The Zombie Lie About The Economy Right-Wingers Desperately Cling To - And Why It's Totally Wrong

[Hissyspit]

http://www.alternet.org/story/153217/the_absurd_zombie_...

The Absurd Zombie Lie About the Economy Right-Wingers Desperately Cling To -- And Why It's Totally Wrong

Home loans didn't bring on the recession; gimmicky financial instruments bloated to 100 times their value are what caused all this pain.

December 4, 2011  

- snip -

That rightly infuriated most Americans, but it has nonetheless become something of an article of faith among conservatives that Wall Street bears little blame for the Great Recession. The dominant narrative on the right today is that "big government" is ultimately responsible for the crash. In the words of one of Andrew Breitbart's bloggers, Democratic lawmakers like Barney Frank and Chris Dodd “brought down the banking industry by forcing banks to give loans to people who couldn’t afford them.”

- snip -

Short of that, notes Prins, if the crisis were really about people buying McMansions that they couldn't afford, “we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.”

What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivitaves that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth.

- snip -

One could argue that the meltdown began with a chance meeting in 1997 in a line for coffee at Bank of America's Chicago headquarters. According to the Financial Times' Gillian Tett, a chance encounter brought together people working in BofA's derivatives group with another team that was packaging mortgages into securities. From that meeting, as Tett wrote, “a new game was born: bankers began to use subprime loans to create these bundles of loan default risk, now called collateralized debt obligations (CDOs) on an explosively large scale.”

MORE

[AntiFascist]

1. K&R, where is the global outrage?

"What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry."

[snagglepuss]

2. to read later

[Hissyspit]

5. It's very good.

[tfsoccer]

3. complex causality!

Author and genius, Isaac Asimov, in the Foundation Trilogy, foresaw government being run by a chamber of Psychosocial scientists. Although this may be far beyond OUR relatively primitive ways, it presents a good model for decision making: The scientists would factor in causal events and policy made currently and in years prior, finding and fixing problems at a much deeper level than simply looking at current statistics and blaming the current government. Besides fixing the campaign financing and greed leading to corruption, a critical political challenge in today's world may be in similarly clarifying the real and complex causes, conditions and effective policy, and in then convincing a largely ignorant public of how and why effective policy is made. For a probably over-simplified example: Even though Bush's and Reagan's policy of lowering taxes on the rich seemingly failed to increase employment or improve the economy, in fact, likely contributed to major recessions, many in the congress and public still claim otherwise....likely because too many other historical/psycho/social/economic factors, along with ignorant, gullible or cynical audiences, muddy the causal relationships.

[Tesha]

9. You don't happen to have a "Prime Radiant" handy, do you?

Or know Hari Seldon's current E-mail address?

Tesha

[tfsoccer]

16. Ya!

Funny! I confess, I forget what the prime radiant is! Hari Sheldon---hummm, that rings a bell--one of the chief psychologists? I read the trilogy in my early twenties, a whole ago!

[Tesha]

19. The prime radiant was the funny little cube that could project onto the walls of the room...

...all of the equations (as currently understood) of
Seldon's pyschohistory.

It was exotic when Asimov described it, but nowadays,
of course, such gear exists in every office conference
room. Unfortunately, we still need the equations and
the will to apply them.

Tesha

[abelenkpe]

33. Love Asimov :) nt

[SpiralHawk]

4. Absurd Zombie Lies (R)

[Name removed]

6. Deleted message

Message removed by moderator. Click here to review the message board rules.

[SpiralHawk]

7. Absurd

[sendero]

8. It's hard to tell which flavor these folks are..

... but basically those spinning the stories are liars and the fools that believe them are idiots.

Fortunately, I don't think that all that many people believe them. I had a co-worker start up on that CRA bullshit and I shut his ass down right then and there.

There are sites all over the web that saw what was happening as early as 2004 or so. They predicted disaster and they were generally laughed at. Nobody is laughing now, and nobody with an internet connection has any excuse whatsoever for not understanding this crisis, there are a lot of nuances but basically it is simple. Bankster greed coupled with regulatory capture. There, six words.

[bvar22]

15. "as early as 2004 or so"...

In 2006 and 2007, there were many people raising the warning flags.
They were roundly ridiculed as idiots and Henny Pennies (The Sky is Falling),
even here on DU.

I am glad my Wife & I heeded these warnings in 2007.




You will know them by their WORKS,
not by their excuses.
Solidarity99!
--------------------------------------------------------------------------------------------------------------------------------

[JDPriestly]

25. It was beyond obvious in LA by 2004.

Housing prices were rising at break-neck speeds.

Wages were comparatively stagnant.

That does not make sense. Housing prices can only rise if the wages that pay for them rise proportionately.

I will never believe that the bankers were too stupid to see such the obvious connection between housing prices and wages. This was a set-up. If I with no banking experience and no background in economics could figure this out, they had to have known and certainly should have known what the end result would be.

[abelenkpe]

35. Cannot tell you how many of our friends and coworkers bought between

2003-2008 here in LA because "home prices only go up!" "buy now or be priced out forever!" Some were proudly putting close to sixty percent of their combined incomes into their monthly payment and thought they were making a great investment. LA prices are still out of whack.

[mmonk]

40. The historical pattern is they go up. But slowly, not double in five years.

That is what happens when mortgages become investments instead of debt.

[econoclast]

10. Counterexample ... Ireland

Ireland was one of the first and worst casualties of the global financial crisis yet their real estate bubble and crash had hardly any complex financial products involved. And it wasn't easily fixed in a coupl'a days back in 2008. Any comprehensive explanation of the financial crisis needs to account for cases like Ireland (and Spain whose real-estate bubble and bust is similar)

[SidDithers]

11. K&R...

good piece from Joshua Holland

Sid

[MadHound]

12. This economic crisis was the result of Greed meeting Stupidity,

And having a violent collision. Banks and the financial sector saw a nice, new, underhanded way of making tons of money. Ordinary folks thought that they could have a nice, in many cases, real nice house, at an affordable price.

The financial sector didn't think ahead, beyond their own personal profit. Neither did ordinary people, they didn't consider the full ramifications of the deal they were making. All they saw was a nothing down loan, with low initial interest rates and not too many questions asked.

What could go wrong?

[JoePhilly]

13. Gramm-Leach-Bliely Act of 1999 ... its starts there.

That bill allowed financial companies to make a bad loan, and then chop it up into pieces, to be combined with the pieces of other good loans.

The theory was that you could use this approach to spread out the risk from that one bad loan.

In practice, financial companies decided to take lots and lots of bad loans, and chop them up, and then mix the pieces together with even MORE bad loans. And then they would sell these AS-IF there were pieces of good loans included, when there were not.

From 2000 until the collapse, more and more of the financial companies had figured out that you could make lots of bad loans, chop them up, repackage the mess, and then SELL that sausage, passing ALL of the risk to others. But because ALL of the big financial companies were doing it, they were simply passing these nasty loans back and forth, spreading them through out the financial world. Poisoning the financial markets.

Phil Gramm, the architect of this disaster, left Congress shortly after that bill passed. He was then immediately appointed to the board of directors at financial giant UBS. Go figure.

[JDPriestly]

26. The article cited in the OP points out that the problems started much

earlier than 1999. It's worth reading the whole article.

[certainot]

14. its impossible for left to beat the RW myths as long as it ignores RW radio

those lies were sold for months from 1000 radio stations and they're well established and continuously maintained.

organized opposition that discredits the main talkers and pressures local sponsors and universities to rethink their support for the big RW stations will make many things a lot easier for progressives.

[JuniperLea]

18. That's why it's best to 'know thine enemy'

But you'll hear a chorus of "why bring that rw crap here" and "why do you watch/listen to that junk?"

Because... you need to know what you're up against. Otherwise you'll be unarmed.

[certainot]

22. for instance, limbaugh spent months telling the teabaggers raising the debt ceiling was not importan

because to default would force dems to cut spending- that was a large part of why we ended up where we did, with a supecomittee and a downgrade- 1000 teabag reps with dittohead constituencies.

but the pundits continued to be perplexed by what was happening and didn't know why. and team limbaugh got no credit for one more attempt to sabotage the economy and obama, while many in the left and media blamed obama.

the supercomittee failure may work out okay or a stroke of genius, but getting to that point was largely talk radio power and the left and media pundits had no clue.

[JDPriestly]

27. At my age, you already know what you are up against, and you

don't need to listen to that junk or bring rw crap to Du to know.

You just read the right wing code words. They are so obviously deceptive -- not hard to figure it out.

[nxylas]

20. I don't think the left ignores RW radio

It's just that the right has a 1000 watt amp while the left has a speakerphone. The left tried setting up its own equivalent in Air America, but unsurprisingly didn't attract nearly the amount of funding that the 1% media has.

[certainot]

21. there is no organized opposition and it's their best media tool

global warming can't wait for the passive approach.

[oldhippydude]

29. bingo

there are alot of folks who live in that right wing universe.. and its self perpetuated by the liberal media myth (dont trust anybody but us).. i can't carry on a conversation with these folks, simply because we not only have a different world view.. we have a different set of facts..

we say bankers they say barney.. and we both have "proof"

[JuniperLea]

17. I'd say it was a melange of wrong...

And once you mix it up, there's no way to separate the wrongs.

[humbled_opinion]

23. This is the age old argument of Government vs Private sector

It boils down to this, the Government through agencies like Fannie Mae and Freddie Mac as well as Ginny Mae FHA and VA were backing zero down homeloans. The goverment than told the banks to make homeownership available to as many people as it could. This sparked a building boom and a homeownership record boom, it also brought out the CAPITALIST (greed) in a whole host of people. Thousands of people were making money by filing for multiple mortgages and flipping houses, others where cashing out the booming equity in refi's and spending like crazy, the banks were selling the risky loans (subprime mortgages) as CDO's etc, so everyone was taking advantage of the entire boondoggle up and down the entire chain. According to the Teaheads at my job, this is what has got them so riled up, because the government involvement in the private sector essentially caused this chaos. They point out that Historically, the banks (private Sector) always required 20 percent down that is why homeownership was never guranteed to everyone and the poorer among us could never afford to buy a home, because you had to save for a long time to meet the downpayment requirement. Once you invested the downpayement you were less likely to walk away from your mortgage when times got tough and more likely to do whatever it took to keep paying your mortgage so you didn't lose the 20 percent, additionally, when you did stop paying and got foreclosed, the bank happily took your deposit and easily unloaded the house on the market at a 20 percent reduced cost, this kept property vaulues continually moving up never down and made mortgage assets a very stable investment for the banks to use as collateral. Of cours there are degrees of seperation the people made small amounts of money or walked away from realatively small amounts of total debt, where the banks were dealing with amounts in the Trillions.

[JDPriestly]

31. Read the article cited in the OP. If you believe what you say in your post,

you especially need to read the article cited in the OP.

Don't want to insult you, but you have drunk the poison kool-aid.

Do you seriously think that a legislature and presidency elected with the help of huge donations from the banking and construction industries passed legislation that could force bankers to take risks on bad loans or construction companies to build housing that can't be sold without the approval of the bankers and construction companies?

Good rule of thumb: in politics, the rich get what they pay for.

Watch the testimony on CBS's 60 Minutes of the woman from Countrywide who describes the cover-up of fraud by commission-hungry mortgage sales reps. that she claims to have seen.

Then read about all the money made on Wall Street thanks to the sales of worthless derivatives on the housing market.

As I said in another post above, it did not take a degree in accounting or economics to know even before 2004 that the speed with which the LA housing prices were rising would lead to a crash. That is because wages were not rising equally fast.

Any person capable of a little elementary arithmetic reasoning could (and did) figure out this simple equation: relatively low, relatively stagnant wages plus rapidly rising housing prices = many mortgage defaults and eventually = economic crash.

Sorry, but it is and was so, so, so, so obvious.

Because the connection was so obvious, I am of the opinion that the bankers and mortgage sales companies committed fraud. Again, I apologize for being so harsh.

The article tells the whole story. Read every word of it and then see if you still hold the opinion that you now hold.

[humbled_opinion]

32. I think you completely missed my point

I was simply pointing out the correlation of government involvement in the mortgage banking industry and the fact that with a solid downpayment investment in a home which a bank typically required in the past than those homeowners were less likely to allow the property to foreclose that is simple common sense. Banks can only exist if they mitigate the risk of their loans.

On the bigger issues of fraud, and who screwed whom, I completely agree with you, greed fueled the banks desire to make more money from the subprimes and therefore they packaged those risky loans and sold them off. Greed fueled the mortgage brokers making a killing on commissions, and Eventually as people could no longer afford their mortgages because of either ARM's adjusting, inability to refi, lose of jobs, couldn't sell in a stagnant market, flippers losing thier ability to sell for profit, etc.. than a rash of foreclosures brought down the whole house of cards.

[JDPriestly]

41. Did you read the article? The banks lobbied for years and years

to get rid of Glass Steagall and after a chance meeting in a lunch line hatched the plan to manipulate the markets to make the no interest loans engines of short-term profits through the use of derivatives. Sounds to me like something similar to the arbitrage schemes that did so much damage in the 1980s.

We got two VA loans in our lives -- no money down. The lack of money down was not the problem. The fraud in filling out the forms and the low standards for verifying income and the ability of the primary borrower to actually pay the loan were the primary mistakes that mortgage lenders made. Banks did not check the paperwork on the loans they bought.

Do you remember Henry Cisneros from the Clinton administration? He allegedly lied on a mortgage application and landed in jail. This was quite common. The lack of down payments was not the key problem.

Another key problem was the ratings system with regard to the value of housing. As I pointed out, wages were not rising as fast as housing prices. I cannot believe that economists, the Fed and the banks missed such a vital correlation. I just do not believe that. They knew. They let this happen. They have made a fortune on bringing down the world economy.

Sheer evil. The lack of downpayments was part of the scheme, but not a very important part.

[abelenkpe]

34. That is not how it went down at all

Innovation came from the private sector. Fannie and Freddie followed later hoping to ride the magic bus of everlasting profit. In the end they've absorbed all the sins of private banks excess and their reward? To be blamed for causing the mess. I have been awake for the past twenty years and you are wrong.

[Enthusiast]

37. Bull

[olegramps]

43. You are off base with your assessment.

When I applied for two VA loans, I had to pass very stringent requirements that guaranteed that I would be able to make the payments. These included a credit check, verification of employment and banking records. Your house payment including taxes and interest could not exceed a set percentage of your total income. There were even requirements that limited the amount of your spouses income that could be included. When the banks were holding the paper they were damn careful about to whom they were loaning money.

The banks didn't give a damn when they were provided with options to bundle and sell loans as securities. They engaged in wholesale fraud along with the reality agents and rating agencies that gave the phony securities AAA ratings. I have a life long friend that is a real estate agent and he confided that agents were telling people applying for a loan to put down any salary and assets since it would not be verified.

This is just another example of Republican propaganda that their gullible zombies swallow.

[JDPriestly]

24. K&R

They needed some help laundering the risk out of those shaky loans, and they got it. According to a Senate investigation concluded earlier this year S&P and Moody's, the two dominant ratings agencies, “issued the AAA ratings that made ... mortgage backed securities ... seem like safe investments, helped build an active market for those securities, and then, beginning in July 2007, downgraded the vast majority of those AAA ratings to junk status.” And when they did so, it “precipitated the collapse of the markets and, perhaps more than any other single event, triggered the financial crisis (PDF)."

http://www.alternet.org/story/153217/the_absurd_zombie_...

And now, the ratings agencies are downgrading the credit ratings of various countries -- because those same countries bought the securities that the rating agencies fraudulently overrated in order to rev up the market.

Who is ultimately responsible for the mortgage crisis then and the crisis in national debt now?

Any ideas?

[oldhippydude]

30. yes

a lot of pension funds and other investments invested on those false ratings.. so now we got baby boomers robbed of retirement.. and the right wingers wanting to "privatize" social security.. loose loose sitiation..

[Skittles]

28. easier to blame poor people than rich people

conservatives serve their masters that way

[Enthusiast]

36. kr This is exactly correct.

The media has been complicit in pushing the Republican argument. The Republicans know what happened last time they caused a depression and they rightfully got the blame.

[ErikJ]

38. Repeat after me-Community Reinvestment Act, Freddy Mac, Barney Frank

God those idiots make me sick.

[Huey P. Long]

42. Repeat after me, 'derivitives'. -eom

[Gringostan]

39. Outside of Vegas

Capitalism run amok has never worked and never will; you cannot have productivity without labor. Outside of Vegas, money does not make money. Would I like to make money while sitting on a beach sipping a pinna collada – yes. Is it productive in the long run – no.

[G_j]

44. K