Tag: Emergency Economic Stabilization Act of 2008

Obamanomics and the subprime lending crisis

Researching Barack Obama’s philosophical influences, I came across an article called Obamanomics by David Moberg and published in the left-leaning, In These Times.
The March, 2008 article is worth a read in light of the current economic troubles. Moberg predicts the current crisis and discusses Obama’s position regarding the financial industry at that time:

Subprime plans
When it comes to many of the larger issues hounding the economy, Obama hasn’t done much to distinguish himself. He has not been a visionary on the subprime crisis, and his adviser Goolsbee indicated in a New York Times column that the only problem is the rampant fraud that was an integral part of subprime lending. In his proposal to deal with the subprime mortgage debacle, Obama does not support the foreclosure moratorium and interest rate freeze that Clinton and many citizen and labor groups advocate.
But Dean Baker, co-director of the Center on Economic and Policy Research and an early forecaster of housing bubble problems, argues that Obama’s plan is admirable because it is less of a bank bailout than Clinton’s. The problem now, he points out, is not so much the interest rates that are resetting at a higher level, but that the value of people’s houses has declined to less than what they initially paid. Baker advocates guaranteeing people facing foreclosure an option to rent their homes at fair market value. This would avoid many evictions and pressure banks to work out more favorable mortgage agreements.
Obama’s main flaw seems to be excessive caution, not favoritism to the financial services industry, which has contributed almost as much to him as it has to Clinton. But Obama is not beyond influence.
Obama’s national finance chair is Penny Pritzker. Chicago’s wealthy Pritzker family owned half of Superior Bank, a pioneer in subprime lending. When the bank failed in 2001, the family signed a sweetheart deal with federal regulators that let it off with a profit while many depositors lost money. (But Penny’s brother, J.B. Pritzker, is a major Clinton supporter.)
And for years, executives of Exelon, the Illinois-based nuclear utility, have been among Obama’s biggest contributors. (Obama insists nuclear power should not be ruled out as a potential energy source, even if he also promotes alternatives.)

There are many culprits in the current financial melt-down. However, I am puzzled that Obama is viewed by the general public as better able to handle the economy than McCain.
The Pritzker connection seems troubling. Given her experience with subprime lending, I wonder why she was not sounding the alarm.

"Let's not overreact…" Legislators talk about Fannie and Freddie

The Wall Street Journal has done a good service and excerpted comments about Fannie Mae and Freddie Mac from legislators now leading the effort to fix things.
It is getting increasingly clear that legislators charged with oversight of the GSEs (Government Sponsored Enterprises), were so focused on making housing available that they did not heed warnings of how such manipulations altered the market. We will now pay for this.
Here is a particular telling exchange:

Senate Banking Committee, Feb. 24-25, 2004:
Sen. Thomas Carper (D., Del.): What is the wrong that we’re trying to right here? What is the potential harm that we’re trying to avert?
Federal Reserve Chairman Alan Greenspan: Well, I think that that is a very good question, senator.
What we’re trying to avert is we have in our financial system right now two very large and growing financial institutions which are very effective and are essentially capable of gaining market shares in a very major market to a large extent as a consequence of what is perceived to be a subsidy that prevents the markets from adjusting appropriately, prevents competition and the normal adjustment processes that we see on a day-by-day basis from functioning in a way that creates stability. . . . And so what we have is a structure here in which a very rapidly growing organization, holding assets and financing them by subsidized debt, is growing in a manner which really does not in and of itself contribute to either home ownership or necessarily liquidity or other aspects of the financial markets. . . .
Sen. Richard Shelby (R., Ala.): [T]he federal government has [an] ambiguous relationship with the GSEs. And how do we actually get rid of that ambiguity is a complicated, tricky thing. I don’t know how we do it.
I mean, you’ve alluded to it a little bit, but how do we define the relationship? It’s important, is it not?
Mr. Greenspan: Yes. Of all the issues that have been discussed today, I think that is the most difficult one. Because you cannot have, in a rational government or a rational society, two fundamentally different views as to what will happen under a certain event. Because it invites crisis, and it invites instability. . .
Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don’t want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that’s been done here. And that shouldn’t be lost in this debate and discussion. . . .

I wonder how many of those Americans now have lost those homes.
Some of my readers will assume I am posting information which makes Democrats look bad because I am a conservative. While that temptation is there, I am truly hopeful that those responsible will see why the crisis is upon us and learn from it. It is the ideas that are at issue, not the intent. The desire to promote home ownership is a good one, but the manipulation of markets to pursue that aim has been a disaster. If Chris Dodd, Barney Frank, Barack Obama, etc., articulated this for the people, this would be hopeful. However, I do not see this; in fact, here is what Barack Obama says about the crisis:

The era of greed and irresponsibility on Wall Street and in Washington has created a financial crisis as profound as any we have faced since the Great Depression.

Whose greed and irresponsibility is he talking about?
Knowing how the mess started is a big part of knowing how to get out of it.

Rep. Phil English talks to constituents about the economic rescue plan

Earlier this evening, Rep. Phil English met with a group of constituents in downtown Grove City for well over an hour. Rep. English summarized his reasons for voting no on the massive 700 billion package as well as other issues of interest to Western Pennsylvanians.
Rep. English said he wanted to help enact legislation to aid the ailing economy but wanted to get it right rather than do something rapidly. English said he believed the defeated House bill would have established a dangerous precedent for the government. He also wanted to make sure that there were no golden parachutes hidden in the new version of the bill which was voted on in the Senate this evening. On the plus side, he believed the rescue plan could be structured in such a way that profits would go to toward deficit reduction.
Going forward, English called for tax reform and incentives favorable to small business as a part of any rescue package. He pointed out that Republicans called for focused regulation of Fannie Mae and Freddie Mac back in 2005. However, it was the Democrats in Congress that blocked reform. English also recounted a long list of accomplishments which have benefitted the people of his district.
Tonight, the Senate passed their version of the rescue plan by a 74-25 margin. The bill has become a part of the longstanding effort to pass mental health parity legislation with a variety of tax cuts and other incentives to bring the votes of Representatives in the House.