Republican talking point whack-a-mole, yet again

The argument by talking point style that characterizes all sections of the political right in the US has been evident as usual in relation to the financial crisis, so I guess it’s time to play whack-a-mole yet again. The most prominent points I’ve seen are

* It’s all the fault of the Community Reinvestment Act, which forced banks to lend to low-income borrowers. Quite a few people have pointed out that many of the subprime loans weren’t required under CRA. More to the point, given that the market structures in the bubble made mortgages a fungible asset, the CRA was a nonbinding constraint. It’s clear that many more subprime loans were given out in the bubble years than were required under the Act and that the excess was greatest in the areas where the bubble was worst. The CRA had no effect at all under these conditions.

* If regulation were the problem, how come the hedge funds haven’t been affected? In fact, it was the failure of Bear Stearns hedge funds that signalled the spread of the crisis beyond the subprime mortgage market. And the main reason hedge funds haven’t yet been hit by the crisis of the past few weeks is that they don’t allow redemptions except at stated dates (for most of them it will be next Tuesday. Perhaps there won’t be a problem, but that’s not what the markets think. In any case, those making the claim seem to be unaware of the redemption restrictions.

42 thoughts on “Republican talking point whack-a-mole, yet again

  1. “Energy engineers knew this wouldn’t work (the energy inputs exceed the outputs), and agricultural engineers knew this would impact world food prices,..”

    A man of harder science ehj2?. Come to throw a bit of light on the confounding dismal science. Apparently there is a trend toward the multidisciplinary approach in our venerable institutions as Greg Mankiw notes. Princeton freshman Physics 101 meets modern alchemy by the looks of things-

    Problem 1. A famous thought experiment in economics involves dealing with a financial crisis by dropping money from a helicopter.

    Ben Bernanke, Federal Reserve Chairman and former Princeton Economics Professor, decides to try this out over his old hometown. With his helicopter flying 1.0×10^1 m above the center of Fine Tower and in the direction of Nassau Hall, Ben gently releases a briefcase containing $1 million. Using the information that (i) Fine Tower is 6.0 × 10^1 m high, (ii) Nassau Hall is 1.5 × 10^1 m high and (iii) the centers of the two buildings are 3.0 × 10^2 m apart, and ignoring air resistance as you normally would:

    a. [2 pts] How fast should Ben’s helicopter fly so that the briefcase lands in the center of the roof of Nassau Hall?

    b. [1 pt] How long is the briefcase in the air?

    c. [1 pt] How fast is the briefcase moving when it hits the roof of Nassau Hall?

    d. [1 pt] How much faster would the financial relief have reached Nassau Hall if the briefcase had contained $2 million instead?

  2. you economists stole and ruined a perfectly good word.

    derivative shouldn’t have been mucked up to mean “a mash of unlikely things thrown together.”

    and I’m not falling for your liquidity trap.

  3. Observa,

    If, in the rendering of the gentleman at the top, we could substitute a feces-flinging howler monkey with a diamond-encrusted watch, the image would have more verisimilitude.

    Krugman now calls us a banana republic with nukes. But we’ve been a rogue nation for a long time.

    Most people I meet think Laos is just part of Vietnam. Laos is the most bombed country on earth. The US dropped 2.4 million tons of bombs on it during the Vietnam War — more than the allies dropped on Germany and Japan combined in World War II. An estimated 270 million cluster bombs were dropped.

    I don’t know why I thought of that just now.

  4. Tyler Cowen of Marginal Revolution has argued that CRA, while being bad policy, did not worsen the housing bubble (and consequently the subsequent crash) significantly.

  5. John, had distressed financial institutions put into practice the three Pillars in treating the calculation of capital requirements, supervisory review, and the disclosure necessary for effective market discipline as set out in Basel Accord Mark II then the risks and failures in the global financial system could have been minimised and/or even avoided.

  6. It was always the moral hazard of cheap money flung from the balcony to the ever cheering multitudes and Bernanke and Paulson still want to continue the party-

    Ron Paul sees through the continuation of their ponzi game and calls it like it must be-

    “Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention. This lowering of prices (ie, home prices) brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however, that there are some winners – in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers – builders and other sectors connected to real estate that suffer setbacks.

    The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was. I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: they seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.”

  7. And to add weight to his words notice how the stock markets have reacted to the on again off again big bailout carrot. The party is over folks and it’s time for hard work for less and real savings and investment again.

  8. #21 Joseph Clark,

    all you’ve done is rehash talking points.

    This seems about right:

    “It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.

    And that is not political correctness. It is correctness.”

  9. Come off it Mel. Have a decko at this stinking pot-pourri of competing means and ends closer to home from the woolly headed Ms Burrow-

    ‘THE peak union body has backed the Federal Government’s plan to inject $4 billion into the non-bank lending sector, saying the step is “necessary corporate welfare”.
    Labor announced last week it would use taxpayers’ money to invest in new residential mortgage-backed securities (RMBS) to reinvigorate the market and provide competition for home lending.
    ACTU president Sharan Burrow says the move is “prudent and timely” but must come with conditions.
    They should include curbs on lending practices that push debt onto vulnerable consumers, a requirement that the $4 billion be offered to institutions that provide lower interest rates and greater protection for homebuyers at risk of default, she said.
    “The Government’s move to support non-bank lenders is necessary corporate welfare, but let’s not lose sight of the real objective here,” Ms Burrow told the National Press Club in Canberra.
    “It should principally be to support and protect those families at risk.
    “Support must also be extended to working families at risk of losing their homes.”
    The union boss said the price tag for assistance to the financial sector had to be tougher regulation and greater transparency.
    “There’s a lot of workers’ capital tied up in this system, and we want it to work,” she said’

    As the man said, when institutions say they want to do well AND good he reaches for his wallet and so should we all.

  10. And here was me thinking that no Govt bailout would protect working families from that $4bill in extra taxes and eschew corporate welfare, whilst foreclosures would free those vulnerable consumers from all the debt that was ‘pushed’ onto them. Instead Rudd is gunna join ‘Aussie to save ya’ all. Where is Mr Aussie nowadays you may well ask? No doubt basking like shareholders in Westpac and its subsidiaries now, trusting Rudd will Rams this through parliament to save them all just like those pet hybrid Toyota shareholders of his. You know it all makes warm fuzzy sense O meboy.

  11. banks dont create money out of thin air…

    “The Bank of International Settlements, which seems to be the only institution that tracks the derivatives market, has recently reported that global outstanding derivatives have reached 1.14 quadrillion dollars: $548 Trillion in listed credit derivatives plus $596 trillion in notional/OTC derivatives.”

    That’s $1,140 trillion. $1.1 quadrillion.

    remember to say to yourselves every morning,
    “australia is different, our banks are different”

  12. “The Bank of International Settlements, which seems to be the only institution that tracks the derivatives market, has recently reported that global outstanding derivatives have reached 1.14 quadrillion dollars: $548 Trillion in listed credit derivatives plus $596 trillion in notional/OTC derivatives.�

    once you reach a number that big – does it really mean anything anymore? or is this what Steve Keen meant when he said that this bail-out was like trying to rescue the Titanic using a thimble.

  13. Gerard Henderson uses his space in the SMH today (7 Oct) to recycle this argument. He manages to take it even further, somehow implicating Obama.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s