rather than from the taxes of the current U.S. population.

    I am not convinced that the proposed bailout plan is sound, but even if it is, it’s a tough choice between seeing the U.S. economy tank with no plan, and rewarding a bunch of politicians and financiers who should more justly be broke, out of office, or in jail, with a financial bailout.

  9. Thanks for the comment, Former Gordon.

    No, I didn’t blame FM & FM for being involved in world socialism, I never said anything like that. I just said that they are state established and state guaranteed enterprises (which is factual – they’re GSE’s), and that this led to uncapitalistic and bad business practices. This messing up of political and economical power takes place both in socialist and fascist systems.

    For the Iraq war, you can revisit my comment and see that we basically agree. I’m just wording it in a milder way, preferring over ‘blame’ to explain it in terms of ‘responsibility’.

    I believe the Iraq war was, from an economical point of view, close to a point of no return. The government does, in my view, not make an honest attempt to return to responsible behavior.

  10. When Bush entered office, he inherited a nice budget surplus. He had, assuming Congress would agree, do the following:

    1) Do nothing, let the money trickle in and reduce the debt.

    2) Reduce taxes.

    3) Do as the Democrats wanted, increase social spending.

    He chose (2), which in my view makes less sense than (1), but more than (3).

    Picking (1) would also have enabled him to reponsibly pick item (4): War in Iraq, but that was not on the list when he entered office. With the choice he made on tax reductions, he made it irresponsible to start the war in Iraq, from a financial point of view.

  11. As usual, archonix, someone ought to hit you with a cluebat.

    Watch the video I referenced above, and you will find, in the many minutes of presentation by actual professors of Economics, as opposed to obtuse British reactionaries, very little issue with “government intervention” and a lot of issue with the stupidities of free market capitalists left to their own devices.

    Which once again proves the point that government and business need each other to keep themselves honest.

  12. As for your “reading”, archonix, the reason the secondary market for these loans has dried up is not because there “just isn’t a market for them.” It’s because they were sliced and diced and tranched by the private sector into so many complex and inscrutable securities that no one can figure out how much they are actually worth. And something that no one can figure out is therefore worth nothing.

  13. Former Gordon, as many lefties you seem to have an annoying habit of denigrating those you disagree with. ‘British reactionaries’? Come on. Next you’ll be praising the Italian Progressives from the 20’s…

    If it wasn’t for the fact that I know we’ve been watching the same video, I would think we had not. The professors are describing mechanisms, which are normal and relevant, describing how they failed in this situation, and pondering what do do with it. One said ‘more regulation’, others said ‘more transparency’.

    If you had bothered to read those articles by what you term “British reactionaries”, you would know that there is plenty of regulation already, which is exactly what gave the government the power to enforce bad lending policies. There is also one part of the regulation that causes non-defaulted loans to be put on the books at 0 value, causing an artificial liquidity crisis – a direct result of bad regulation. If you enforce more draconic regulations, you will create *more* crisis. Is this what you want?

    What sucks is bad regulation. What is useful is transparency, which in turn lays the foundation for the sensible regulation. But politicians long for power, and would rather have strict regulation – and then blame the banks anyway when they system falls down. How else to get reelected?

    The problem at the moment is that the federal system is sucking up all the risk, spending money it doesn’t have. The video describes the mechanism. It is, in a sense, easier to nationalize and force every citizen to pay for the failings of the elite. Blame the system, be the White Knight that rescues everything – and then get the hell out of there before it is realized that the government created the problems in the first place…

  14. I like being a British Reactionary. Sounds very radical.

    The facts are, Gordon, it was government intervention that caused this. Walk up to someone waving a cak The subsequent securities issue was lenders attempting to make the best of a bad situation. They wouldn’t have done it had they not been presented with a situation where they had no choice.

    Simply put: lenders don’t lend to people who can’t pay back unless they’re either forced or paid to. You may as well just stand on the street corner throwing money away… oddly enough, governments like to do that. Right now they’re standing on the corner of wall street getting ready to throw our money at the people you are saying are to blame. I’m not absolving them but neither am I placing all the blame on their shoulder. Neither they nor the government should have our money. I’m not merely “uncertain” about this bail-out, I am 100% opposed to it. Even if I were using your arguments I would be 100% opposed to it.

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