RE: [asa] Deregulation Madness was Re: Ben Stein on Sub Prime Mortage Crisis...

From: John Walley <>
Date: Mon Dec 08 2008 - 18:51:12 EST

I agree this thread is now off topic and I am happy to drop it but first I wanted to say thanks for the civil discourse on this sensitive issue and thanks to the moderators for letting it go on as long as they did.

As I sensed from others I really did want to get past the simplistic finger-pointing analysis served up by the respective partisan political media outlets and down to what really happened and I feel we did that somewhat here. And I am relieved to know that there is more to this than what met the eye initially as it makes it easier to accept and cope with. So thanks again.

Finally, and in response to Glenn's email the other day that I haven't been able to reply yet to about whether there are any silver linings or not, the following link dramatizes the current situation in a unique way that effectively drives home the point that I was going to try to make.

In short, if this was like Schiff says, all an illusion with no real wealth created, then this was not a sustainable option for the Chinese workers anyway. I hope it benefitted them all while it lasted.

In order to help them long term as well as people everywhere including here, we have to get back to real production and savings also like Schiff says, and I pray we get the chance to.



--- On Mon, 12/8/08, Jon Tandy <> wrote:

> From: Jon Tandy <>
> Subject: RE: [asa] Deregulation Madness was Re: Ben Stein on Sub Prime Mortage Crisis...
> To: "'Rich Blinne'" <>, "'Lynn Walker'" <>
> Cc:, "'AmericanScientificAffiliation'" <>
> Date: Monday, December 8, 2008, 11:26 AM
> While I find this an interesting discussion, as well as a
> sickening
> commentary on both corporate and governmental leadership in
> this country,
> this thread has strayed far from anything having to do with
> science or
> religion, and should probably be continued privately by
> those interested.
> Jon Tandy
> From:
> [] On
> Behalf Of Rich Blinne
> Sent: Monday, December 08, 2008 8:52 AM
> To: Lynn Walker
> Cc:; AmericanScientificAffiliation
> Subject: Re: [asa] Deregulation Madness was Re: Ben Stein
> on Sub Prime
> Mortage Crisis...
> On Dec 7, 2008, at 10:32 PM, Lynn Walker wrote:
> On Sun, Dec 7, 2008 at 11:17 PM, John Walley
> <> wrote:
> But wouldn't the Community Reinvestment Act (CRA) be an
> example of gov't
> regulation rather than the dreaded deregulation?
> Wouldn't the sub-prime
> issue been avoided if not for this gov't interference
> in the market?
> Thanks
> John
> "This was a HUGE step of deregulation by Clinton's
> administration." Read
> on:
> In 1994 Clinton put Carter's 1977 CRA on Steroids
> President Clinton also got HUD involved in the issue as
> they issued new
> rules for Fannie and Freddie. First, Fannie and Freddie
> could now buy huge
> amounts of subprime loans. In 1995, Fannie Mae bought an
> estimated $18.6
> billion in subprime loans from banks and this number grew
> exponentially over
> time.
> Non sequiter. There is little to no connection between
> subprime mortgages
> and CRA.
> 1. More than 84 percent of the subprime mortgages in 2006
> were issued by
> private lending institutions.
> 2. Private firms, that is firms that are not eligible for
> CRA, made nearly
> 83 percent of the subprime loans to low- and
> moderate-income borrowers that
> year.
> 3. Only one of the top 25 subprime lenders in 2006 was
> directly subject to
> CRA.
> This much I'll grant you, the Clinton administration
> was also
> pro-deregulation but that didn't immediately cause the
> crisis. Why?
> Deregulation was the fuel but it needed a spark. The spark
> was supply-side
> economics. John go back to the original video you posted
> and watch before
> Ben Stein comes on. One of the economists is Arthur Laffer
> of the Laffer
> curve. He was convinced there was no problem but there was
> and it was of
> his theory's making.
> Bush's tax cut for the wealthy came at a time when
> interests rates were very
> low. Furthermore, since 98% of all small business owners --
> these are the
> people who fuel most of the hiring in this country -- make
> less than
> $250,000 a year. The tax cut went to people who did not own
> small
> businesses. Where did it go? Into hedge funds because there
> was no real
> growth in the economy. It was all in the mirage of the
> housing bubble. These
> hedge funds bought into collateralized debt obligations and
> credit default
> swaps. On a side note, the value of all the subprime
> mortgages is around 2
> trillion dollars while the best guess for CDSs is in the
> neighborhood of 60
> trillion dollars. The "wealth" that Art Laffer
> referred to in the video
> wasn't there and was all on paper as correctly noted by
> Peter Schiff.
> Here's what happened according to McClatchy
> (
> Fueled by low interest rates and cheap credit, home prices
> between 2001 and
> 2007 galloped beyond anything ever seen, and that fueled
> demand for
> mortgage-backed securities, the technical term for
> mortgages that are sold
> to a company, usually an investment bank, which then pools
> and sells them
> into the secondary mortgage market. [RDB Note:There was a
> lot of excess
> money at that time because of the aforementioned tax cuts
> along with an
> increase in sovereign wealth funds of oil rich countries. ]
> Between 2004 and 2006, when subprime lending was exploding,
> Fannie and
> Freddie went from holding a high of 48 percent of the
> subprime loans that
> were sold into the secondary market to holding about 24
> percent, according
> to data from Inside Mortgage Finance, a specialty
> publication. One reason is
> that Fannie and Freddie were subject to tougher standards
> than many of the
> unregulated players in the private sector who weakened
> lending standards,
> most of whom have gone bankrupt or are now in deep trouble.
> During those same explosive three years, private investment
> banks - not
> Fannie and Freddie - dominated the mortgage loans that were
> packaged and
> sold into the secondary mortgage market. In 2005 and 2006,
> the private
> sector securitized almost two thirds of all U.S. mortgages,
> supplanting
> Fannie and Freddie, according to a number of specialty
> publications that
> track this data.
> In 1999, the year many critics charge that the Clinton
> administration
> pressured Fannie and Freddie, the private sector sold into
> the secondary
> market just 18 percent of all mortgages.
> Fannie and Freddie, however, didn't pressure lenders to
> sell them more
> loans; they struggled to keep pace with their private
> sector competitors. In
> fact, their regulator, the Office of Federal Housing
> Enterprise Oversight,
> imposed new restrictions in 2006 that led to Fannie and
> Freddie losing even
> more market share in the booming subprime market.
> What's more, only commercial banks and thrifts must
> follow CRA rules. The
> investment banks don't, nor did the now-bankrupt
> non-bank lenders such as
> New Century Financial Corp. and Ameriquest that underwrote
> most of the
> subprime loans.
> These private non-bank lenders enjoyed a regulatory gap,
> allowing them to be
> regulated by 50 different state banking supervisors instead
> of the federal
> government. And mortgage brokers, who also weren't
> subject to federal
> regulation or the CRA, originated most of the subprime
> loans.
> In a speech last March, Janet Yellen, the president of the
> Federal Reserve
> Bank of San Francisco, debunked the notion that the push
> for affordable
> housing created today's problems.
> "Most of the loans made by depository institutions
> examined under the CRA
> have not been higher-priced loans," she said.
> "The CRA has increased the
> volume of responsible lending to low- and moderate-income
> households."
> In a book on the sub-prime lending collapse published in
> June 2007, the late
> Federal Reserve Governor Ed Gramlich wrote that only
> one-third of all CRA
> loans had interest rates high enough to be considered
> sub-prime and that to
> the pleasant surprise of commercial banks there were low
> default rates.
> Banks that participated in CRA lending had found, he wrote,
> "that this new
> lending is good business."
> I am not really in the blame game so as long as the current
> players are
> against deregulation and supply side economics then
> that's fine with me. But
> of all the factors that made this mess the one that
> doesn't belong is the
> CRA.
> Rich Blinne
> Member ASA


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Received on Mon Dec 8 18:51:46 2008

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