PJTV: The Government Caused the Financial Crisis, Not Greed

[pjnlsn]

Oh, look. A former CEO says the government caused the financial crisis.

Well, i'm convinced.

[liverleef]

Here is a quick trick to get morons like these guys to shut the fuck up. Ask them how Fannie and Freddie could have caused the crisis when their mortgages had a 6.2% default rate and the rest of the lenders had an average default rate of 28% and their securities held their value throughout the crisis, unlike the rest of the industry.

[Solverwiz]

The latest short term big spending fix will be pushed through before the next election so we can suffer its long term consequences at a later time. One day that can they are kicking down the road will be filled with nitro.

[4andronicus]

The way this journalist frames questions is terrible.

[356pla]

I just fell in love.

No. Really. I know it sounds gay. But really.

[mccormyke]

I am afraid he believes it. this.

The Treasury Dept. prints money not the Federal Reserve.

The Treasury Department then puts the money in trucks and ships it to the Federal Reserve. The Federal Reserve then loans that Same money (I'm not making this up folks!) to The United States Government at interest.

Capitalism is, ta da! Lending money at interest. Period end of discussion. The other stuff is Free Enterprise which may use but does not require Capitalism. So bankers buy laws to compel it.

[MikeDial]

@mccormyke I think that what he's saying is that the Federal Reserve doesn't create anything of value, but merely 'loans', as you say it, money that doesn't represent production, but is merely paper. Capitalism technically is the belief that people who create money are free to accumulate it.

[raybanseyes]

@mccormyke People use the term 'printing money' non-literally - they mean creating money. Capitalism is NOT just lending money at interest - that is a completely arbitrary definition. The primary attributes of capitalsim are private ownership of the means of production, of control of the means of production, private ownership of profits etc. capitalism requires private property. So does free enterprise.

[BlameTheFirst]

The “free market” is to liberal politicians what an imaginary friend is to a little kid: a blatantly-fake scapegoat to blame all one’s problems on.

[RDasher2]

Keynesian economics became accepted doctrine only because it justified unlimited spending by the government. With no evidence of it ever working, it doesn't matter to politicians who exist to spend other peoples money.

[CAPTDAX]

"'This was the moment when the oceans began to recede, the planet started to heal" bullshit..!!

And that crap about adding 2.5 million jobs is pure propaganda -- a blatant lie. Under the Obama regime, the country has LOST 2.1 million jobs.

The U.S. has lost 2.1 million jobs since Barack Obama took office. According to the Bureau of Labor Statistics (BLS), the total number of jobs nationwide fell from 134.3 million at the end of January to 132.2 million at the end of May.

[wye4379]

Great interview. You guys should have him over more often.

[marcef100]

Thumbed

[marcef100]

Wonder what loser thumped this down?

[Raycheetah]

@marcef100 Someone from Bank of America. =^[.]^=

[prhana]

I think I'm in love.

[trottheblackdog]

By the way, Glenn.. your closing tag line makes me giggle every time I hear it. Awesome!

[steam0001]

I agree with a lot of what he says here but you should have tighter banking & financial regulations. Ones that wouldn't allow sub-prime mortgages & lending to people who can't afford it. Also you might want to end the fed or make it transparent(more answerable).

You should also have a look at the Canadian banking system. They're the only ones I heard of who avoided the banking/financial crisis.

[trottheblackdog]

@steam0001 Sub prime mortgages were issued at the behest and insistance of Government. But I agree that the Fed's time has come.

[TrollBuster9090]

@trottheblackdog

Sub prime mortgages were NOT issued at the behest of Government.

If you're referring to the CRA:

1. The CRA only states that neighborhood (thrift) banks must offer loans to QUALIFIED borrowers in the same neighborhoods where they take deposits.

2. Section 802 stipulates only safe loans can be made.

3. The banks governed by CRA only issued a small percentage of the subprime loans. (less than 20%)

[4k8t]

@steam0001 You seem to think that the banks snuck sub-primes (and the less than credit worthy borrowers) past the regulators, when in fact it appears the regulators (under pressure from Congress, or perhaps one might say more influential politicians on certain committees) demanded that banks lend more and threatened criminal prosecution for discrimination, among other things, if they didn't get their borrower profiles in order.

[ronreich1]

Great interview! But I wish more emphasis had been placed on political policies subsidizing housing and forcing subprime lending. Fan and Fred didn't just buy subprime mortgages in a vacuum: first banks were forced to write those mortgages by Clinton era policies supported mostly by Democrats.

Also, we too often forget about the Fed under Bernanke raising rates too fast and crashing the housing market. He was not Fed Chair during the bubble creation, but he sure as heck blew it up!

[egoistcapitalist]

Two very high-ranking people on my barometer. Great exchange Glenn & John!

[BillPigg]

Wow, great interview. Good points made. Thanks!

[ShinjukuHH]

Banks wer allowed to trade with ppl's mortgages - Ppl bought homes they couldn't afford - interest rates went up - ppl couldn't pay -> BOOM - Bear Stearns gone, later Lehman -> massive contagion throughout the economy

Where is the Government's fault?

[JohnnieGarner]

@ShinjukuHH The problem is the government departments of Fannie and Freddie were pressured by Congress to get housing to be "affordable" (Barney Frank, etc) and that the Fed prints so much funny-money that it is really no different that check kiting. Enough of such stuff causes a boome-bust cycle or you get explosive reduction of value in money with a permanent bust of worthless money as in banana republics or Weimar Germany, whic h, BTW, caused WWII.

[TrollBuster9090]

@JohnnieGarner

Fannie and Freddie are not "government departments." That's part of the problem. Fannie Mae WAS a government department between 1938 and 1968 when it did an incredible job. It only became a financial menace after it was privatized in 1968 and acquired the ability to lobby Congress. If you want to know why it was never regulated, read this:

cnbc(dot)com/id/28108013

[wfoddis]

@TrollBuster9090 : They are government-sponsored enterprises "[whose] securities carry no explicit government guarantee of creditworthiness, but lenders grant them favorable interest rates, & the buyers of their securities offer them high prices. This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt. This perception has allowed Fannie Mae and Freddie Mac to save an estimated $2 billion per year in borrowing costs"

[wfoddis]

Quoted from wikipedia.

[TrollBuster9090]

@wfoddis

If you've been to college you'll know that credit card companies hard sell credit cards to teenage college students with no credit rating. (Stacks of card applications in the bookstores etc.) They hard sell credit cards to free-spending teenagers with no credit history because there is an "implicit guarantee" that if they default the (wealthy enough to send their kids to college) parents will pay.

So, if the kid defaults, are the parents to blame, or the credit card company?

[wfoddis]

@TrollBuster9090: Have you read Johan Norberg's "Financial Fiasco?" The functions and goals of Freddie Mac and Fannie Mae, in addition to the role of the Fed, and most pernicious of all, the government policy that sets the rules for sub-prime housing market were all huge causal contributions to financial crisis. To simply let government off the hook as "rich parents" shows a misunderstanding of the government's culpability in this mess. Norberg also discusses the recklessness of Wall Street.

[TrollBuster9090]

@wfoddis

Government is not the problem. Corporate ownership of government is the problem. As I said in an earlier comment, Fannie Mae was a wholly controlled government agency for 30 years, and it did an excellent job. It only became a menace a) after it was privatized and had the ability to lobby (aka bribe) Congress, and b) Gramm-Leach and CFMA created a moral hazard by allowing the creation of CDOs.

[wfoddis]

@TrollBuster9090 Some people would rather believe their knowledge is 100% true rather than taking the effort to read something that might expand on their knowledge. Your first sentence--"Government is not the problem."--gives away your conclusion and suggests to me that you are closed-minded about hearing anything different than your own story. If you read Norberg's book and come away with the exact same understanding that you currently believe, I will be shocked and awed.

[TrollBuster9090]

@wfoddis

Ad hominem is the best you can do?

Okay, whatever floats your boat.

[wfoddis]

@TrollBuster9090 If avoiding the question is the best you can do, then all I can do is call a spade, a spade. Have you read Norberg's book?

[steam0001]

@ShinjukuHH It was the government that not only let the banks lend to people who couldn't afford it but promoted it. It was the government that lends money to banks via the fed. Heck sometimes they even bother to print it they just make out of thin air by telling the bank they have on account at the fed.

It is time to rein in the banks with proper regulations that work. Put your congress back in charge of the money supply & hold them accountable for it.

[pimpdalyrical]

@ShinjukuHH

People didn't buy houses they couldn't afford, the governemtn forced banks to loan the money for homes to people who couldn't afford them, promising to back them. Then through Fannie Mae, they lied about the true risk. Then the government TOLD the banks, they should go ahead and bundle these mortgages into derivitives, to lessen the risk, they said wouldn't be there. It was only a matter of time.

[ShinjukuHH]

@pimpdalyrical I got one advice and two woords for you:

The advice: Go and watch the Oscar-winning documentary "Inside Job"

and the two words: predatory lending

[pimpdalyrical]

@ShinjukuHH

One good turn deserves another. Advice for you: Do your own research instead of listening to a movie made by, For, and Starring the people who were really responsible for this mess and profited off it (George Soros for Christs sake) and research the Community Reinvestment Act, Clinton era race based quotas, and Bush trying to push congress for MORE regulation in 2004. If the banks WANTED to make loans to people who couldn't pay them back, why did the government need to force them?

[ShinjukuHH]

@pimpdalyrical OK, the banks who made these loans to ppl who couldn't pay them back, sold them immediately to Wall Street - the risk of default went with them. The originators were basically off the hook.

That all is also well described in Gregory Zuckerman's book: The Greatest Trade Ever (I read it and I recommend it to you)

And One question to you: Why couldn't the CFTC regulate credit derivatives (or as Warren Buffett calls them WOMDs) as they should?

[pimpdalyrical]

@ShinjukuHH

Wrong. The Banks who were strong armed into making these loans by the government, were told to sell them to Wallstreet by Government, and Government guaranteed them through Fannie Mae.

As for the CFTC, they weren't included in the CFMA, which is why Bush had to call FOR regulations in 2004.

Watch it happen, in their own words:

1) watch?v=Lr1M1T2Y314&feature=ch­annel_video_title

2) watch?v=_MGT_cSi7Rs&feature=re­lated

3) watch?v=cMnSp4qEXNM&feature=re­lated

[TrollBuster9090]

@pimpdalyrical

The government NEVER guaranteed/underwrote Fannie Mae. This "implicit guarantee" horseshit is just a post-facto excuse the Wall Street executives came up with to justify irresponsible behavior. If you don't believe me, believe Bush in his statement on why he would veto HR1427. Because it gave the FALSE impression govt. would guarantee Fannie. See the White House release from May 2007.

presidency(dot)ucsb(dot)edu/ws­/index(dot)php?pid=74353#axzz1­X9LR5ZzV

[pimpdalyrical]

@TrollBuster9090

Of course the impression was false. The very idea that government COULD guarantee these loans is false. Thank you president Bush.

" Federal Housing Enterprises Financial Safety and Soundness Act of 1992" Mandated Fannie and Freddie to devote a percentage or their lending to support affordable housing loans.

The liberals knew this would happen, And set up middlemen to prolong the inevitable. The banks just did what they were told, and tried to save themselves.

[pimpdalyrical]

@TrollBuster9090

press  (dot) princeton (dot) edu/titles/9400 (dot) html

Might want to look into what they did to us before they do it again with your healthcare and kid's colllege fund.

[pimpdalyrical]

@ShinjukuHH

What was the bank supposed to do? Hang on to these risky debts they were forced to take on, even while the government has promised them a "responsible" way out?

[ShinjukuHH]

@pimpdalyrical WTF - Banks were foreced to lend?! By whom? The government? Both parties are coddling Wall Street, they are big campaign-donors and in return, they rip ordinary people off, with an adjustable zero-down mortgage and teaser-rates at 2% to people who are only stating their income.

The only thing you needed to get a loan in 2006 was to have a pulse.

[pimpdalyrical]

@ShinjukuHH

Think it through logically, dude. If Unregulated banks WANTED to make risky loans they would never get paid back, would a CRA have ever been needed? Would the government need to invent the derivitives exchange within Fannie Mae? Had we just let the banks loan to who they damn well deemed fit and let people who can't afford a house not get one, NONE of this happens. But "houseless" minorities made a tempting voting block.

[ShinjukuHH]

@pimpdalyrical Your local bank gives you a mortgage - then they got sold to Wall Street who bundled them into CDOs, they got a credit rating and then got sold to those 'who were bullish on housing'.

The upside: Lenders got mortgages off their balance sheets, Wall Street and CRAs got millions of Dollars in fees and pension funds had something to invest into. When interest rates went up, ppl couldn't pay and CDOs became "hot potatoes"

The mantra: Homes prices didn't go down.

[pimpdalyrical]

@ShinjukuHH

Not exactly. The Bank said. No the governmnet says "Do it or we'll brand you a bigot." And when the shit starts to hit the fan they said "Bundle them up, and we'll buy them from you Mr. Bank, with Tax payer money, and trade them on Wall Street. That way, nobody has to know Washington doesn't know what the fuck it's doing."

Then they lied about the risk, and everything went to shit. But at least Barnie Frank got a cabinet position.

[TrollBuster9090]

@pimpdalyrical

The government didn't TELL anybody to bundle bad mortgages and sell them on the stock market as MBSs while colluding with ratings agencies to label bundled bags of shit as TRIPLE A investments. The bundling part was made possible by Gramm-Leach-Bliley and the CFMA. The criminal collusion with ratings agencies was just run of the mill criminal activity.

[pimpdalyrical]

@ShinjukuHH

"Banks wer allowed to trade with ppl's mortgages"

What choice did they have? They never wanted to lend to these people in the FIRST PLACE!!! Had you said "No don't trade them." You just would have gotten to this collapse sooner. The root problem this regulation crap was SUPPOSED to fix was lenders NOT giving mortgages to people. How can you call them "predators?"

[ShinjukuHH]

@pimpdalyrical No, they lent ppl money, because they didn't have any risk. They went to Wall Street, the moment they came in. Wall Street encouraged lenders to do more loans. As a result they lowered their FICO requirements. What did they have to lose? They went off the books anyway. Sub-prime mortgages were also the juiciest - they carried a higher interst.

If you still don't understand it read the wikipedia article about the "Late-2000s financial crisis".

You're wasting my time.

[pimpdalyrical]

@ShinjukuHH

You're trying to convince yourself of this fairy tale of yours, by trying to get me to agree with you. Never going to happen. I watched this happen. I know the truth. So yes you are wasting your time. No government sticking their nose in the mortgage industry where it DOESN'T BELONG with the CRA, NONE of this happens. FACT. Period. End of story.

PS. Wallstreet was encouraged by Frank lying about their value. That's IN wickipedia.

[ShinjukuHH]

@pimpdalyrical KK, thx bye - have fun getting ripped off by your bank b/c you didn't read the fine print.

[pimpdalyrical]

@ShinjukuHH

I will, good luck in the future U.S.S. of A.

[ShinjukuHH]

@pimpdalyrical Far from it. It's much rather becoming a plutonomy.

[pimpdalyrical]

@ShinjukuHH

Right, because the poorest Americans are still within the top 10% of wage earners and the left has managed to pit them against their best hope for independence. Imagine, Two groups right next to each other on any realistic wealth scale, and one's actually envious of the other, instead of looking back at all they DON'T have to suffer because of the wealthier. Pathetic.

[ShinjukuHH]

@pimpdalyrical "the poorest Americans are still within the top 10% of wage earners"

Yeah, right...

[356pla]

@pimpdalyrical Yep!  Pathetic.

[TrollBuster9090]

@ShinjukuHH

You're right. I still can't believe people are trading this cock and bullshit story that the Community Reinvestment Act of 1977 caused the subprime mortgage bubble of 2005.

Let's see:

CRA 1977 passed 28 years before the housing bubble

Chris Cox's SEC removing the capital requirement 1 year before the housing bubble

Okay, it MUST have been the CRA!

[ShinjukuHH]

@TrollBuster9090 Yep, Leverage is a bitch!

Lehman had a leverage ratio of up to 32-1. You lose more than 3% of your assets -> BOOM you're gone!

... and don't get me started about Repo 105 shenanigans.

[TrollBuster9090]

@ShinjukuHH

Actually it WAS government's fault, when they pulled out the regulations that stopped banks from taking too much risk.

1. Gramm-Leach (1999) and CMFA (2000) nullified Glass-Steagal, allowing banks and brokerages to merge, but provided no regulatory agency to regulate how much debt they took on.

2. Bush appointee Cox and the SEC removed the debt to capital requirements in 2004.

3. Removing the capital requirements, and allowing mortgages to be bundled and sold created a moral hazard.

[antimarxism]

The Leftists will say:

The stimulus didn't work because gov inject enough.

The financial regulations didn't work because gov didn't regulate enough.

The mortgage crisis happened because they didn't give out enough bad loans to people that couldn't afford them.

and on and on and on....just like the Euro-socialists

[TrollBuster9090]

@antimarxism

I'm surprised you don't get hey fever building all those straw men.

1. Right on the first two statements, but leftists would NOT say the subprime mortgage crisis happened because they didn't give out enough bad loans.

2. Euro-socialists are doing pretty well. I'd take the standard of living of a middle class Swede, Norwegian, German or Dutchman over the overworked, underpaid American middle class anyday.

[antimarxism]

@TrollBuster9090 2. Of course you cherry-pick pissant tiny homogenous boutique countries as an example of "why socialism works".

Debunking your naive examples has been done ad nauseum.

[justintempler]

John Allison is a great speaker and a great defender of Capitalism

watch?v=I72DJJLt4xs

[TacticalCitySlicker]

OMG the Fed caused the recession!

Kind of like this Paul guy who's running for president has been saying since Nixon took us off the gold standard...

But who cares about consistency and creditability right?

Vote for the guy with the nice Haircut!

Vote For Perry 2012!

Because he's got a record of not being a Fascist right?

[scepticsteve]

@TacticalCitySlicker Speaking of people who seek easy answers.

Certainly there is a lot of blame to go around and the Fed has done a horrible job. It makes every bubble bigger and the collapse worse. But the mortgage bubble would have occured anyways, even with a gold standard or an equivalent real value money. Money is one problem, the government guaranteeing bad loans, borrowing massive amounts of money, constantly redirecting resources and setting bad regulation can happen under any money sys

[xHippieHunter]

@TacticalCitySlicker sorry dude FDR took us off the gold standard

[TacticalCitySlicker]

@xHippieHunter Prior to 1971, any Federal Reserve Note issued was theoretically backed by an equivalent amount of gold held by the U.S. Treasury. However, under President Nixon, the gold standard was officially abandoned creating a fiat currency

[Ravengaurd6]

so ....Greed did cause the recession. but on the part of politicians and academics.

[ImAznnn]

@Ravengaurd6 Don't forget lobby groups.

[ShinjukuHH]

@Ravengaurd6 I hope that the irony speaking^^

Otherwise, i have three words for you: deliberate predatory lending :)

[Ravengaurd6]

@ShinjukuHH oh that definitely played a big part. the scale that lending was riding,however, was pumped up by artificially lowered interest rates caused by the then monetary policy.

[r29]

@Ravengaurd6 No there is a difference between self-interest and self-destructive.

[Ravengaurd6]

@r29 true. the former being the intention behind an initiative(interest) and the latter being the outcome of an interest pursued in a foolish manner.

[DollreeMappEsq]

Why are we still adhering to failed Keynesian economics? A primary reason is because the Nobel Prize committee will not accept any other theory.

Professors, economists, and econometricians, i.e. our economic policy-makers, would not have the government funding, tenure, and awards they currently have if they tried to break out of the mold.

[richardcadbury]

@DollreeMappEsq Which is probably because it's a fake "Nobel prize"

[scepticsteve]

@DollreeMappEsq I disagree. Although I share your sentiment on the economic "science community" in general and the nobel price committee in detail, I don't think that'sd the main reason. There is an ideological force in our midst called statism. It's around no matter what the economists and bureaucrats say, these are just the tools for the statist. We shouldn't confuse symptoms with causes. In the end it all boils down to ideology and narrative. And that's were the balony-talkers are strong.

[DollreeMappEsq]

@scepticsteve I don't think it is the main reason either, just a primary reason. In the end, Keynesian economics is about power and control. Economics is about as much a science as political science is. Keynesian economics is just the preferred method of gambling because it concentrates the power in a few.

The academic majority support Keynes because of money, prestige, and power, i.e., Bernanke, an academic, is now running the world's largest central bank, and Krugman will likely be his heir.

[TrollBuster9090]

@DollreeMappEsq

1. No politician in history has ever TRIED Keynesian economics. KE calls for lowering interest rates and taxes, printing currency and borrowing and spending on infrastructure during BUSTS, then raising taxes and rates to pay back the debt during BOOMS. Politicians do the first part for both busts AND booms.

2. F. Hayek, Nobel Prize 1974.

3. The Koch brothers and others, via CATO and von Mises fund Austrian Economics chairs at universities all over the country.

[DollreeMappEsq]

@TrollBuster9090

1.You need to review Keynesian economics. It has been alive and well since the New Deal.

2. F.A. Hayek did win the Nobel Prize and was belittled by the co-winner that year for being a reactionary and not a "real economist." Same thing happened to Milton Friedman. A group of economists even publicly came out against Hayek and threatened to give back their prizes because he won.

3. Take off your tinfoil hat. My comment specifically stated "government funding."