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Oct 23, 2008

Comments

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Don Moore

Was there anything wrong or incorrect with the article?

Nothing wrong with Sci-Fi writers or even tech writers. Just because they make their living in one world doesn't disqualify them for observing the real world.

Ed Cone

I love sci-fi, and have fond memories of reading Ender's Game with my son long ago. Scott's a nice guy, and I look forward to being on a panel with him next week at Beth David synagogue.

But saying that Fannie and Freddie were the root cause of the housing crisis is simplistic to the point of being incorrect, and ignoring the role of heavily-lobbied GOP members of Congress in heading off reform of F&F is a serious oversight. Certainly the Dems bear plenty of blame for F&F, but they were not the singular cause of the housing mess Card claims them to be -- and meanwhile, the entire housing market could have gone belly up without wrecking the global financial industry -- it was the huge pile of opaque and unregulated securities stacked on top of the mortgages that fueled that disaster.

So, yeah, there was something wrong or incorrect in the article -- hence my pleasantry about it reading like science fiction.

Spag

Ed doesn't understand the meaning of "root" as in "root cause". Before there can be "reform" to be lobbied against, there must be something that needs reform.

Ed Cone

Fannie and Freddie needed reform. That doesn't make them the root cause of the housing bubble. Card's thesis statement ("This housing crisis [...] was a direct result of the political decision, back in the late 1990s, to loosen the rules of lending so that home loans would be more accessible to poor people") just doesn't fly. It's a well-worn argument, featured in a popular YouTube video, and beloved of people who want to ignore the role of private lenders, financiers, borrowers, et al, but that doesn't make it so.

Fred Gregory

Simplistic. Not really. Pelllucid , quite .

Ed, you are stuck on Pee-Wee Herman( Paul Reubens ).
You blithely concede that the Dems share part of the blame. How about almost all of it? You don't dispute the facts in Card's argument but mockingly brush them off as the work of a science fiction writer. Look who's talking.

Nothing is hardly ever, of course, the singular cause but Card presented a powerful, accurate history of who and what was responsible, which should shame those in journalism the who are not pathologicaly incapable of emabrrassment.

Ed Cone

The chronology and the data just don't support the F&F-as-root-cause theory. They were, in fact, late to the party in terms of sub-prime, and had a much smaller share of the market when they did start buying subprime mortgages (not, as Card says, "approv[ing] risky loans") than they did earlier in the decade.

Again, Fannie and Freddie were part of the mortgage mess story. Democrats definitely protected F&F, and bear their share of the blame for doing so, but GOP lawmakers also failed to bring reform to a vote after a lavish lobbying effort by Freddie.

Spag

Ed,

1) Would there be a crisis if everyone was paying their mortgage on time?

2) How much of the market does Freddie and Fannie have?

Ed Cone

1)No, and of course that's part of the problem -- lenders and borrowers made bad deals, at interest rates kept artificially low. Multifactorial problem, even before you get to the financial engineering -- although that distinction itself is misleading, because the financial engineering was a major driver behind the loans.

2) "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." (source)

confused

Ed's absolutely right here.

If you understand risk (you can estimate the risk of subprime mortgages), you can manage for it.

It was when these risky mortgages were bundled that into such opaque instruments that the underlying risk could no longer be estimated. The true underlying cause was probably access to such cheap money (thanks to low interest rates) that the banks couldn't help themselves from borrowing heavily to keep buying on the --at the time -- highly profitable secondary markets... They waaay overextended themselves on shit that they couldn't estimate the risk.


Blaming it all on (or even mainly) Fannie and Freddie isn't based on the evidence...

So god help us if you try to fix this all based on that.

Beelzebubba

Why reform anything that works perfectly, the way it was designed to work. The purpose of Congressionally created institutions was to create incumbents and voters to enable them. Assuming one can create value from nothing violates Natural Law. To assume one can do this is called hubris. Hubris invites Nemesis. Nemesis is a bad bitch whether you believe in her or not.

cheripicker

OK, my education on subprime is as complete as it’s going to get so here’s my take on the Card article and your response to it. First, the primary subject of the article is clearly the abandonment of journalistic integrity by the ”mainstream” media, in this case, with emphasis on local newspapers. This is the same topic I tried unsuccessfully to raise with you earlier, my emphasis being on traditional and cable TV news networks. I want to be clear on definitions here. By loss of integrity he (and I) mean intentional liberal bias in reporting. By liberal bias we mean blatant favoritism of democratic or liberal principles or candidates and equally negative coverage of Republican or conservative candidates or positions with the intent of influencing the result of an election. No need for any obtuse " blacks voted overwhelmingly for obama, and tend to vote strongly for democrats in general. so...blacks are liberal, right?but: blacks were instrumental in the prop 8 anti-gay-marriage referendum in CA last week. so...blacks are conservative?" definitions of what is liberal and what is conservative, OK?
The secondary subject is the example of media coverage of the two candidates’ and parties’ stances on government regulation of GSE’s and other lenders subject to the CRA leading up to the crisis and thus their relative culpability in its outcome.
Your objections to the article are basically that GSE’s and their oversight were a significant, but not the primary factor which led to the crisis. From my limited research I completely agree. However, some of yours (and Klugman’s ) points do not seem so clearly borne out. First Klugman’s conclusion from this very busy graph, incompletely labeled and without footnotes or accompanying analysis from its source, seems a little simplistic (and as I found below, self-serving) and the graph itself raised more questions for me than it answered, some of which I submitted to you earlier. If you read the Wikipedia entry I sent earlier (see attachment), it would seem to show a much greater role for the GSE’s and a greater significance of the years 1994-2003 in general in terms of the subprime crisis than Krugman would like to admit. It also contrasts with your statement that “Fannie and Freddie were relatively late to the subprime party”. Sounds to me like they were pioneers from the mid 90’s to 2003, which is not inconsistent with the graph. Finally, even after the divergent trends he refers to which began in 2003, the GSE’s still held nearly twice the outstanding debt as the “asset-backed security issuers” although from the graph, we can have no idea how much of that was subprime. Also, consider the source. I looked up Klugman on Wiki and this is what I found.
Paul Krugman
From Wikipedia, the free encyclopedia
Paul Robin Krugman born February 28, 1953) is an American economist, columnist, author and intellectual.[2] He is a professor of economics and international affairs at Princeton University, and a columnist for The New York Times [edit] Biography
[edit] Political views
Krugman is a self-described liberal. His choice of the book title "The Conscience of a Liberal" is a play on Barry Goldwater's "Conscience of a Conservative" He is an ardent critic of the George W. Bush administration and its foreign and domestic policy.
[edit] Author and journalist
In September, 2003, Krugman published a collection of his columns under the title, The Great Unraveling. Taken as a whole, it was a scathing attack on the Bush's administration's economic and foreign policies. His main argument was that the large deficits generated by the Bush administration—generated by decreasing taxes, increasing public spending, and fighting a war in Iraq — were in the long run unsustainable, and would eventually generate a major economic crisis. The book was a best-seller.[28][29][30]
In 2007, Krugman published The Conscience of a Liberal. The book is a history of wealth and income gaps in the US in the 20th century. The book documents that the gap between rich and poor declined greatly in mid-century, then widened in the last two decades to levels higher than those in the 1920s. He rebuked the Bush administration for policies that currently widen the gap between the rich and poor. Krugman proposed a "new New Deal", which included placing more emphasis on social and medical programs and less on national defense.[31] The book was praised in outlets such as The New York Review of Books,[32]
Krugman has appeared several times as a guest on MSNBC, particularly since the onset of the economic crisis in September 2008. He has repeatedly expressed his view that Alan Greenspan and Phil Gramm are the two people most responsible for causing the crisis.[34]
. [edit] Income distribution
In the 1990s, Krugman increasingly focused on writing books for a general audience on issues he considered important for public policy. In The Age of Diminished Expectations and The Conscience of a Liberal, he especially wrote about the increasing US income inequality in the "New Economy" of the 1990s. He attributes the rise in income inequality partly to changes in technology, but also partly to the weakening of the welfare state.
[edit] Criticism
Throughout his career as a columnist, Krugman has been highly critical of what he regards as dubious economic ideas, such as: protectionism, with attacks on Pat Buchanan on the Right and Ralph Nader on the Left; a return to the gold standard as promoted by editorial writers in the Wall Street Journal; and especially supply-side economics, which he described as economic "snake oil" in Peddling Prosperity. He has frequently been criticized in turn by exponents of these ideas; the journalist James Fallows spoke of his "gratuitous spleen," and Clinton commerce secretary Jeffrey Garten complained that "He behaves like someone with a massive chip on his shoulder." administration.
A November 13, 2003 article in The Economist [46] reads: "A glance through his past columns reveals a growing tendency to attribute all the world's ills to George Bush…Even his economics is sometimes stretched…Overall, the effect is to give lay readers the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory."
.Economist Daniel B. Klein published during 2008 a paper in Econ Journal Watch, of which he is the chief editor, that reviews and criticizes Krugman's columns for the New York Times. Klein contends that Krugman's "social-democratic impetus sometimes trumps people's interests, notably poor people's interests... Krugman has almost never come out against extant government interventions, even ones that expert economists seem to agree are bad, and especially so for the poor."
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Good gosh, Ed. Could you have picked a more biased “expert” to weigh in on this? Aren’t you the guy who called my use of IRS tax tables to illustrate points about tax issues “cherry-picking”? What would you call your use of this source as a way of downplaying Congress’s role in the subprime debacle, then?
Back to Card’s article. In your blog, you had this exchange with Xxxx Xxxx about the article:
“Was there anything wrong or incorrect with the article?”

Nothing wrong with Sci-Fi writers or even tech writers. Just because they make their living in one world doesn't disqualify them for observing the real world.”
Posted by: Xxxx Xxxx | Oct 23, 2008 at 03:20 PM
“I love sci-fi, and have fond memories of reading Ender's Game with my son long ago. Scott's a nice guy, and I look forward to being on a panel with him next week at Beth David synagogue.
But saying that Fannie and Freddie were the root cause of the housing crisis is simplistic to the point of being incorrect, and ignoring the role of heavily-lobbied GOP members of Congress in heading off reform of F&F is a serious oversight. Certainly the Dems bear plenty of blame for F&F, but they were not the singular cause of the housing mess Card claims them to be -- and meanwhile, the entire housing market could have gone belly up without wrecking the global financial industry -- it was the huge pile of opaque and unregulated securities stacked on top of the mortgages that fueled that disaster.
So, yeah, there was something wrong or incorrect in the article -- hence my pleasantry about it reading like science fiction.”
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Ed, I completely agree with you that Fannie and Freddie were not the sole cause for the subprime mess, maybe not even the biggest. However, if Card would concede that point and substitute “largely fueled by” for “a direct result of” in the third paragraph, I can find nothing but truth in the remainder of the article. In narrowly focusing on the “ A cause vs THE cause” argument , you are missing the big picture and the point that has resonated with so many people about this article. His point and mine, which I feel is indisputable, is that the media deliberately ignores covering whatever role the failure to support tighter regulation of the GSE by democrats DID play in the debacle and if it was the republicans who had resisted tighter regulation they would have been crucified. If you deny this you are living in a dream world. Even Saturday Night Live knew the democrats were on the wrong side of the subprime crisis. I saw this last night on a rerun. It was hilarious. Oddly, shortly after it originally aired the video was pulled by NBC from the internet. Hmmmmmm. http://www.youtube.com/watch?v=epE9lk0xj68
People are pissed off that they don’t know where to find neutral reporting about what goes on in their world, Ed. People are pissed off that the media tries to influence rather than cover elections. Ordinary working people have no desire or time to find their favorite blog or find which network’s ideology most matches theirs. Most people don’t have a choice when it comes to local newspaper. You can accuse me of shouting slogans, platitudes and nonsequiturs all you want, but as a journalist who by my observations seems incapable of conceding any point a conservative makes, you are being complicit in the disintegration of your own profession. Conservatives cannot all be dead wrong all of the time. I say this with all due respect to you and the principles for which journalism once stood. I will leave you with my specific response to Card’s article.( attachment #2) I emplore you to at least watch the the imbedded congressional hearing video. It is powerful and worth all my words combined http://www.youtube.com/watch?v=_MGT_cSi7Rs


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