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Let’s play the Republican game – Shut it down!

Many Republicans are serious politicians who understand how the government process works. Several Republicans aren’t serious politicians and just want to make political hay. I guess that there are people back home who are cheering a government shutdown. This is the problem with the way that many Republicans are elected. They are completely supported by single issue folks. These single issue folks may have no other interests or thoughts except deep cuts in government spending. They can’t see the bigger picture because their rage is stoked by what they see is the root of all evil – the government.

From Political Animal:

The problem, of course, is that some lawmakers appear a little too eager to score political points, and deliberately avoid being practical.

Linda Bilmes, a professor at Harvard’s John F. Kennedy School of Government, led a budget seminar for nearly 40 House freshmen before the start of the new Congress.

She believes freshman conservatives are itching to make a dramatic statement by shutting down the government.

“It was clear there was a group of new members who in my mind were more concerned with making statements than working with their own leadership to solve the nation’s problems,” said Bilmes. “Nothing I’ve seen in the last week changes my mind.

“There are certainly some elements within the Tea Party group that are looking to make a dramatic statement.”

Just so we’re clear, this is a sentiment that suggests Republicans would shut down the government, not just as a result of an irreconcilable dispute with the White House, but because GOP lawmakerswant to shut down the government.

On a related note, House Republicans had to know this was coming, but the White House went ahead and made the threat formal today — President Obama would have no choice but to veto the GOP’s proposed cuts for the remainder of the fiscal year, if they reached the Oval Office.

“If the president is presented with a bill that undermines critical priorities or national security through funding levels or restrictions, contains earmarks, or curtails the drivers of long-term economic growth and job creation while continuing to burden future generations with deficits, the president will veto the bill,” the White House said in a statement. It added that while the administration supports reducing spending to cut the deficit, “the administration does not support deep cuts that will undermine our ability to out-educate, out-build, and out-innovate the rest of the world.”

Just as a reminder, something has to do be done by March 4 — 16 days from today — or the shutdown will begin.

By |2011-02-16T09:05:06-04:00February 16th, 2011|Budget, Obama administration, Party Politics|Comments Off on Let’s play the Republican game – Shut it down!

Did Fannie Mae and Freddie Mac cause economic meltdown?

Conservatives, as the economy began to melt down quickly in 2008, began to target one of the programs that they truly hated, the Community Reinvestment Act. They pointed to this one program, which started back in the Carter administration, as the root of all evil. The conservative argument goes something like this — the community reinvestment act asked banks to lend more money to minorities and Americans who lived in impoverished areas. Therefore, the banks were forced to hand out riskier mortgages. This whole operation was funded through a mandate of Fannie Mae and Freddie Mac. So, with Fannie and Freddie pumping money into the mortgage financial system and bankers being “forced” to lend money to people who were obviously not qualified, there’s no surprise that these mortgages ultimately failed in a spectacular fashion.

This tale is like many tales that come out of the conservative movement. There is a shred of truth located deep within the story. Unfortunately, there is only a shred of truth. First, it is important to understand how the mortgage industry works. I thought, if I go to the bank, Friendly Bank, and I’m approved for a loan, Friendly Bank gives me the money to purchase a house. I thought that the loan stayed at Friendly Bank. I was wrong. That’s the way loans worked in the old days. Now, Friendly Bank will take my loan and do one of two things — sell the loan to another financial institution or package the loan with other loans and then sell that to a financial institution. This is where mortgage securitization comes in, along with derivatives and collateralized debt obligations and much more craziness. Fannie and Freddie worked in the secondary markets. It is true that Fannie and Freddie injected liquidity into the housing market. They are able to buy qualified loans (notice the word “qualified”) from banks and then pass those loans on to other financial institutions. “The riskiest mortgages, however — the ones that were pushing the housing bubble to dizzying heights — were simply off-limits to Fannie and Freddie.” (From Simon Johnson’s book 13 Bankers, p 145.) Fannie and Freddie were barred by law from handling these risky subprime mortgages.

When you look at the subprime mortgages that were issued at the height of the craze, between 2004 and 2006, Fannie and Freddie only sold approximately 24% of those loans. In 2006, 84% of subprime mortgages were issued by private lending institutions. These loans were then passed on to other private institutions, bypassing Fannie and Freddie. Although Fannie and Freddie Miami have wanted to get into the fray, they were unable to participate. “Private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market.” Over 66% of these loans stayed in the private sector.

This reason that conservatives continue to push a story that they know is not true is because the truth is very scary to them. The truth is capitalism worked the way it was supposed to work. Capitalism is about greed. Capitalism is about looking out for your own interest. This is exactly what these private investment banks did. The point of the federal government is to constrain the excesses of capitalism. Put another way, people always look for ways to make money. If there are no regulations, then people will make money any way that they can. Some will even rip off their own grandmother to make an extra dollar. Alan Greenspan and Henry Paulson (and almost everybody on the Bush financial team and unfortunately, this includes most of Obama’s financial whiz’ also) believed in self-regulating markets. They believed that the purer the market was, the better the market would regulate itself. Unfortunately, they did not factor in one of the most important things in human nature — greed and deception. No investor will always have all of the information. Financial institutions have intentionally created an atmosphere where they hold most of the cards. They only reveal the cards they want you to see; therefore, no investor is fully informed.

So, in summary, Fannie and Freddie did not cause the economic meltdown. The Community Reinvestment Act did not fuel the economic meltdown. There was a climate of deregulation, mortgage derivatives and collateralized debt obligations, which were designed to hide risk and were sold to investors as safe. These mortgage securities were stamped with triple-A ratings,duping investors into thinking that they were safe. Because the primary lender had the ability to pass off loans to someone else, there was less worry about the quality of those primary loans. There you have the cycle. You have a nearly infinite supply of investors who want low risk, yet high yield investment opportunities. These mortgage-backed securities were sold as exactly that — low risk and high yield. Unfortunately, for all of us, they were not low risk. Not even close.

By |2010-05-03T23:06:59-04:00May 3rd, 2010|Bush Administration, Business, Economy|Comments Off on Did Fannie Mae and Freddie Mac cause economic meltdown?

The Errington Thompson Show 10-18-08

There is too much to talk about. Brain freeze! Joe the Plumber. Another debate. ACORN is the root of all evil, according to John McCain. They will single-handedly bring down our demcracy. The Obama camp has filed a formal request to look into connections among the White House, The RNC and the DOJ. To top that off, I have Markos Moulitsas as my special guest. We talk about his new book Talking on the System, weanie Democrats and much, much more. Enjoy.

By |2008-10-19T15:40:00-04:00October 19th, 2008|Election 2008, Podcasts|Comments Off on The Errington Thompson Show 10-18-08
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