I've always thought that Obama's position is more nuanced than his supporters (or his opponents) would have us believe. He's left himself weasel room in terms of "conditions on the ground" and the definition of "combat troops" (as opposed to "advisors," "trainers," or "peacekeepers," I suppose). I have been saying for a while that Obama is smart enough and precise enough of a speaker that he was leaving himself the weasel room because he intended to use it.
--SCC
Monday, October 27, 2008
Sunday, October 26, 2008
Fannie, Freddie, and the Financial Collapse
Lenders were writing and pushing subprime mortgages, and packaging them into securities, before the FMs got involved. Fannie and Freddie made the problem worse, but they didn't create it.
Here's a liberal response to the Republican charges. I object to this article's attempt to whitewash Democratic responsibility for large portions of the crisis, but it at least acts as a counterweight to the RNC's talking points memos.
Here's a somewhat more balanced commentary.
My point on the other is that the structural problems caused by the deregulation of investment banks would have emerged one way or another, even without the mortgage crisis. You had a number of large companies writing out large "insurance policies" without adequate capital backing, and without any form of regulation. In any time period, that is a recipe for disaster.
It's pretty hard to be fully responsible for something that was happening before you arrived in the marketplace.
Fannie and Freddie made things worse, but focusing on them to the exclusion of serious structural problems in our financial system is like slaughtering Mrs O'Leary's cow to fix the Chicago building codes.
Financial markets need transparency and accountability, and that only comes about through responsible regulation. We need CDS transparency and probably a regulated exchange. The size of the CDS overhang dwarfs any other structural problem in our financial system. If we don't take care of it, we will be fighting fires until we do the right thing.
The easy answer is seldom the right one.
--SCC
Here's a liberal response to the Republican charges. I object to this article's attempt to whitewash Democratic responsibility for large portions of the crisis, but it at least acts as a counterweight to the RNC's talking points memos.
Here's a somewhat more balanced commentary.
My point on the other is that the structural problems caused by the deregulation of investment banks would have emerged one way or another, even without the mortgage crisis. You had a number of large companies writing out large "insurance policies" without adequate capital backing, and without any form of regulation. In any time period, that is a recipe for disaster.
It's pretty hard to be fully responsible for something that was happening before you arrived in the marketplace.
Fannie and Freddie made things worse, but focusing on them to the exclusion of serious structural problems in our financial system is like slaughtering Mrs O'Leary's cow to fix the Chicago building codes.
Financial markets need transparency and accountability, and that only comes about through responsible regulation. We need CDS transparency and probably a regulated exchange. The size of the CDS overhang dwarfs any other structural problem in our financial system. If we don't take care of it, we will be fighting fires until we do the right thing.
The easy answer is seldom the right one.
--SCC
The Party of Big Government
Republicans have been complaining that Obama represents the party of big government.
That rhetorical flourish would mean a lot more if the Republicans had done anything about reducing the size of government or even reducing waste, fraud and mismanagement. Instead, we've seen massive increases in both the size and inefficiency of government under their watch.
Maybe they should have spent more time governing than invading countries who didn't attack us, torturing POWs for useless non-information, and tapping the phones of American citizens.
Oh, I forgot. The Republicans are so ineffective that Nancy Pelosi stole their lunch money while they controlled all three branches of government. I knew this was all the Democrats' fault somehow.
(Ok, that was a cheap shot. I think we actually agree about many of the failings of the Republican party, and we could probably say the same about the Democrats. Where's Ross Perot when you need him?)
--SCC
That rhetorical flourish would mean a lot more if the Republicans had done anything about reducing the size of government or even reducing waste, fraud and mismanagement. Instead, we've seen massive increases in both the size and inefficiency of government under their watch.
Maybe they should have spent more time governing than invading countries who didn't attack us, torturing POWs for useless non-information, and tapping the phones of American citizens.
Oh, I forgot. The Republicans are so ineffective that Nancy Pelosi stole their lunch money while they controlled all three branches of government. I knew this was all the Democrats' fault somehow.
(Ok, that was a cheap shot. I think we actually agree about many of the failings of the Republican party, and we could probably say the same about the Democrats. Where's Ross Perot when you need him?)
--SCC
Saturday, October 25, 2008
Bush and Regulatory Incompetence
I've been intrigued by attempts by the RNC to exonerate Bush for failing to regulate the financial markets. According to the RNC, the problem was that those Evil Democrats (TM) in Congress prevented the passage of legislation that would have allowed him to regulate the markets.
Bush had no problem imposing his own policies on torture or domestic surveillance under the guise of "signing statements." If he had been so hot to introduce regulation, he could have done so on his own hook, as the head of the executive.
In fact, additional regulatory powers were part of the compromise that led to the bipartisan repeal of Glass-Steagall.
Contrary to RNC talking points, Fannie and Freddie did not start the rush to securitizing subprime mortgages. They joined in, and they made the problem worse, but they didn't start it. Claiming that they did betrays a lack of understanding about the nature of the current financial crisis.
Beyond that, you have to look at CDSs to see the mechanism by which problems in one part of the financial system are dominoing through other parts of the financial system. (People who watch such things were very relieved that the final settlement of the outstanding Lehman-related CDSs was on the low side of the estimates. The high side of the estimates could have made things really interesting. The fact that the estimates varied so widely shows exactly the transparency sorts of problems I've been talking about.)
Regulation of these CDSs was well within the powers of the regulators who were appointed by Bush. It is silly to try to give his administration a pass and blame the entire mess on the minority party in Congress. Fortunately, there are a lot of people for hire who specialize in oversimplification and silly mudslinging.
Blaming Fannie and Freddie exclusively is like blaming Mrs O'Leary's cow for the Chicago fire. The underlying problem was lax building and fire codes. If it hadn't been for the cow, there would have been little Timmy playing with matches or a lightning strike on Mrs O'Leary's barn.
The mortgage crisis was a precipitating event. Fannie and Freddie alone do not explain how the consequences of rising default rates were able to propagate through the international financial system so quickly and thoroughly.
Both parties participated in setting up a financial system that was under-regulated and that relied far too much on private ratings agencies and fraudulent (or at least opaque) financial statements. I don't find the finger-pointing exercise to be helpful or even particularly enlightening. Both parties gleefully accepted money in exchange for their connivance in setting up underregulated financial markets.
The real solution is to provide more transparency in financial instruments, especially derivatives. As long as derivatives (such as CDOs and CDSs) are opaque, there will be smart people who will be able to hide sludge in an apparently AAA asset. The only hope is to allow buyers and analysts to uncover the sludge. Obviously, this will probably require re-definition of some of these derivatives, and may require that a regulated exchange be set up for things like CDSs.
We're seeing so much butt-covering going on that nobody is looking at how to implement fire codes in our financial system.
In my view, sunlight is the best way to deal with a political infection. If we can force greater transparency on the financial markets, investors will be able to make more informed decisions. Premiums will be placed on experts who can perform insightful analysis rather than on tricksters who can hide toxic waste in a AAA rated bond.
One of the most frightening interviews I heard over the last couple of weeks was with someone who had been explaining CDSs to an official at the SEC. Evidently, that official thought that CDSs were being used exclusively as "insurance" and not as the world's biggest unregulated gambling salon. And the official had no idea that nobody was checking to see if the underwriters of CDSs actually had the capital reserves to make good in the event of a default. "Asleep at the switch" doesn't even start to cover it.
--SCC
Bush had no problem imposing his own policies on torture or domestic surveillance under the guise of "signing statements." If he had been so hot to introduce regulation, he could have done so on his own hook, as the head of the executive.
In fact, additional regulatory powers were part of the compromise that led to the bipartisan repeal of Glass-Steagall.
Contrary to RNC talking points, Fannie and Freddie did not start the rush to securitizing subprime mortgages. They joined in, and they made the problem worse, but they didn't start it. Claiming that they did betrays a lack of understanding about the nature of the current financial crisis.
Beyond that, you have to look at CDSs to see the mechanism by which problems in one part of the financial system are dominoing through other parts of the financial system. (People who watch such things were very relieved that the final settlement of the outstanding Lehman-related CDSs was on the low side of the estimates. The high side of the estimates could have made things really interesting. The fact that the estimates varied so widely shows exactly the transparency sorts of problems I've been talking about.)
Regulation of these CDSs was well within the powers of the regulators who were appointed by Bush. It is silly to try to give his administration a pass and blame the entire mess on the minority party in Congress. Fortunately, there are a lot of people for hire who specialize in oversimplification and silly mudslinging.
Blaming Fannie and Freddie exclusively is like blaming Mrs O'Leary's cow for the Chicago fire. The underlying problem was lax building and fire codes. If it hadn't been for the cow, there would have been little Timmy playing with matches or a lightning strike on Mrs O'Leary's barn.
The mortgage crisis was a precipitating event. Fannie and Freddie alone do not explain how the consequences of rising default rates were able to propagate through the international financial system so quickly and thoroughly.
Both parties participated in setting up a financial system that was under-regulated and that relied far too much on private ratings agencies and fraudulent (or at least opaque) financial statements. I don't find the finger-pointing exercise to be helpful or even particularly enlightening. Both parties gleefully accepted money in exchange for their connivance in setting up underregulated financial markets.
The real solution is to provide more transparency in financial instruments, especially derivatives. As long as derivatives (such as CDOs and CDSs) are opaque, there will be smart people who will be able to hide sludge in an apparently AAA asset. The only hope is to allow buyers and analysts to uncover the sludge. Obviously, this will probably require re-definition of some of these derivatives, and may require that a regulated exchange be set up for things like CDSs.
We're seeing so much butt-covering going on that nobody is looking at how to implement fire codes in our financial system.
In my view, sunlight is the best way to deal with a political infection. If we can force greater transparency on the financial markets, investors will be able to make more informed decisions. Premiums will be placed on experts who can perform insightful analysis rather than on tricksters who can hide toxic waste in a AAA rated bond.
One of the most frightening interviews I heard over the last couple of weeks was with someone who had been explaining CDSs to an official at the SEC. Evidently, that official thought that CDSs were being used exclusively as "insurance" and not as the world's biggest unregulated gambling salon. And the official had no idea that nobody was checking to see if the underwriters of CDSs actually had the capital reserves to make good in the event of a default. "Asleep at the switch" doesn't even start to cover it.
--SCC
Wednesday, October 15, 2008
Black Racism and Obama
Since black voters go overwhelmingly for the Democrat in most elections, it is hard to say that they are all voting for Obama because he is black.
The Republicans have only themselves to blame for losing the black vote. They did it deliberately in order to take the rural white southern vote away from the Democrats.
--SCC
The Republicans have only themselves to blame for losing the black vote. They did it deliberately in order to take the rural white southern vote away from the Democrats.
--SCC
Saturday, October 11, 2008
Pirates!
Piracy appears to be alive and well.
Ukraine needs to dig deep and find some courage, unless they want to change the flag on their ships to a great big bullseye.
--SCC
Ukraine needs to dig deep and find some courage, unless they want to change the flag on their ships to a great big bullseye.
--SCC
Tuesday, October 7, 2008
Over-Simplifying the Crisis
It is an over-simplification to refer to this as a "mortgage" crisis. The problem with the mortgages is a precipitating event, but the structural issues that have been revealed are much deeper.
In particular, the lack of transparency and reportability of the CDOs and CDSs is what has caused the freeze-up in inter-bank lending. These issues can be resolved by setting up a regulatory framework for dealing with CDSs, and by requiring better information reporting on the instruments underlying a CDO.
Despite attempts by both parties to blame the other one, the fact is that both have been complicit in setting up a system that lacked adequate fraud protections and regulatory requirements.
I know that the popular media (and therefore the politicians) focus on the foreclosures and the mortgage defaults, but I think that is because they are easier to understand than having to think about how to properly regulate a marketplace of financial interests.
Pretty clearly, the "Masters of the Universe" can't be trusted to play with scissors without adult supervision.
--SCC
In particular, the lack of transparency and reportability of the CDOs and CDSs is what has caused the freeze-up in inter-bank lending. These issues can be resolved by setting up a regulatory framework for dealing with CDSs, and by requiring better information reporting on the instruments underlying a CDO.
Despite attempts by both parties to blame the other one, the fact is that both have been complicit in setting up a system that lacked adequate fraud protections and regulatory requirements.
I know that the popular media (and therefore the politicians) focus on the foreclosures and the mortgage defaults, but I think that is because they are easier to understand than having to think about how to properly regulate a marketplace of financial interests.
Pretty clearly, the "Masters of the Universe" can't be trusted to play with scissors without adult supervision.
--SCC
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