Why did the entrepreneur cross the road? Because he believed he could make money on the other side.The book Naked Economics, by Charles Wheelan, is a worthwhile read that I highly recommend to anyone. Wheelan puts in layman's terms many of the complex ideas and issues that have littered the minds of intellectuals and economists for decades. Of the book, 1992 Nobel Prize winner (for economics) Gary Becker wrote, "I recommend this book to anyone who wants to gain an understanding of basic economics with little pain and much pleasure."
One reason for reading books like this one, and getting familiar with how economics works, is because in our postmodern era it would appear that Capitalism has won the war against Marxist Socialism and it is important to understand the reasons Capitalism (with a capital C) became the force that it has in today's global society.
Another reason for reading books on economics is that with hailstorm of financial upheavals bringing major banks and investment houses to their knees, it can be helpful having at least a rudimentary understanding of why all this turbulence is putting so many retirement portfolios at risk today.
The reality is, capitalism is not a perfect system. Wheelan, in fact, argues that a market driven economy is to economics as democracy is to government: "a decent, if flawed, choice among many bad alternatives.”
Early on he states, “Economics starts off with one very important assumption: Individuals act to make themselves as well off as possible.” Is this not why many people from all over the world have striven to make there way to America? I've heard stories of people who came to the U.S. and we startled to find that the streets were not paved with gold.
In an early part of the book Wheelan notes that markets are not always fair, and that we especially see this in pay scales. “Small differences in talent tend to become magnified into huge differentials in pay... One need only to be slightly better than the competition in order to gain a large (and profitable) share of that market.” Horses that win by a nose, superstar baseball players... the difference in financial outcomes between best and runner up can be significant. If I have a job opening, and one person gets it, that person ends up with a living wage while the contender remains unemployed. Markets are amoral and not concerned with the apparent unfairness of this situation. In addition, they reward scarcity, which has no relationship to value.
Even if we do understand how free markets work, and why government controlled economies are problematic, I doubt we'll ever fully understand what's going on with the trillion dollar fiascoes like Freddie Mac and Fannie Mae. I've heard it said that when you have autopsies without blame, only then can you know why the patient died. In point of fact, power is a more important than truth, and you can be sure Republicans and Democrats alike will do all they can to make sure that blame gets placed at the other's doorstep.
In this instance, the Bush administration is being tarred for not having provided more oversight to these major mortgage institutions. But in point of fact, in 2003 when the Bush admin pressed for greater oversight, it was the Democrats who objected. (Read the N.Y.Times story here.)I sat on a plane last spring next to a fellow who works for one the nation's largest housing lenders. He said that five years ago the government put pressure on them to loosen lending standards in order to get more people into houses. Easy loans are not always an easy burden to bear. The mess we're in was created by people inside the beltway trying to manipulate the rules in a manner that violated the way markets work. To paraphrase a popular saying, the road to economic hell is paved with good intentions.
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>>>>>>>>But in point of fact, in 2003 when the Bush admin pressed for greater oversight, it was the Democrats who objected. (Read the N.Y.Times story here.)
I read the NY Times story. Here's a quote from the second and third paragraphs:
"Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios."
As the above quote makes clear, this proposed plan would have *switched* the task of regulation *from* Congress *to* the Bush administration Treasury Department.
It is NOT a given that this would have resulted in "greater oversight". In fact, it may have resulted in even more crooked shenanigans.
More likely the latter. Just about any time the Democrats in Congress have requested -- or even subpoenaed -- information or testimony from the Bush administration, they've been met with blatant refusal and cover-up, and the excuse of "executive privilege".
I'll lay blame on the Democrats in Congress for not fighting harder to exert the regulatory responsibility they had. But I sure as heck don't blame them for not voluntarily turning that responsibility over to the Bush administration, which has NOT had the reputation for enforcing even the regulations that were already there, (or for having any modicum of human decency, for that matter).
>>>>>>>>>> I sat on a plane last spring next to a fellow who works for one the nation's largest housing lenders. He said that five years ago the government put pressure on them to loosen lending standards in order to get more people into houses.
"In order to get more people into houses" is a good-intentioned goal, I agree.
It still could be done, easily, if the administration and the lenders are actually good-intentioned, and not just pretending to be:
The tens of millions of foreclosures don't actually lessen the number of houses, or increase the number of people. It's a simple matter of the people not being allowed into the houses anymore.
It's darned-near funny how those good intentions all changed so quickly, and it makes me think they were just pretensions.
The banks are being bailed out at the cost of hundreds of billions of dollars to the US taxpayers, and the houses are being locked up so the people can't get into them. And some of those people actually made more payments on those houses than the houses were worth, and they STILL were foreclosed on.
What your neighbor on the plane termed as "getting more people into houses", George Bush termed on Oct. 16, 2003, as "home ownership [being] at record highs".
http://www.whitehouse.gov/news/releases/2003/10/20031016-3.html
Obviously, this was just another of Bush's big lies. Not all that many people in the US actually *owned* their houses. Struggling to keep up with payments on a house is not at all the same as owning it. It's amazing that the American people are just starting to realize that at this late date.
I would say that you are accurate to question whether the proposed change would have resulted in better oversight or greater abuse.
I am not entirely confident that anyone in Washington knows what will "fix" the current crisis... things have become so enormous that common sense doesn't make sense any more and so many things are counterintuitive that it's hard to imagine that Fed regulators are doing anything but guessing how to keep things from unravelling.
Ultimately it would be great if one could trust someone to tell the truth about things, but that might require a few mea culpas and no one wants to do that lest they lose a shred of power. When was the last time any presidents said, "Oops."
From the Washington Post, February 14, 2008:
".........
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
.............................
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
The writer is governor of New York."
(That's the former governor of New York, of course.)
The complete article is at the link:
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
I just read the Secretary of the Treasury's bailout plan in the Wall Street Journal online.
It's definite: the Bush administration is NOT "pressing for greater oversight".
"Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
http://blogs.wsj.com/economics/2008/09/20/treasurys-financial-bailout-proposal-to-congress/
Secretary of the Treasury Paulson is a former Goldman Sachs executive who received an
At 700 billion, that's a little over $2300 per man, woman, and child in the US.
All left to the discretion of the Treasury Department. The same thing they tried in 2003 -- but this time, they'll get it.
Wow.
Oops. Left part out, and don't have time now. Will finish later.
Just put a period after executive, and end it there. I've said enough.
Yes, predatory lending is a serious issue. I do think it is criminal the way the banks throw blank checks at people every other day in our mail boxes.
Many people will blame people who cash those checks as failing to assume personal responsibility for their actions. I can't excuse myself if I cash such checks, but won't blame anyone for gagging the "free speech" of junk mail fascists who take advantage of the needy... and others in moments of weakness who are susceptible to the strange notion of "free money."
Several years ago I heard that debt amongst Americans had gone up 300% since 1990. Not sure what it is today, but I am sure some of our current economic woes are directly related to this problem.
What will we learn then from this?
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