Cost of Bush Tax Cuts

[Magox]

Obama's number over and over and over again has been 250k. To be clear, you saying this means you make over 250k (I think that would make you the richest man in Buffalo?).

 

Does your accountant invest your money and turn your money into more money? I'm sure pay taxes on this money, but your 10% gain on your 500k is much better than Shaniqua Jones down the street who had $10 leftover to invest and spent it on a lottery ticket and didn't win.

You're an idiot

[3rdnlng]

Obama's number over and over and over again has been 250k. To be clear, you saying this means you make over 250k (I think that would make you the richest man in Buffalo?).

 

Does your accountant invest your money and turn your money into more money? I'm sure pay taxes on this money, but your 10% gain on your 500k is much better than Shaniqua Jones down the street who had $10 leftover to invest and spent it on a lottery ticket and didn't win.

 

Does your lawyer give you your annual physical? Do you purposely try to make yourself look like a complete moron? I just find it hard to fathom that your ancestors could have survived long enough to produce you. If you aren't just pulling everyone's chain then I'm not so sure I believe in survival of the fittest anymore.

[TPS]

Really dude, you have to learn to comprehend what people say rather than interpret it as you see it.

 

I said MAINLY and I said ORIGINATED, nowhere did I even suggest or imply ONLY. OK? Good!

Where did I say you said "only"? I know you realize there were a lot of factors, but you did say it (CRA) "played a huge role."

 

As for your articles, from the first one:

In an interview, Fannie Mae Executive Vice President Thomas A. Lund said the company pursued the purchase of subprime loans in 2006 and 2007 at the request of lenders, who wanted Fannie Mae to take the loans off their books. He said Fannie Mae hoped to bring higher standards to the market, and he added that the loans helped the company in its struggle to meet goals the government had set for Fannie Mae's advancement of affordable housing.

While they had "goals" the government set, they were pushed by banks to buy their crap, so they could keep the bubble going and continue to generate the fees from the loans. As it also says, they entered the subprime market in 2006/7, and the bubble was already in progress.

One might conclude from this article that Fannie went into the subprime market mainly to boost its earnings on higher interest loans becuase of the accounting scandal in which they overstated earnings.

 

your second article is an editorial by someone from the Ayn Rand institute. Very objective.

Try reading something a little more objective:

The research focused on two basic questions. First, we asked what share of originations for subprime loans is related to the CRA. The potential role of the CRA in the subprime crisis could either be large or small, depending on the answer to this question. We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis.

 

Second, we asked how CRA-related subprime loans performed relative to other loans. Once again, the potential role of the CRA could be large or small, depending on the answer to this question. We found that delinquency rates were high in all neighborhood income groups, and that CRA-related subprime loans performed in a comparable manner to other subprime loans; as such, differences in performance between CRA-related subprime lending and other subprime lending cannot lie at the root of recent market turmoil.

 

In analyzing the available data, we focused on two distinct metrics: loan origination activity and loan performance. With respect to the first question concerning loan originations, we wanted to know which types of lending institutions made higher-priced loans, to whom those loans were made, and in what types of neighborhoods the loans were extended.5 This analysis allowed us to determine what fraction of subprime lending could be related to the CRA.

 

Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.6

 

Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.

 

Of course, loan originations are only one path that banking institutions can follow to meet their CRA obligations. They can also purchase loans from lenders not covered by the CRA, and in this way encourage more of this type of lending. The data also suggest that these types of transactions have not been a significant factor in the current crisis. Specifically, less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions.

 

I now want to turn to the second question concerning how CRA-related subprime lending performed relative to other types of lending. To address this issue, we looked at data on subprime and alt-A mortgage delinquencies in lower-income neighborhoods and compared them with those in middle- and higher-income neighborhoods to see how CRA-related loans performed.7 An overall comparison revealed that the rates for all subprime and alt-A loans delinquent 90 days or more is high regardless of neighborhood income.8 This result casts further doubt on the view that the CRA could have contributed in any meaningful way to the current subprime crisis.

Fed president

 

Sure, government policies support homeownership, they always have. You seem to think there were significant changes in those policies that were the "root cause" of the bubble; I disagree. There was a bubble across all segments of the market. Like any bubble, or ponzi scheme, you continually need more players to keep it going. The mortgage finance industry paid a lot of money to pols to keep it going too.

 

An interesting question, that I don't know the answer to: as I recall, the first casualty of the crisis was a British bank (Blackrock?). How was its failure related to the real estate bubble in the US?

[GG]

F-ng a

 

Bills sign Kelsay, and I agree with TPS.

 

The four horsemen must be on the horizon.

[TPS]

Nice. Turn an economic discussion into a political one. When you do that then it is obvious your economic views are formulated to back up your political views. What's important isn't so much the messenger but the message.

I have news for you, all economic discussions are political, and all economists, just as everyone else does, have a political bias.

Do you think your link was not biased?

 

Why do you think there is a lack of demand? The people that have cash are conserving it because they don't know what is going to happen.

Because the real unemployment is close to 15%.

[GG]

An interesting question, that I don't know the answer to: as I recall, the first casualty of the crisis was a British bank (Blackrock?). How was its failure related to the real estate bubble in the US?

 

Northern Rock.

 

But the same analogy can be applied to how did Iceland collapse due to the subprime mortage markets in US & UK? Why did the landesbanks need a bailout?

[Magox]

Where did I say you said "only"? I know you realize there were a lot of factors, but you did say it (CRA) "played a huge role."

 

As for your articles, from the first one:

While they had "goals" the government set, they were pushed by banks to buy their crap, so they could keep the bubble going and continue to generate the fees from the loans. As it also says, they entered the subprime market in 2006/7, and the bubble was already in progress.

One might conclude from this article that Fannie went into the subprime market mainly to boost its earnings on higher interest loans becuase of the accounting scandal in which they overstated earnings.

 

When you said:

 

First, are you saying there was only a bubble in poor neighborhoods?

 

And Fannie didn't enter the subprime markets in 2006,

 

Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business."

 

they expanded, big difference...

 

And regarding the Fed link you provided

 

We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis.

 

 

Hold on a second, you are telling me that I should value the opinion of the Fed regarding the risks of SubPrime lending when they were the one's who said:

 

Th

e subprime mess is grave but largely contained, said Federal Reserve Chairman Ben Bernanke Thursday, in a speech before the Federal Reserve Bank of Chicago. While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S. economy, he said. The speech was the Chairman’s most comprehensive on the subprime mortgage issue to date.

 

“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,” Bernanke said.

 

Ok, so you value their opinion regarding Subprime lending... Ok

 

They also believe that too low for too long interest rate policies didn't play a role either.

 

Oh, and on a slightly off-topic matter but still talking about the FED, they also believe that we NEED more inflation and that they will continue to keep printing money until it happens.

 

As I have always said, the problem isn't the Supply of money, it's the Velocity in which it is released. Supply Vs. Velocity

 

This won't get the results that they will be aiming for, which is to appreciably lower the unemployment rate and to get the banks to lend more. The proof is in the pudding, interest rates are already at record lows, yet loan demand for homes are continuing to drop.

 

Corporations are able to get funding at the lowest corporate bond rates in a very long time, yet they aren't spending it.

 

The money is there to lend, the problem is that there is a lack of credit-worthy borrowers and demand for loans because of the lack of demand for domestic goods and services.

 

The cost of capital is already extremely cheap.

 

All this will do, the expansion of the Fed's balance sheet is debase the value of the dollar and increase inflation expecatations. As I have stated, it's a race to the bottom, and as I predicted, the only appreciable affect this will have is that it will create asset bubbles, primarily in commodities, which of course leads to inflation...

[drnykterstein]

Does your lawyer give you your annual physical? Do you purposely try to make yourself look like a complete moron? I just find it hard to fathom that your ancestors could have survived long enough to produce you. If you aren't just pulling everyone's chain then I'm not so sure I believe in survival of the fittest anymore.

Ouch you've cut me to the quick? You are a very serious person who should take himself very serious, and you should not look at the mirror every day and think that you are a joke.

 

This is one of those examples of why I think is board is full of morons. You completely ignore my post and the point of it. You nitpick one little negligible detail and blow it up into some big deal. Yes accountants have phones and can call investors. They can also just be investors themselves. They can also say to you "hey man look you have extra money, you should invest".

 

!@#$ off with your false self-righteousness.

Edited September 30, 2010 by conner

[Joe Miner]

Ouch you've cut me to the quick? You are a very serious person who should take himself very serious, and you should not look at the mirror every day and think that you are a joke.

 

This is one of those examples of why I think is board is full of morons. You completely ignore my post and the point of it. You nitpick one little negligible detail and blow it up into some big deal. Yes accountants have phones and can call investors. They can also just be investors themselves. They can also say to you "hey man look you have extra money, you should invest".

 

!@#$ off with your false self-righteousness.

 

You seem to be alluding to the notion that you think accountants and, "investors" perform very similar functions that can easily overlap. That they're two sides of the same coin.

 

This tells people that you have no idea what you're talking about on either the subject of accounting or "investing". Not that they needed more data for your stupidity trend.

[3rdnlng]

Ouch you've cut me to the quick? You are a very serious person who should take himself very serious, and you should not look at the mirror every day and think that you are a joke.

 

This is one of those examples of why I think is board is full of morons. You completely ignore my post and the point of it. You nitpick one little negligible detail and blow it up into some big deal. Yes accountants have phones and can call investors. They can also just be investors themselves. They can also say to you "hey man look you have extra money, you should invest".

 

!@#$ off with your false self-righteousness.

 

Your other points were that "Peace" appeared to make over 250k so that would make him the richest man in Buffalo and Shaniqua spends her spare $10 on the lottery. Are you sure you want me to address those important and pertinent points?

[TPS]

 

Ok, so you value their opinion regarding Subprime lending... Ok

 

They also believe that too low for too long interest rate policies didn't play a role either.

 

Oh, and on a slightly off-topic matter but still talking about the FED, they also believe that we NEED more inflation and that they will continue to keep printing money until it happens.

 

As I have always said, the problem isn't the Supply of money, it's the Velocity in which it is released. Supply Vs. Velocity

 

This won't get the results that they will be aiming for, which is to appreciably lower the unemployment rate and to get the banks to lend more. The proof is in the pudding, interest rates are already at record lows, yet loan demand for homes are continuing to drop.

 

The money is there to lend, the problem is that there is a lack of credit-worthy borrowers and demand for loans because of the lack of demand for domestic goods and services.

 

The cost of capital is already extremely cheap.

 

All this will do, the expansion of the Fed's balance sheet is debase the value of the dollar and increase inflation expecatations. As I have stated, it's a race to the bottom, and as I predicted, the only appreciable affect this will have is that it will create asset bubbles, primarily in commodities, which of course leads to inflation...

Well I guess we'll have to agree to differ on which source we think is more reliable: Fed researchers vs Washington Post journalist and Ayn Rand institute member.

 

We agree here: Monetary policy has very little effect during a serious recessions when loan demand is flat (which is why there is velocity has slowed and the "money multiplier" is non-existent). I think in my pm to you I mentioned I believe that investors are speculating in commodity futures which could mean a bubble is brewing there. The dollar decline is something the economy needs, as exports have been one of the few bright spots.

 

The other point of disagreement I have is your view of money, specifically that you think the Fed has "printed" money, but we've certainly been down this road before, so I won't rehash.

[Magox]

 

 

We agree here: Monetary policy has very little effect during a serious recessions when loan demand is flat (which is why there is velocity has slowed and the "money multiplier" is non-existent). I think in my pm to you I mentioned I believe that investors are speculating in commodity futures which could mean a bubble is brewing there. The dollar decline is something the economy needs, as exports have been one of the few bright spots.

 

It's not a bubble... When the dollar goes down, commodities go up... Until we decide to truly have a strong dollar policy, that won't happen.. Plus let's not forget real strong physical demand coming from the emerging markets. This trend WILL continue (unless a systemic breakdown occurs) for the foreseeable future.

 

It's really not that difficult to understand.

 

In regards to stimulating the economy through exports via a weak dollar, yes that is a strategy and it does makes some sense. The problem is the ramifications of the flip side of a weak dollar. Remember, our country is imbalanced we consume much more than we export. So while it will stimulate our export base, it will disproportionately hurt consumers who make up a larger percentage base of our economy, specially the lower to middle class (that Obama is desperately trying to help) and even more so in developing nations where average annual incomes are well below ours here in the U.S and where energy and food costs make up a much larger portion of their disposable incomes.

[TPS]

Northern Rock.

 

But the same analogy can be applied to how did Iceland collapse due to the subprime mortage markets in US & UK? Why did the landesbanks need a bailout?

As I said, I don't know what caused the problems at N-rock. I do know that there was a housing bubble in the UK and in many EU countries. So I guess the real issue I was trying to get at: were governments in those countries also pushing homeownership for low-income residents?

[GG]

As I said, I don't know what caused the problems at N-rock. I do know that there was a housing bubble in the UK and in many EU countries. So I guess the real issue I was trying to get at: were governments in those countries also pushing homeownership for low-income residents?

 

The problems were caused by the same thing, too much reliance on structured products for daily funding & capital. When the liquidity in that market dried up, so did the capital and everyone folded. CRA is a distant tangential cause for the collapse.

[DC Tom]

As I said, I don't know what caused the problems at N-rock. I do know that there was a housing bubble in the UK and in many EU countries. So I guess the real issue I was trying to get at: were governments in those countries also pushing homeownership for low-income residents?

 

No, actually in the simplest terms Northern Rock blew up because they were over-invested in American sub-prime mortgage bonds. Our sub-prime mortgage market was financed by available cash in the EU.

 

It can and does get a lot more complex than that in some cases. I know that Hungary's economy tanked because Hungarian mortgages (as issued by GE Capital) were written in dollars while personal income was in Hungarian forints, originally pegged to the dollar. When the forint was unpegged it fell so far against the dollar (primarily because of the glut in the nickel market, cause by overestimation of demand for hybrid car batteries) that monthly mortgage payments became more than a month's pay. And of course those Hungarian mortgages were packaged into mortgage bonds by GE, hence sold to God knows who...but probably other Europeans.

[Magox]

The problems were caused by the same thing, too much reliance on structured products for daily funding & capital. When the liquidity in that market dried up, so did the capital and everyone folded.

No, "structured products for daily funding & capital" didn't cause the bubble, but it did trigger the collapse. The source of the problem is government policy. Not just CRA but as I noted all the home subsidies and tax deductions for home ownership. It's not that difficult, I don't understand why you hard heads have trouble understanding this...

Edited September 30, 2010 by Magox

[GG]

No, "structured products for daily funding & capital" didn't cause the bubble, but it did trigger the collapse. The source of the problem is government policy. Not just CRA but as I noted all the home subsidies and tax deductions for home ownership. It's not that difficult, I don't understand why you hard heads have trouble understanding this...

 

The daily funding and easier cash afforded by the growth of securitizations is what pumped up the mortgage financing machine - the ideal global house of cards. CRA & mortgage deductions were in effect for decades before the bubble, yet the collapse was caused almost entirely by one year's worth of subprime issuances from mid 2006 through mid 2007.

 

I know that you like to stick to your position, but the data and investigations of the crisis don't support it.

[Magox]

The daily funding and easier cash afforded by the growth of securitizations is what pumped up the mortgage financing machine - the ideal global house of cards. CRA & mortgage deductions were in effect for decades before the bubble, yet the collapse was caused almost entirely by one year's worth of subprime issuances from mid 2006 through mid 2007.

 

I know that you like to stick to your position, but the data and investigations of the crisis don't support it.

I have always maintained that growth of securitizations helped fuel the bubble and we've argued this point a few times regarding the impact of the Repeal of GS, which DID HELP FUEL this bubble. I don't know if you remember, but I made the case that there was such high supply of money available through securitizations of Mortgage bonds that it created a plethora and explosion of funding for mortgage companies to pop up at every corner, creating competition and unethical practices in the mortgage industry in which there was virtually no regulation.... But none of this would of happened GG if the government hadn't of given the green light through government home ownership policies.

 

You seem to think that once a policy is created that you should see an immediate impact on the underlying asset value. That is not the case in many instances. One (being me) could make the argument that this has been a bubble in the making for many many years, it took the right (or should I say wrong) combination of government policy, dovish interst rate policy, repeal of GS (which opened up the flood gate of unregulated MBS), strong growth, exotic leveraged investment vehicles, the failure of the ratings companies and greed to all come together at the same time to create this bubble.

 

And yes, CRA was in effect for decades, but there was a strong renewed push in 1999, prices now are at 2003 levels, so this doesn't back up your "yet the collapse was caused almost entirely by one year's worth of subprime issuances from mid 2006 through mid 2007." claim.

 

Where your argument fails is that you focus on the fuel, the collapse. I've already told you on countless occassions that this was A large part of the problem, but the origin and source comes from the primary driver which is the desire of "home ownership for everyone" policy of the government, through the CRA, tax subsidies and deductions. It's so painfully obvious to me, but hey, if you don't see it you don't see it.

 

It is too easy and incredibly shallow to believe that the mess we are currently is because of a 1-2 year policy misstep. This is a 30 year housing and credit bubble that finally hit its peak point in 2006-2007 and it burst.

[DC Tom]

It is too easy and incredibly shallow to believe that the mess we are currently is because of a 1-2 year policy misstep. This is a 30 year housing and credit bubble that finally hit its peak point in 2006-2007 and it burst.

 

Given that I, in 2003, was able to call the 2007 peak based on the sudden proliferation of IO and neg-am mortgages being written at both my job and my wife's job, I'd have to agree that the basis of the collapse was laid well before mid-2006.

[GG]

It is too easy and incredibly shallow to believe that the mess we are currently is because of a 1-2 year policy misstep. This is a 30 year housing and credit bubble that finally hit its peak point in 2006-2007 and it burst.

 

Excuse me? A 30-year housing and credit bubble? A bubble that spanned three recessions and wildly fluctuating housing prices & bond spreads? Is that really your argument?

 

Should I have to remind you that correlation does not equal causation?

 

I think you're pretty smart to recognize that Wall Street will quickly capitalize on any arbitrage opportunities, and bubbles fester & burst very quickly in this information age. A 30-year bubble, that included two major real estate driven recessions, is laughable.

 

Home ownership policies did not drive the mass speculation & house flipping in AZ & Florida. Home builders didn't construct new towns on spec because of government policies. They did it because they had free financing from the Wall St money machine that was driven by favorable capital rules that gave them credit for holding AAA securitizations. If you want to look at a cause - see the funding book of a financial firm that failed in 2009, and invariably you will find a much higher proportion of RMBS & CMBS securities in there or short CDS exposure with companies that had the crap securitizaions. The European banks, nor AIG gave a hoot about CRA or government's push into home ownership. They only cared about the spread on their capital. And no, tnone of these companies ever were subject to Glass Steagall, yet they failed, but banks that were subject to GS, did not. In fact, the only "bank" that would hvae failed was Citi and only because the Solly arm would have pushed them under, not the retail or commercial bank side.