Will Atlas Shrug?

[Bill Call]

It's possible:

http://online.wsj.com/article/SB1231463 ... nd_journal

[ryan costa]

As I read that article I began to suspect it was junk. My suspicions were confirmed when the author mentioned having worked for the Cato Institute. There were no remaining doubts when I scrolled back to the byline and read that the author was Stephen Moore.

The economic "meltdown" is exclusively the result of policies engineered and practiced by the titans of wall street. The Banks, the Bond Traders, the Bond Raters. They got what they asked for for years, and poured the profits into lobbying for more of it and getting their income taxes cut and lowering tariffs. Now they are asking for handouts, and the treasury is asking for them to pay some of it back.

The big banks, investment firms, etc were the ones who wrecked viable businesses with their brilliant leveraged buyouts. There were no Michael Milkens in Atlas Shrugged. At least among the protagonists.

The protagonists and heroes of Atlas Shrugged were engineers and hack Mechanics and Contractors. There were no Economists. I don't remember any lawyers either, but I only read the book twice.

Dagny Taggart had a degree in Engineering and is the third generation heir to her Grandfather's Railroad. She is competent in managing it and getting things done, but generally doesn't display much innovation or anything comparable to FedEx's business "innovations".

John Galt was not a businessman the leaders begged for help. he ran no business in mainstream society throughout the book. He did invent a Van DeGraaff Generator that ran much better than any real Van De Graaff generator. But most people did not know about that. If he had invented it for Thomas Edison or GM back in the 1800s or 1910s, they probably would have made most of the money from it. Fortunately, the factory he was working for turned out to be run by hippies, so he trashed his generator and left.

The society of Galt's Gulch exemplifies the values of a libertarian paradise: they have very strict rules about immigration, refuse to trade with any society they deem less free than themselves, their materials requisition team has gunships better than any real military, and their finance system is no more elaborate than people trading gold coins to each other.

In real life the Aerospace industry owes itself almost exclusively to giant government contracts. Without them we'd just have barnstorming pilots flying around in propeller airplanes and a few light freight turboprops.

I don't know what commercial rate regulation the big remaining Railroads are asking for. But the original draft of the Constitution does give Congress some power to regulate interstate commerce. Perhaps if the railroads had been prevented from over-merging, they wouldn't be asking for so much regulation. As it is, usually a few gain access to bigger credit, then underprice their services to force competitors into going under. it helps that they got funding and landgrants twice the size of texas in the 1800s.

In real life, America has generally had higher prosperity in the mid-20th century, when progressive income taxes, corporate income taxes, and capital gains taxes were much higher. We also didn't have paris hilton.

Beyond that, when there were little or no income taxes, America had much greater economic growth when there were high tariffs. Many more obstacles to transporting freight across the ocean. Many more obstacles to communicating business products services and prices across counties, states, and oceans. Half a Continent to be had with land grants or prices cheaper than anything Europeans could expect. Distance and freedom and cheap land that made the professional guilds and inherited class titles of Europe far less valuable here.

The automobile industry would be a lot smaller without our federal interstates and federal power to take peoples land to build turnpikes.

Military entanglements are always legitimate. Mainstream Republican advocates of small government will always build their campaigns around calling their Democratic opponents Liberal Wusses.

It is great to denounce any particular government regulation or expenditure you don't care about. Just don't do it with a frame of reference informed by Atlas Shrugged or the Cato Institute. they are both garbage.

Here's Bill Moyers: you can trust him.

http://www.pbs.org/moyers/journal/10242008/watch2.html

John Kenneth Galbraith is also someone you can trust. He understood that Big Business becomes big government.

[Stephen Eisel]

The economic "meltdown" is exclusively the result of policies engineered and practiced by the titans of wall street.

LOL.. How about the Government messing with capitalism? Fannie and Freddie? The government telling banks and other financial institutions who they should loan money toooo...

Here comes the avalanche! ... oops.. The dems decided to play politics rather than face the facts.

http://www.youtube.com/watch?v=_MGT_cSi ... re=related

[/quote]

[ryan costa]

The economic "meltdown" is exclusively the result of policies engineered and practiced by the titans of wall street.

LOL.. How about the Government messing with capitalism? Fannie and Freddie? The government telling banks and other financial institutions who they should loan money toooo...

Here comes the avalanche! ... oops.. The dems decided to play politics rather than face the facts.

http://www.youtube.com/watch?v=_MGT_cSi ... re=related

[/quote]

no matter how many times you say that it won't be true. You can quote politicians blaming other politicians for voting for small pieces of legislation that pretty much voted the same way, but that doesn't track how those politicians actually voted. nor did that legislation coerce banks into making loans, mortgage brokers from hooking people up with those loans, or real estate agents going along with it, or bond traders and hedge fund managers from doing all kinds of weird things with them afterwards. lenders were tripping over themselves to make AVR loans to anyone. There was junk mail and advertising for them everywhere, even on Yahoo's main portal page. Not just to poor people, but to people with median or higher income to spend much more for a home than they could afford. The big banks and top performing banks of the time approved all of this. The smartest, most "innovative" banks and fund managers had the highest "growth" for the last 28 years, and lobbied for income tax reductions, capital gains tax reductions, and more "freedom" to loan out money to anyone.

[Stephen Eisel]

Small pieces of legislation??? lack of that specific legislation caused the meltdown... nice try

[ryan costa]

Freddie Mac's job was to "buy" mortgages banks or lenders had already made. they then shuffled them into securities or bonds etc. Wall street then spun them into bond packages and infinite derivatives.

blame the Federal Reserve(greenspan) or the high flying banking lobby and wall street lobby. They got what they wanted and earned big fast money for decades. they had enough to selectively lobby/bribe/fund the actions of other organizations and the think tanks and consultants those organizations hire. it was in the interest of the banks to have someone to dump their AVR loans on: it was in their interests to engineer the conditions of the existence and operation of that entity: freddie Mac and Fannie Mae. This is something they obviously did. They had enough money leftover to fund the CATO institute and so many University Economics departments.

as an addendum, here are two more things Atlas Shrugged got wrong:
1. Buddhism became popular with successful businessmen, such as steve jobs
2. Soybeans became one of the most successful commercial crops.

[Bill Call]

nor did that legislation coerce banks into making loans, mortgage brokers from hooking people up with those loans, or real estate agents going along with it, or bond traders and hedge fund managers from doing all kinds of weird things with them afterwards. lenders were tripping over themselves to make AVR loans to anyone.

Wrong on all counts.

The federal regulators did coerce the banks into making bad loans.

The stick:

The banks were told to make more loans to "sub-standard" borrowers. There had to meet specific quotas or they would be sued by the feds for discrimination and denied the right to build new branches or merge with other banks. (Think of the recent case where political pressue was applied to force a bank to loan money to a bankrupt window company).

The carrot:

Since many substandard borrowers did not have enough earned income Fannie and Freddie and the Feds told the banks they would buy mortgages secured by :

Food stamps
Welfare payments
unemployment payments
Unstated income

Since no banker would loan money to anyone if he new it wouldn't be paid back a mechanism needed to be devised to allow banks to unload those weak mortgages. Enter Fannie Mae and Freddie Mac. They agreed to buy the mortgages. Fannie and Freddie then sold those mortgages to investment banks with the implicit guarantee that the mortgages were insured by the federal government. The investment banks bundled the mortgages together and sold them to overseas investors and others.

The Miracle

At that point miracle of the marketplace took over. Derivitives, bonds, securitization, fraud, deceit, clever accounting and greed and trillions of dollars. None of it involved in building or creating or constructing all of it involved in trading money.

The Genesis:

Without government pressure to make bad loans and without the governments willingness to buy the loans and to guarentee the loans none of this would have happened.

The future:

Pretty dim. What should happen is that housing values should be allowed to decline to their natural values, that lending standards should be tightened and that companies and individuals should be allowed to fail.

What will happen is that the feds will take trillions of dollars from successful companies and individuals and give subsidies to the unsuccessful. All in an attempt to prop up housing prices so people can refinance so they can increase their line of credit so they can buy more stuff.

I once made a tongue in cheeck suggestin that we needed a new Department of Guaranteed Annual Housing Appreciation. We have it now in every thing but name.

You are also wrong about the Cato Institute. It does some of the best research on economics that has ever been done.

[ryan costa]

the Cato Institutes job is to assemble apologia for free trade deals, monopolies and corporate mergers, de-regulation, and lower progressive income taxes. You can't have flat taxes without high tariffs, and you can't have flat income taxes when you've got a big military or several wars.

the threat of lawsuits for not making loans to blacks was a negligible inducement for the banks to make loans. If the banks were coerced into making loans, they would not have flooded every available media outlet with promotions for loans. Banks would have waited passively for applicants to iron their best button up shirts, walk into the bank, and apply for the loan. Is that that old economy stuff? Is that a legacy industry? What about telecommunications? The Club for Growth is into Telecommunications. and Aerospace.

The banks made revenue making these loans. it was in their interests to secure ways for them to unload these loans at every level and continue making more of them. They got away with it for 28 years. it was their key to "Growth". It enabled them to become Big Dogs, and Gobble Up more Scrupulous Little Dogs. They are the ones who benefit most from the "Bail Out", and probably solicited it in acceptable ways before the "Bail Out" was cobbled together.

There are a few instances of lawyers filing lawsuits about minorities not getting loans. whether these are nuisance lawsuits, or justifiable based on the income levels of the applicants, it is a small portion of loans and a small portion of foreclosures. It may itch more to hear about it, but it isn't the big lever or even any of the cogs in the system.

[Stephen Eisel]

Freddie Mac's job was to "buy" mortgages banks or lenders had already made.

[Dustin James]

There are a few instances of lawyers filing lawsuits about minorities not getting loans. whether these are nuisance lawsuits, or justifiable based on the income levels of the applicants, it is a small portion of loans and a small portion of foreclosures. It may itch more to hear about it, but it isn't the big lever or even any of the cogs in the system.

Ryan,

Bill's statement is spot on:
......Since no banker would loan money to anyone if s/he new it wouldn't be paid back, a mechanism needed to be devised to allow banks to unload those weak mortgages. Enter Fannie Mae and Freddie Mac. They agreed to buy the mortgages. Fannie and Freddie then sold those mortgages to investment banks with the implicit guarantee that the mortgages were insured by the federal government. The investment banks bundled the mortgages together and sold them to overseas investors and others.

The Miracle

At that point, the miracle of the marketplace took over. Derivatives, bonds, securitization, fraud, deceit, clever accounting and greed and trillions of dollars. None of it involved in building or creating or constructing- all of it involved in trading money.
~

This is the seed of the corruption. This is the "unintended consequences" of do-gooding that forced unqualified loans to be made. Like our missionaries going into the Amazon to spread our good western ways - while bringing killer viruses, this was forcing an un-natural economic formula (buy what you cannot afford). If housing "equity" goes down (which is a perception created by the marketplace of sales) these folks - and everyone in the love chain - is screwed. Dateline -now.

It is not any more mysterious than that.


.

[Stephen Eisel]

The economic "meltdown" is exclusively the result of policies engineered and practiced by the titans of wall street. The Banks, the Bond Traders, the Bond Raters. They got what they asked for for years, and poured the profits into lobbying for more of it and getting their income taxes cut and lowering tariffs. Now they are asking for handouts, and the treasury is asking for them to pay some of it back.

How about the Federal Housing Enterprises Financial Safety or Soundness Act of 1992 or the Community Reinvestment Act? CRA forced many banks into subprime lending.. In 1999,Fannie Mae eased its credit requirements to encourage banks to extend home mortgages to individuals whose credit was not good enough to qualify for a regularl mortgage.

[Stephen Eisel]

clicky from Bloomberg

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

[Bill Call]

It is not any more mysterious than that.
.

Not any more mysterious or more complicated. For political reasons the fed encouraged banks to make bad mortgages. For economic reasons the Federal government devised a scheme that allowed the banks to unload the mortgages. Like all ponzi schemes it eventually failed.

The complicated question is: How do we have economic growth that is not tied to the consumers ability to finance new spending by refinancing a home that is increasing in value 10% a year?