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    Flip Flop the Drug Warrior..., 2008-10-13 18:53:56 | Main | shit slides down hill until it hits the fan..., 2008-10-15 16:31:56

    from the ashes of the old, but with the same skeletons:

    True story, from 2004:

    Of all the peculiar things Alan Greenspan said last week, none was more mystifying than his suggestion that consumers should seriously consider taking out an adjustable-rate instead of a fixed-rate mortgage at a time when interest rates are near record lows.

    ...

    Schiff says that Greenspan is really trying "to help keep the housing bubble, and by extension the U.S. economy, expanding. Greenspan knows that the only way most home buyers can afford these ridiculously high prices is with ARMs. Without them, housing prices would collapse. He also knows how important (refinance) money is to the U.S. consumer. Since long-term interest rates cannot fall low enough to facilitate another wave of fixed-rate refinancings, he is trying to encourage homeowners to refinance one last time: fixed to ARM."

    Herb Sandler, co-chief executive of Golden West Financial, says Greenspan has a different motive.

    The "real agenda," Sandler says, is reining in Fannie Mae and Freddie Mac, the government-chartered but publicly held companies that buy fixed-rate mortgages from lenders.

    This is a funny thing to say, considering that Fannie and Freddie had been losing market share the year previous, until you realize the man saying it had a stake in making sure they kept losing more of it.

    You may remember Golden West Financial as the inventors of Pick-A-Payment, and the fine institution whose purchase is largely responsible for the collapse of Wachovia. Morningstar's "2004 CEO of the Year" here, Herb Sandler, was in the business of taking business off the hands of the GSEs and selling people his Pick-A-Payment ARM loans, so reigning in the GSEs is just what he was looking for. By selling his toxic waste to Wachovia in 2006, Herb walked away from the housing bubble with $2.4 billion in his pocket, about half of which went to the Sandler Foundation, which funds a variety of liberal non-profits, including, I think most curiously, providing founding capital for the rank Democratic partisan Center for American Progress, which has been gnashing its teeth about severing the golden parachutes of their founding benefactor and the rest of his ilk.

    Barry Ritholtz is also swapping some old stories worth remembering.


:: posted by buermann @ 2008-10-14 15:36:16 CST | link


    Comments:

      There are some pretty nifty left libertarian(ish) solutions for the future of finance. Fractional reserve cooperative banking would make a damn fine guarantor of due diligence and would never (okay, rarely) get to the point of creating institutional diseconomies of scale. However as an unregenerate commie, I prefer immediate rustication of the offending bankers, preceded by the traditional dunce cap and sign perp walks, complete nationalization of their holdings, personal and institutional, and a reeducation program, with extensive self-criticism requirements for graduation. Before anyone brings up dire references to Pol Pot, I can freely admit that he got carried away, but that does not indict the basic concept.

    posted by Zomg @ 2008-10-14 19:41:33 | link

      Well in some sense this was fractional reserve banking, with an infinity sign instead of a ratio and confidence as the reserve.

      In left libertarian parlance, I would think the problem comes down to the total alienation of credit from occupancy and use. They who make the loans need to be left holding the bag for a banking system to self-regulate. I would imagine.

      Your commie intuition does, I think, sound closer to the original draft than the commie intuitions of Maximum Leader Paulson.

    posted by buermann @ 2008-10-14 22:19:21 | link

      Well in some sense this was fractional reserve banking, with an infinity sign instead of a ratio and confidence as the reserve.

      Nice and dry, that description. I read a column in the FT recommending, cautiously, that credit be treated in the same way as any of the essential utilities. I think that's a better track than any currently on the table. I do like the idea of member owned/member risk finance. Credit unions fare pretty well and do well by their customer shareholders. There'd be no mega investments in such a system. Not without a lot of negotiation, but that's all to the good.

      Poor old Maximum Leader. I'm afraid he'd be one of the first to learn the rural virtues.

    posted by Zomg @ 2008-10-14 23:50:36 | link




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