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Monday, July 14, 2008

Really, couldn't get away too soon

Did you ever try to get hold of a banker on a Sunday? Or a stock broker? Or a mortgage guy? Good luck.

How about the federal bureaucrats who used to regulate these industries, but who for about a decade now have pretty much "let them play"? Can you imagine trying to get one of those government officials on the phone between 5 p.m. on Friday and 9 a.m. on Monday? Not gonna happen.

But when they screw up big enough that they've got the whole economy teetering on the brink of disaster, they do work Sundays. They come in early and sweat the whole day figuring out new ways for the taxpayers to bail out the boys on Wall Street.

The Bear Stearns bailout was largely a Sunday deal. Then yesterday we had the feds announcing that they'll print whatever money it takes to keep Frannie Mac, or Freddie Joe or Ellie Mae or whatever their cutesy names are, afloat. The big shots who've made their fortunes off these companies will get to keep their money, but you, and especially your kids, will pay to clean up the enormous mess they've left behind.

Announced on a Sunday. How can these guys even get into the government office buildings on a Sunday? They must have held the news conference at a Starbucks.

Weren't these life-threatening crises already present on, say, Thursday? Do Bush and Bernanke go to church on Sunday morning and pray for divine guidance, then get in the limo, pick up the phone, and announce what the voices just told them?

Would it surprise you if all these maneuvers are being made on Sunday so that a select few insiders can make some calls of their own, and place their reactive bets on Sunday night, in time to give them priority over all the little folks who can't scare up a broker and try to save their 401k's until Monday morning? In fact, I'd be a little surprised if in the end that wasn't part of the deal.

When I first learned about this country's securities and banking laws 30-some years ago, I was led to believe that we had systems in place to stop that sort of thing. But that was a long, long time ago. Since then, deregulated phone companies, airlines, banks, financial markets -- the whole Ronald Reagan-University of Chicago dream has worked out so well in practice.

Comments (25)

Hmm, I don´t think that everything worked out so fine, there´s still a long way to go. Nice post anyway.

When Phil Graham, with the aid of Bill Clinton, killed off the Glass Seagal act the race was on for enrichment of the robber Barron's. If you listen to the drum beat, the saving of Amerika will be doing away with social security.
Reminds me of Adolph Hitler in pre-world war 2 doing away with Germany's social security to finance the Wehrmacht's War Machine.
Maybe god made poor people so the rich don't have to suffer.

This "backstop" is better than nationalization: it allows the GSE's to continue to rely on private capital to support the U.S. mortgage market.

If U.S. housing prices continue to plunge (or we have a protracted recession), stock prices on FNM and FRE should continue to decline as their "normalized" profits will only follow a return to rising house prices.

Hopefully, the backstop will not enhance Congressional mandates to decrease the credit quality of borrowers in the name of increasing homeownership rates.

Who'd have thought a post on banks would invoke Godwin's Law by the second comment?

Right now, they are limited in their options and keeping secondary mort buyers like FNMA propped up is about it. I read in the UK, their solution is going to be a sale-leaseback. The govt would buy the house and then rent it back to the former owner and now tenant, which is gonna be a whole new can of worms.

Even without de-reg, I am sure some well-meaning populist would have started screaming about poor people not being able to afford houses and then these bad loans would have been generated anyways.

KISS - Wins the prize for most obtuse mention of Hitler.

Since Freddy and Fannie are bulletproof it's time to invest in their stock.When the Govt. creates an agency and guarantees liquidity, should the agency be allowed to issue stock on the open market. Don't seem right. These two entities should have been sub-agencies of the Treasury and closely regulated.

Jack, it would take way longer than I have to adequately refute your posting. On the big picture, I strongly disagree with your assertion that free market economic policies created the Freddie Mac/Fannie Mae mess. I'm really concerned that our leaders are going to apply the wrong cures (less freedom) to problems caused at least in part by government interference in the first place. On the smaller picture, you imply that this deal (like the Bear Stearns deal) is a bailout of the shareholders. Bear Stearns clearly didn't end well for the Bear Stearns shareholders. While this deal, like the Bear Stearns deal, does keep the organizations in business (protecting their lenders and hopefully the credit and banking system in general), also like the case of Bear Sterns, the shareholders will probably take it in the shorts, which is as it should be if you are a shareholder of a poorly-run business.

Your whacked. Carter deregulated the airline industries. Alfred Kahn who was an economic advisor pushed for it. Lyndon Johnson started the privatization of Fannie Mae and Freddie Mack. Who all wants go back living in the over regulated 1970s? You probably have nostalgic waxing going on. Without deregulation, would there be an i-phone or i-pod? I kind of doubt it. More, likely we'd still have computers the size of the empire state building.

Without deregulation, would there be an i-phone or i-pod? I kind of doubt it.

Because the computer industry was so regulated in the 60s and 70s.

There's a HAL joke here somewhere, but I can't quite put my finger on it.

When a loan industry fueled by unrealistic home values operates on an appraisal and no docs, some lucky flippers get wealthy on Uncle Sams guarantees and our tax dollars. God bless the free market cause lord knows it would collapse with a required verifiable income regulation to receive govt. guaranteed money.

Listen to squeal of the repugs when a legitimate comparison is made.
Now just defend old Prescott Bush and his money laundering machine for Good old Adolph.

Minor detail: Bernanke's Jewish. So he prayed for divine guidance on Saturday. Sunday could actually be a working day for him.

from wiki: "On December 21, 2004 Raines accepted what he called "early retirement" [2] from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses [3]." Where is the outrage from bowtie and whydum about these enron-esque activitites??

There are several examples of de-regulation of the telecom industry which made toys like the I-Phone possible, beginning with a 1956 consent decree between AT&T and the US Justice Dept. that precluded AT&T involvement in the then-primitive computer industry.

The FCC's approval of MCI private microwave networks between Chicago and St. Louis in 1969 could be called the "nose of the camel in the tent" that led to today's cellular service providers. But AT&T fought MCI tooth and nail for every interconnection, every tariff filing, in every city, county, and state.

AT&T used its monopoly position to restrict, delay and crush any competition in the communications field including the fledgling computer industry. AT&T dominated everything at the time.

The 1970's MCI's antitrust suits against AT&T, along with a Dept. of Justice antitrust suit which among other things alleged AT&T violations of the 1956 consent decree eventually led to the voluntary breakup of Ma Bell on January 1, 1984.

It was a good thing.

It was a good thing.

Really? The $44 I just paid for an 11-minute overseas phone call is not a good thing.

Being "slammed" by long distance carriers, which has happened to me more than once, is not a good thing.

Having to pay Qwest $7 a month to put a "no solicitation" message on my home phone, so that Qwest salespeople would stop interrupting my dinner trying to sell me cr*p that I didn't want, is not a good thing.

I'll take Ma Bell back any day.

pdxjim, Clinton's 'wall builder,' Jamie Gorelick, was knee-deep in the Fannie Mae scam as well.

To think Dems (and soon to be president Obama) are somehow less culpable in our 'dire' economic straights is laughable.

I put 'dire' in quotes because I agree with Phil Gramm that a lot of this supposed downturn is manufactured. Case in point: Nintendo Wiis are flying off the shelves (so much so that Nintendo is building an additional manufacturing facility) and the 3G iPhone sold 1 million units over the weekend.

Sure doesn't sound like folks are starving.

"To think Dems (and soon to be president Obama) are somehow less culpable in our 'dire' economic straights is laughable."
Funny I thought neo-liberal randian supply siders were all republican. I guess I was mistaken.

"I agree with Phil Gramm that a lot of this supposed downturn is manufactured."
While you have your head stuffed up your a** I am making a killing shorting amerikkka.


more info from wiki: looks like she should be do a perp walk too! When do the democratics call her before their panel?? "Gorelick was appointed Vice Chairman of FNMA from 1997 to 2003. She served alongside former Clinton Administration official Franklin Raines, and earned over 26 million during her six years there. During that period, FNMA developed a $10 billion accounting scandal. [11] One example of falsified financial transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives. [12] Gorelick received $779,625. On March 25, 2002, Business Week interviewed Gorelick about the health of "Fanny Mae". [13] Gorelick is quoted as saying, "We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength -- without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions." [14] One year later, Government Regulators "accused Fannie Mae of improper accounting to the tune of $9 billion in unrecorded losses".

Why anyone would pay $$$ for long distance (or overseas long distance) is beyond me - the whole point and benefit of dereg was to allow YOU to choose who to use. Because you didn't bother to find a service provider and got hosed on the bill doesn't mean regulating the industry is the answer. How about picking up the phone or going online and finding yourself a deal? Then you can only blame yourself.

An $7 extra for a "no solicitors" message? Why not sign up for the federal no-call list? Amazingly, for a government program, it has worked reasonably well for most people I know. Now only the law school calls to bug me for donations.

"The $44 I just paid for an 11-minute overseas phone call "

Wow! You should try Skype, my wife talks to her gf in Australia for .03/minute.

Because you didn't bother to find a service provider and got hosed on the bill doesn't mean regulating the industry is the answer. How about picking up the phone or going online and finding yourself a deal? Then you can only blame yourself.

The whole point is, I shouldn't have to. I don't do it with electricity, I don't do it with water, and I shouldn't have to do it with the farookin' telephone. It's a public utility. It should be regulated.

Sure, I should be charged extra for being lazy and using AT&T. But four bucks a minute is complete and utter University of Chicago bulls**t.

I assume there is some advantage to using an Australian web hosting firm in lieu of one closer to home.

Either way, excess fiber optic capacity has resulted in a flattening of the world that would have been impossible under the formerly regulated environment of Ma Bell.

Granted, it resulted from a huge speculative frenzy that bankrupted several corporations. But global data transmission costs have never been lower.

I assume there is some advantage to using an Australian web hosting firm in lieu of one closer to home.

Please stay on topic. And it is not a web host, it is an internet domain registrar, which was selected not by me but by a former web host of mine, a U.S.-based concern.

I don't care who I'm calling in Australia, it shouldn't cost $4 a minute. That is a ripoff.

you imply that this deal (like the Bear Stearns deal) is a bailout of the shareholders.

It may not be the shareholders -- it may be the bondholders. But clearly the federal government is going to spend taxpayer money to cover the losses of some parties who took all of the upside potential from these entities. Now those investors will get to walk away from the downside that they've already gotten paid to assume in the form the prior annual returns (e.g., interest) from the securities.

Jack, I'm certainly not crazy about bailing out anyone. Hopefully, the deal will not be a bailout, as it just allows Freddy and Fanny to borrow in the same manner and at the same rate banks and brokerages do, providing a source of liquidity to prevent a meltdown, but other things being equal, I wouldn't want to have the taxpayers bailing out anyone. And on your $44 phone call to Australia, the difference is before, with the Ma Bell monopoly, everyone would have had to pay $44 (or more) for that call. Now, those of us who care can find alternatives that are much much cheaper. No one ever said that there are no scoundrels in a free market; just that there are choices.

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