Sarah Palin, Republican Vice Presidential Candidate

[pohibaba]

The most important thing would be a strict interpretation of the Constitution. By strict, I don't mean that we should ONLY look at the words that are printed in the Constitution, but we should also look at the other writings by the Founders that relate to the Constitution so that we can understand what it actually means and not just what it says. (And yes, you could say that it was so poorly written that those two don't necessarily go hand in hand). It also means that we shouldn't get involved in things that aren't necessary for running a government, such as the private lives of its citizens. It also means that we should end our attempts at global imperialism immediately.

To get back to your point, though, I do share the idea with most Republicans that government doesn't really belong in our markets, but my point is that they're doing it all wrong. I think that government interference is what ultimately caused this crisis. The fact that the government had given Fannie, Freddie, and the HLBB close to $15 billion in indirect Federal subsidies and allowed them a $2 billion line of credit to the US Treasury distorted the credit market.

[archibaldcrane]

I think that government interference is what ultimately caused this crisis. The fact that the government had given Fannie, Freddie, and the HLBB close to $15 billion in indirect Federal subsidies and allowed them a $2 billion line of credit to the US Treasury distorted the credit market.

You honestly believe that ARMs and sub-prime lending wouldn't have occurred and then crashed either way?

[Kuya]

Thanks for clearing that up, and as to the second; yea i find it suspect that people who think the government should be hands off (A few Republicans) also seem to believe that giving corporations a helping hand when they don't need it (but they sure as hell will take it) or giving tax cuts to the rich is hands off.

I presume that by saying keeping the government out, you don't mean no regulations.

[pohibaba]

You honestly believe that ARMs and sub-prime lending wouldn't have occurred and then crashed either way?

No, the crash was inevitable. That's what markets do: they have booms and they have busts. My argument was that the only reason why it's a national crisis right now, though, is that that the government artificially inflated the boom which ended up making the bust that much worse.

[zoobernut]

No, the crash was inevitable. That's what markets do: they have booms and they have busts. My argument was that the only reason why it's a national crisis right now, though, is that that the government artificially inflated the boom which ended up making the bust that much worse.

It seems as though the boom was artificially created by the general public buying and selling houses and encouraged by the mortgage companies giving them financing that allowed them to buy houses way beyond their means.

It is like the dotcom crash/era a lot of what went down was the result of people buying up stocks of the companies without researching them or even caring about the company just wanting the stock because they thought it was going to go up in value. People were speculating the housing industry in the same way. They were buying houses for prices that were not based on the actual value of the home but rather what they thought the home was going to be worth in 1 or 2 years.

[archibaldcrane]

No, the crash was inevitable. That's what markets do: they have booms and they have busts. My argument was that the only reason why it's a national crisis right now, though, is that that the government artificially inflated the boom which ended up making the bust that much worse.

However, the argument could also easily be made that with a bit of regulation preventing deceptive lending practices (telling borrowers to lie about their income to get loans, intentionally misleading borrowers about the true cost of a loan) the effects of ARMs and sub-prime lending, which should -never- have been occurring in the first place and was driven by irrational greed, could've prevented the bubble, and therefore the burst.

You see it as "gov't enabled", I see it as "gov't didn't stop it" - and you know what? We're probably both right.

[pohibaba]

My argument is that government interference allowed Fannie, Freddie, and HLBB to attract capital they normally wouldn't have been able to under normal "free market" conditions. This, in turn, distorted the market as a whole and made any subsequent boom much, much worse than it should have been. Do you think that all of those sub prime loans would have been handed out if the companies knew that they were risking their own money, and not the tax payers, and that if a bust occurred they wouldn't just get bailed-out and lose everything they have?

[pohibaba]

However, the argument could also easily be made that with a bit of regulation preventing deceptive lending practices (telling borrowers to lie about their income to get loans, intentionally misleading borrowers about the true cost of a loan) the effects of ARMs and sub-prime lending, which should -never- have been occurring in the first place and was driven by irrational greed, could've prevented the bubble, and therefore the burst.

You see it as "gov't enabled", I see it as "gov't didn't stop it" - and you know what? We're probably both right.

I agree, we're both probably right. It's just my personal preference that we just try to stay out of the markets as much as possible so we don't run into the slippery slope of giving subsidies to companies which causes us to regulate them, which hurts their capital which causes us to subsidize them even more, which causes more regulation.....

[aurik]

And he'll tell you that the only reason that such people could get the credit they did not deserve was because the government basically props up Freddie and Fannie.

Which is true. Without government insurance, there would be a lot less available capital, which would necessarily constrain the market during growth, which has the side effect of reducing how big the market is when it busts.

That said, lack of government play in the 1920s didn't stop this exact scenario from happening in Florida, and one could argue that the crash of 1929 and ensuing depression was essentially an aftereffect.

[SwampdonkeyPLD]

The reason people could get loans that otherwise couldn't was because Fannie and Freddie didn't bother to check if people could even pay back the loans.

[zoobernut]

Isn't that the responsibility of the credit agencies that Freddie and Fannie rely on? A financial analyst on the news today was saying that there were some unwise practices being performed by the credit rating agencies as well because they were the ones telling the major loan companies that people would be fine to pay off a loan when the loan payments were 3/4 of their income.

[SwampdonkeyPLD]

Isn't that the responsibility of the credit agencies that Freddie and Fannie rely on? A financial analyst on the news today was saying that there were some unwise practices being performed by the credit rating agencies as well because they were the ones telling the major loan companies that people would be fine to pay off a loan when the loan payments were 3/4 of their income.

Don't know, one of the changes both said they would introduce after all this is asking people how much they make.

[Seraph]

The reason people could get loans that otherwise couldn't was because Fannie and Freddie didn't bother to check if people could even pay back the loans.

Boils down to many stupid (and possibly greedy) people doing stupid things. The government hands out credit whithout really checking to see what it is being used for, noone checks if people asking for loans deserve them, and the people getting the loans don't figure out if it's a good idea, or if they can repay them. "Does this benefit me in the immediate future?"

Really hard to place blame on a single party for this whole situation, because I generally find they are all fricken stupid. Government, Lenders, and Borrowers are all to blame for this situation, and it shows an extreme lack of responsibility overall. Maybe someday people will get their shit together, I'm not holding my breath though.

[Senoska]

The reason people could get loans that otherwise couldn't was because Fannie and Freddie didn't bother to check if people could even pay back the loans.

The reason fannie and freddie went under was because of the deregulation of loans. Bush's fault. They were giving out loans left and right because they figured they would make large sums of money in the end, too bad for them.

[aurik]

Actually, if you're looking to pinpoint blame:
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

Ironic side-note, Phil Gramm was McCain's senior economic advisor until July.

[pohibaba]

Actually, if you're looking to blame someone, point your fingers at everyone who didn't vote for:
Free Housing Market Enhancement Act

I'll give you guys one hint who, 6 years ago mind you, had the economic foresight to predict exactly what was going to happen and wrote a bill to try and solve it.

[Zosi]

It's a little more complicated than just blaming those evil buyers on the secondary mortgage market. They go by ratings, which, we've discovered have been frequently faked or "bluffed" by lenders who lie about the borrower's qualifications. High-rated securities are supposed to be very safe investments, but so many questionable/bad mortgages were misrated and bundled into higher-rated bundles that they turned out to not really be very safe at all. Now, when people are starting to default on those bad mortgages, the companies that bought the mortgages are the ones that take the hit.

The people making the bad decisions already have their money. They sold off the bad mortgages on the secondary market a long time ago, so now they're someone else's problem. However, that "someone else" is turning out to be the US taxpayer.

[aurik]

Bzzt wrong. If that had passed, the result would have been the same bust, except over a much shorter period of time and thus a lot more financially painful.

I like Ron Paul, I do, but I think economically he has it wrong.

But then I'm a big believer in Keynes.

[archibaldcrane]

Actually, if you're looking to blame someone, point your fingers at everyone who didn't vote for:
Free Housing Market Enhancement Act

It looks like it didn't go to vote...

[aurik]

Statistics: Ronald Paul has sponsored 313 bills since Jan 7, 1997, of which 311 haven't made it out of committee and 0 were successfully enacted.

lol poor Ronnie.