Print

Print


Mike, you wrote:
"Anyone with a pulse and
without an agenda will tell you that lousy underwriting (i.e. low lending
standards) was a key root cause. "

And I will add the general use of credit - not just mortgages into this...

I wonder.  Is the extension of credit the root cause, or the need/use of 
credit the root cause?

For instance, my parents and their generation (your generation?) never used 
credit to buy anything - except mortgages.
Even on dual Teachers salaries, cars, TV's, furniture, skis, bikes, etc. 
etc. were significantly lower % of yearly income than currently is the case. 
Hell, their first house was less than a years salary ($12K in southern NH).
My uncle was a single income family of 4 and bought new sports cars every 2 
years or so.

Today, a quality full suspension mountain bike might cost $4K - nearly 16% 
of my (graduate degree, white collar) yearly after tax income.  Not to 
mention that my Burlington property tax is nearly 10% of that same income.
A pair of skis and boots about 4%.
A new car?  100 - 200 %
So, I wonder if the root cause might actually be slow growth on low, and 
middle, income wages, versus cost of living the life we were raised to 
achieve?
Actually, businesses seem to be in the same situation I think - seems 
everything is done on credit -

Thoughts?

Nat






--------------------------------------------------
From: "Mike Bernstein" <[log in to unmask]>
Sent: Tuesday, September 30, 2008 7:24 PM
To: <[log in to unmask]>
Subject: Re: [SKIVT-L] OT, More Droning, Sub Prime Lending Revelation

> On Mon, 29 Sep 2008 23:33:50 -0400, Leigh Daboll <[log in to unmask]>
> wrote:
>
>>Frankly, the lowest common denominator was the latest "Talk american,
>>dammit" post.
>>
>>Funny, for an article that was supposedly "a refutation of my right wing
>>drivel" i thought that virtually the *entire* article was on point with my
>>prior posts.
>>
>>Should I therefore have pasted the entire article before I considered
>>resting my case?  Hardly necessary.  Although I would have expected you
>>would have read it, Mike, before you posted a retort.
>
> This confused me for a few reasons.  One, the reference to the lowest
> common demonitaro was completely misunderstood or miscontrued, to the
> point where Leigh's response was a non-sequitor.  Second, I hadn't seen
> anything in my perusal of the Janet Yellen speech that validated anything
> Leigh had said.  So, I went back and read Leigh's original intellectual 
> tour de
> force OT: Transforming the West and then read the Yellen speech word for
> word.  For some background, here is Leigh's post where he stated his case:
>
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
> The sky just ain't falling for the 90% of average Joes who didn't wildly
> overextend his/her lifestyle on speculative house purchase from an idea 
> they
> saw on American Home Makeover.
>
> Life will move on with the landscape altered to place a renewed priority 
> on
> basic economic and family-centric (read: socially conservative) lifestyle 
> as
> the west adjusts to the fact that Chinese and Indian workers actually work
> ten hours in an eight-hour day, not four hours in a seven-hour day.  Same 
> as
> the thirties, New Deal notwithstanding.
>
> Environmentalism, now that it has replaced socialism as the preferred
> income redistribution ideology of the left (with the VERY EARTH at 
> stake!),
> but now waaaaaay down on average Joe's priority list, will be resuscitated
> into New Deal style make-work program, but will frankly have little 
> traction
> of its own.
>
> Times will be really tight while the bills are being paid off.  Still,
> everyone who buys in at 10 cents on the dollar will make a killing in the
> future.
>
> Europe will not be in any position to offer any competition to the 
> economic
> resurgence of North America (albeit lagging behind Asia's prominence) as 
> it
> contorts itself inside out undergoing an Islamic transformation over next
> generation.
>
> Discuss amongst yourselves while I marshal my thoughts and supporting
> sources.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
>
> Let's take a moment to break this down into its constituent parts.
>
> 1) "The sky just ain't falling for the 90% of average Joes who didn't 
> wildly
> overextend his/her lifestyle on speculative house purchase from an idea 
> they
> saw on American Home Makeover."
>
> Well it isn't just yet, though presumably the other 90% have seen the 
> value of
> their stock market portfolio fall by over 25% since this mess began like 
> the
> rest of us.  The next shoe to drop (it's actually dropping already), which 
> our
> Canadian William Jennings Bryan doesn't understand, is that of the credit
> markets.  Spreads between LIBOR (the London Interbank Overnight Rate at
> which banks lend to each other) and US Treasuries reached an all-time high
> yesterday.  That means that money is rushing into the perceived safe 
> harbor
> of US govt bonds while the price of money in the world economy is higher 
> than
> it's ever been in comparison.  IOW, no one wants to lend a dime to anyone
> right now, not even overnight, not even for the best of credits. 
> Regardless of
> whether you call it the grease of the economy or the engine, either way, 
> your
> car ain't running without it.   Wait until the avg Joe (non- Dana 
> category) tries
> to get a small business loan, car loan, or a credit card.  Wait until 
> Fortune 500
> exec not-so-average Joe tries to expand his company or refinance his
> outstanding debt.  The unwillingness of the financial sector to provide 
> credit
> to those who want it will bring every single facet of our economy to its 
> knees
> in very short order.  So Leigh is already wrong and will be even more 
> wrong in
> the days and weeks to come, especially if the rescue package fails.
>
> 2) "Life will move on with the landscape altered to place a renewed 
> priority on
> basic economic and family-centric (read: socially conservative) lifestyle 
> as
> the west adjusts to the fact that Chinese and Indian workers actually work
> ten hours in an eight-hour day, not four hours in a seven-hour day.  Same 
> as
> the thirties, New Deal notwithstanding."
>
> Really?  I'm puzzled by this prediction in light of US economic history. 
> The
> Great Depression was only the last in a series of dramatic crashes/panics
> which occured roughly every 20 years for most of our history to that 
> point.
> I'm fairly certain that the slow-motion relaxation of social mores over 
> the
> centuries continued unabated in the wake of each and every one of those
> crises.  I would challenge you to point out even a single example where a 
> more
> socially conservative lifestyle became a permanent, or even temporarily
> predominant (i.e. for a generation) trend in US culture.  More likely, 
> this
> prediction simply represents wishcasting for your desired socio-economic
> structure than any fact-based analysis of likely outcomes.  And setting 
> the
> historical record aside for the moment, why would it follow that people 
> will
> yearn for a socially conservative way of life when this crisis is over? 
> Are
> people going to find God in the midst of their foreclosure papers?  Will 
> there
> now be widespread outrage at gay rights, abortion, immigration, 
> euthanasia,
> and separation of church and state b/c of a sharp economic contraction?
> Even if there were, would it not stand to reason that this would be more 
> of a
> sign of temporary scapegoating than any fundamental shift in the belief
> system of the American people?
>
> As for your analysis on the threat posed by Chinese and Indian workers, it 
> is
> surely a threat to those of us with low skills and poor education.  OTOH, 
> why
> is it that the rise of Japan and the Asian Tigers (S Korea, Thailand, HK,
> Singapore, Taiwan, Malaysia, etc...) didn't have the dire consequences
> predicted then?  Remember all the books in the 80s about how Japan was
> going to pass the US b/cof their superior economic system and our 
> laziness?
> Oops.  While we can all aspire to your shining example of hard work and 
> thrift
> (After all, this is the unstated sub-text of your posts on this suibject, 
> right?
> That we should all learn to be more like you in order to save society?) , 
> our
> economic system and our existing capabilities as a nation will continue to
> provide growth and opportunity well into the foreseable future.
>
> In other words, your economic analysis seems to be based on some sort of
> simplistic, quasi-agrarian view on output.  Even using your example, the 
> US
> can still grow and succeed while working less than our Chinese 
> counterparts
> b/c the most important factor is productivity instead of hours worked. 
> Mr.
> Feng can work as had as he wants for 10 hours by hand, but Mr. Jones will 
> still
> be a more valuable worker b/c he knows how to operate the mechanized
> combine and in 30 minutes can harvest just as much as Mr. Feng.  Moreover,
> Mr. Jones will get a better price for his output b/c he doesn't need to 
> sell it to
> a State owned monopoly at less than market price.  He can also hedge his
> exposure on adverse price movement, which Mr. Feng can't do, and he can
> get cheap credit b/c he is able to borrow against the value of his land 
> (which
> Mr. Feng can't do b/c he doesn't own the land).  This agricultural example
> could be repeated in just about any industry you choose.
>
> 3) "Environmentalism, now that it has replaced socialism as the preferred
> income redistribution ideology of the left (with the VERY EARTH at 
> stake!),
> but now waaaaaay down on average Joe's priority list, will be resuscitated
> into New Deal style make-work program, but will frankly have little 
> traction
> of its own."
>
> This is so full of internal contradictions and pseudo logic that I don't 
> even
> know where to begin.  Let me get this straight - with gas continuing to 
> cost
> $4/gallon or so, you think that alternative forms of energy won't gain any
> traction?  How can you reconcile this prediction with the fact that US oil
> consumption is down 3% YoY with that noted Green radical GWB in the White
> House?  Isn't it more likely that a coalition of national security types 
> (threat of
> dependance on foreign oil), big business (don't want to lose out to the 
> stinkin'
> Euros on green technology), and the left will push the US towards a more
> energy-efficient future that is less reliant on hydrocarbons from the 
> Middle
> East?
>
> Even if this weren't likely, let's take your prediction at face value. 
> You've
> already foretold of a coming shift in socio-economic values to a more
> conservative baseline.  This is consistent with your visions of the likely
> prioritization of environmental programs.  Conservative change is coming! 
> If
> that's the case, then who estabishes and funds these classic left-wing 
> "New
> Deal style make-work program(s)" in the absence of popular or politcal
> support?  And what will the people working in these programs be doing?
> Erecting windmills?  Building solar panels?  Digging holes by hand so that 
> CO2
> emissions can be sequestered underground? Enlighten us.
>
> 4) "Times will be really tight while the bills are being paid off.  Still,
> everyone who buys in at 10 cents on the dollar will make a killing in the
> future."
>
> This is truly a brilliant insight.  Buy in at 10 cents on the dollar and 
> wait for
> prices to go up, then you'll make a killing.  The only useful thing you've 
> said
> here is that times will be tough while the bills are being paid off.  In a 
> macro
> sense, that's absolutely true.  The US has increasingly relied on foreign 
> capital
> to sustain our economy b/c of our inability to save.  Thankfully, the Bush
> administration is about over, and with it the massive swing in government
> savings from positive to dramatically negative.  Hopefully, the coming 
> reform of
> the housing market will help to encourage a more rational savings regime
> among the average Joes when they realize that saving money, and not some
> BS loan structure, is the real key to the American dream of home 
> ownership.
>
> 5) "Europe will not be in any position to offer any competition to the 
> economic
> resurgence of North America (albeit lagging behind Asia's prominence) as 
> it
> contorts itself inside out undergoing an Islamic transformation over next
> generation."
>
> So this is after the adjustment period referenced above, right?  And just 
> so I'm
> clear, out of roughly 590 million people in Europe outside of Russia, the 
> 23
> million (4%) that are Muslim are going to create an Islamic transformation 
> over
> the next 20 years? If by "Islamic transformation" you mean something akin 
> to
> the proliferation of Taco Bell restaurants representing a "Mexican
> transformation" of the US, then I agree with you.  If you are implying
> something more impactful, you really need to broaden your choices of 
> media.
>
>
> So let's go back to the top here.  No one really responded to your 
> original post
> in detail perhaps b/c it was greeted in the same way one would react to a
> psychopath who cuts off his genitalia in front of you - slowly backing 
> away
> towards the door.  Nonetheless, his Lector-ness provided a link to an 
> article
> that he alleged refuted one of your other memes on the role CRA mandates
> may have had in creating this crisis.  You then post an excerpt where 
> Yellen
> states that increasingly poor lending standards were primarily to blame, 
> and
> you then all-but declared "mission accomplished" for so doing.  As 
> evidenced
> by my response, I was a bit confused at this chest-thumping, seeing as how
> Yellen's view that you quoted is the lowest common denominator for any
> reasonable analysis of the roots of this crisis.  Anyone with a pulse and
> without an agenda will tell you that lousy underwriting (i.e. low lending
> standards) was a key root cause.  Hence, my confusion as to why you would
> use that excerpt to buttress your case that CRA mandates were a/the 
> primary
> fact driving this decrease in lending standards.  The passage you quoted
> included no such conclusion.
>
> In fact, it appears that, yes, Leigh SHOULD have read the entire article, 
> as
> just three paragraphs later, Yellen says this:
>
> "Before I turn to potential interventions, I want to make one final point. 
> There
> has been a tendency to conflate the current problems in the subprime 
> market
> with CRA-motivated lending, or with lending to low-income families in 
> general.
> I believe it is very important to make a distinction between the two. Most 
> of
> the loans made by depository institutions examined under the CRA have not
> been higher-priced loans, and studies have shown that the CRA has 
> increased
> the volume of responsible lending to low- and moderate-income households.
> We should not view the current foreclosure trends as justification to 
> abandon
> the goal of expanding access to credit among low-income households, since
> access to credit, and the subsequent ability to buy a home, remains one of
> the most important mechanisms we have to help low-income families build
> wealth over the long term."
>
> Read that again, my friends.  That is direct evidence that Leigh is one of 
> two
> things.  He is either intentionally misleading in order to better sell his 
> agenda,
> or he is intellectually lazy.  Neither characterization is all that 
> flattering for the
> good barrister, and should serve to remind Listers and lurkers alike that 
> you
> must apply a substantial discount to the rantings and ravings from the 
> lunatic
> fringe on either side of the spectrum.  Hence my confusion then, and now, 
> as
> to why his case was even close to being rested.
>
> So what we have is an intellectually lazy and/or intentionally misleading 
> farmer
> cum lawyer espousing a philosophy and outlook which seems to draw its
> inspiration more from the "End of Days" series of books than any serious
> economic treatise.  You, the reader, should be the judge as to whether any
> case has been made, let alone should be on the verge of being rested.
>
> - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
> SkiVt-L is brought to you by the University of Vermont.
>
> To unsubscribe, visit http://list.uvm.edu/archives/skivt-l.html
> 

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SkiVt-L is brought to you by the University of Vermont.

To unsubscribe, visit http://list.uvm.edu/archives/skivt-l.html