Financial Industry Woes Continue
By Alan Stewart Carl | Related entries in Barack, EconomyThe shakeup of the American financial industry continues. The latest casualties are Lehman Brothers and Merrill Lynch, both stalwarts of the banking and investing system. Lehman has filed for Chapter 11 bankruptcy. Merrill Lynch is being bought by Bank of America. Both institutions were hurt by bad real estate investments.
Unsurprisingly, Barack Obama has wasted no time in blaming Republicans and the policies of George Bush and John McCain for the continuing financial crisis. Obama points to poor regulation and a climate that encourages large CEO bonuses over smart investing.
Here’s what I want to know from Obama: what specifically does he plan to change that will prevent such financial disasters in the future? I’m not being snarky. Given that our federal government is continuing to use our tax dollars to bail out banks who’ve made horrible decisions, I am more than willing to accept a little more market regulation in order to prevent the need for future bailouts. But “regulation†comes in a thousand forms, some more harmful than the problem they seek to regulate.
If Obama believes Republican policies are specifically to blame for the current crisis, I need to know what specific Democratic policies would have prevented this mess and can prevent similar situations in the future.
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September 15th, 2008 at 7:46 am
Alan – please look into the fact that it was HUD, specifically Andrew Cuomo btw 1997-2001, that mandated HUD to buy these subprime loans thus creating a market for them.
http://www.villagevoice.com/content/printVersion/541234
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
This is EXACTLY where Keynesian economics gets a country. You want to blame it on the horrible market. Fine, but first look and see who is providing the MARKET for this subprime loans before going after the originators. It was the federal government. I think better management of HUD would be a good place to start, but it easier to play this bullshit class warefare game. CEO compensation has nothing to do with it and the fact is — if Fannie & Freddie weren’t willing to buy the securities, no such market would have existed.
This is going to be very similar to Sarbanes/Ox, where in a rush to appease morons, Congress will pass bad legislation just so they can say they did something – regardless of its effectiveness or its downside. Basically, our federal government at work.
September 15th, 2008 at 7:52 am
Policies like not letting people who couldn’t afford those mortgages get them, could have gone a long way to stopping it Alan, policies like not letting CEOs of failures make off with their golden parachutes could force more accountability, if the company goes under you lose your severance pay would make CEOs think before acting in a risky manner, getting rid of too big to let fail could prevent future bouts of companies taking unwise risks
September 15th, 2008 at 8:08 am
No more bailouts. These companies need to learn to “bail themselves out†by slashing executive salaries by 80%; give the top executive at the company no more than $1 million than what the janitor makes. Try that for a few years, and maybe things will stabilize a bit.
And Avinash is right: Time to make the switch to lead parachutes!
As to the mortgage crisis, let’s not forget that every single mortgage contract out there has the exact same two things on it, probably near the bottom:
* The signature(s) of the homeowner(s) receiving the mortgage
* The signature(s) of the lending officer(s) giving the mortgage
Squeal and cry like a little girl all you want, about one side or the other, but the blame goes both ways.
Agnostick
agnostick@excite.com
http://www.uscentrist.org
http://www.independentvoting.org
September 15th, 2008 at 9:09 am
Go to The Big Picture, http://bigpicture.typepad.com/ Read. It’s by Barry Ritholtz, who owns a trading company, so he has skin in the game.
It’s not so much what Dem economic policies, but what policies period. We’ve enjoyed 8 years of unfettered supply-side economics with a couple of heavy dollops of unregulated capital markets. Combined with 7 years of GOP control, and the first decade of the new century has been a showcase of Republican political, economic, and regulatory ideas.
What we’re living through is is the best they could do, under the most optimal circumstances.
September 15th, 2008 at 10:06 am
To play the MW game,
What is McCain’s plan?
Ahh, forget it. I feel dirty just doing that. I agree with your point–I want some specifics from Obama as well.
Thus far, all he has proposed is the creation of a Universal Mortgage Credit for homeowners who do not itemize; manadate accurate load disclosure with a standardizes borrow score/rating so buyers can more easily compare loan offers, and change the bankruptcy laws so courts can modify mortgage payments.
It’s also worth noting that as a congressman, he introduced legislation that the Republicans blocked to fight mortgage fraud and protect consumers against abusive lending practices. In addition to defining mortgage fraud (right now, there is no single definition, his legislation would have increased funding for federal and state law enforcement programs, created criminal penalties for mortgage professionals found guilty of fraud, and required industry insiders to report suspicious activity.
That’s not enough to make a difference here, I agree.
So, what is McCain offering? I don’t know. Sara Palin is speaking about the issue right now, and she says she and John McCain will “reform” Washington and Wall Street, but she’s not saying how other than those bad Wall Street CEOs who are running their companies are due for a serious hand slapping.
McCain also is offering to back FHA loans for people who took out a sub-prime mortgage taken after 2005, who live in their home (primary residence only); who can prove creditworthiness at the time of the original loan; who are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and who can meet the terms of a new 30 year fixed-rate mortgage on the existing home.
This is actually an interesting plan, I think, but I have some issues if a family pruchased a $350,000 home they really couldn’t afford, but want owners of $100,000 homes to bail them out with federally backed loans. Also, when he says FHA contacts mortgage servicer which writes down and retires the existing loan, what does that mean? Once again, this smacks of publicizing risk and privatizing profit.
And Harden, do you even read the “evidence” you push to prove your points?
When the idea was first discussed, HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders. Freddie and Fannie didn’t do that, though.
In 2000, according to the article you cited, HUD imposed new restrictions (obviously, not enough). Unfortunately, between 2001 and 2004, it was under Republican leadership the practice of grew tenfold.
And this is the Democrat’s fault how?
September 15th, 2008 at 10:18 am
This is why we need CHANGE from the Republicans in the White House, this all happened by design of the Republicans economic policies, and John Mccain will keep all those Bush policies, if elected president.
Barack or not, but anything would be better than a third term for Bush, with John McSame.
September 15th, 2008 at 10:29 am
I get so tired of the blame game on BOTH sides. I watch the housing market like everyone else, and was telling all my friends they should NOT be buying in 2005. I’m no expert, but who had to be, not to see what was coming. Everyone thinking they were going to get rich flipping a house. I don’t feel sorry for most people out here, a lot were driven by greed. But now, its someone ease’s fault they are in trouble.
Most of the politicians in Washington are dirty, on both sides of the fence. How come we’re not hearing about no special committees to get to the bottom of this. If this was all the Republicans fault, the Dem’s would be screaming in Washington. Hell, Fannie and Freddie were the Dems babies as Sen Ried said on C-SPAN a coupler of months ago.
Washington needs to be cleaned up, on both sides and that is where we the voters come in. Both we will most likely do nothing but sit back, blame the other side of who ever we voted for.
September 15th, 2008 at 2:50 pm
How did it all come to this?
http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html
Foreclosure Phil
By David Corn
July/August 2008 Issue
“Years before Phil Gramm was a McCain campaign adviser and a lobbyist for a Swiss bank at the center of the housing credit crisis, he pulled a sly maneuver in the Senate that helped create today’s subprime meltdown.
Who’s to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown. Yet has Gramm been banished from the corridors of power? Reviled as the villain who bankrupted Middle America? Hardly. Now a well-paid executive at a Swiss bank, Gramm cochairs Sen. John McCain’s presidential campaign and advises the Republican candidate on economic matters. He’s been mentioned as a possible Treasury secretary should McCain win. That’s right: A guy who helped screw up the global financial system could end up in charge of US economic policy. Talk about a market failure.”
Read the whole thing and the look at this Youtube:
http://www.youtube.com/watch?v=1mHsuL6FfY4