Tuesday, July 29, 2014

What triggered the 2007-2008 financial crisis?

I have not previously heard of this but it does have explanatory power.  I should have guessed that government bungling lay behind it.  We all knew that the pricking of the housing bubble lay behind the financial collapse but what pricked the housing bubble?  The bubble peaked in 2006 and in 2007 the trouble  started, building up to the collapse of Bear Stearns, Merrill Lynch, Lehman Bros. and AIG in 2008

In 2005, Americans who racked up an inconceivable amount of credit card debt realized they could file for bankruptcy to relieve themselves of any obligation to pay back debts.

There were those who exploited the system, of course, spending excessive amounts of money on credit cards, and then filing for bankruptcy the moment any bank started asking questions.

Banks wanted protection from this sort of abuse, so they lobbied for the Bankruptcy Abuse Prevention and Consumer Protection Act which made it costly to actually file for bankruptcy.

Everything was great, and smooth sailing after that, right?  Nope.

Turns out that there were people who were actually, you know, bankrupt.   The new law made it to where a large number of people didn't have the money to even file for bankruptcy.  As a result, these people had to default on all their debts, including their mortgages, which the banks had to foreclose.

So, now we have a situation in which all the banks have a bunch of houses they can't do anything with. What are they going to do with houses?  Well, they need to sell them, of course.

As it would turn out, though, all the banks simultaneously realized that the housing market was being flooded with houses from other banks doing the same thing.  Because of supply and demand, housing prices plummeted, causing even more people to default on their mortgages.

This also meant that the value of mortgage-backed securities dropped precipitously as well,  leading to more than $40 billion of writedowns for U.S. financial institutions.

Banks lost so much money that they themselves began filing for bankruptcy, including one of the prominent banks that lobbied for the law in the first place, Washington Mutual.  Nearly everyone lobbying for the law was subsequently punished: Citigroup Chief Executive Officer Charles O. "Chuck" Prince stepped down after losing $11 billion of writedowns on top of more than $6 billion in the third quarter of that year. Stan O'Neal was ousted as CEO of Merrill Lynch & Co., the world's largest brokerage, after an $8.4 billion writedown. Morgan Stanley, the second-biggest securities firm, had subprime losses that cut fourth-quarter earnings that year by $2.5 billion...



The quintessential liberal


Is Putin Really Worse Than Stalin?

By Patrick J. Buchanan

In 1933, the Holodomor was playing out in Ukraine.

After the “kulaks,” the independent farmers, had been liquidated in the forced collectivization of Soviet agriculture, a genocidal famine was imposed on Ukraine through seizure of her food production.

Estimates of the dead range from two to nine million souls.

Walter Duranty of the New York Times, who called reports of the famine “malignant propaganda,” won a Pulitzer for his mendacity.

In November 1933, during the Holodomor, the greatest liberal of them all, FDR, invited Foreign Minister Maxim Litvinov to receive official U.S. recognition of his master Stalin’s murderous regime.

On August 1, 1991, just four months before Ukraine declared its independence of Russia, George H. W. Bush warned Kiev’s legislature:

“Americans will not support those who seek independence in order to replace a far-off tyranny with a local despotism. They will not aid those who promote a suicidal nationalism based upon ethnic hatred.”

In short, Ukraine’s independence was never part of America’s agenda. From 1933 to 1991, it was never a U.S. vital interest. Bush I was against it.

When then did this issue of whose flag flies over Donetsk or Crimea become so crucial that we would arm Ukrainians to fight Russian-backed rebels and consider giving a NATO war guarantee to Kiev, potentially bringing us to war with a nuclear-armed Russia?

From FDR on, U.S. presidents have felt that America could not remain isolated from the rulers of the world’s largest nation.

Ike invited Khrushchev to tour the USA after he had drowned the Hungarian Revolution in blood. After Khrushchev put missiles in Cuba, JFK was soon calling for a new detente at American University.

Within weeks of Warsaw Pact armies crushing the Prague Spring in August 1968, LBJ was seeking a summit with Premier Alexei Kosygin.

After excoriating Moscow for the downing of KAL 007 in 1983, that old Cold Warrior Ronald Reagan was fishing for a summit meeting.

The point: Every president from FDR through George H. W. Bush, even after collisions with Moscow far more serious than this clash over Ukraine, sought to re-engage the men in the Kremlin.

Whatever we thought of the Soviet dictators who blockaded Berlin, enslaved Eastern Europe, put rockets in Cuba and armed Arabs to attack Israel, Ike, JFK, LBJ, Nixon, Ford, Carter, Reagan and Bush 1 all sought to engage Russia’s rulers.

Avoidance of a catastrophic war demanded engagement.

How then can we explain the clamor of today’s U.S. foreign policy elite to confront, isolate, and cripple Russia, and make of Putin a moral and political leper with whom honorable statesmen can never deal?

What has Putin done to rival the forced famine in Ukraine that starved to death millions, the slaughter of the Hungarian rebels or the Warsaw Pact’s crushing of Czechoslovakia?

In Ukraine, Putin responded to a U.S.-backed coup, which ousted a democratically elected political ally of Russia, with a bloodless seizure of the pro-Russian Crimea where Moscow has berthed its Black Sea fleet since the 18th century. This is routine Big Power geopolitics.

And though Putin put an army on Ukraine’s border, he did not order it to invade or occupy Luhansk or Donetsk. Does this really look like a drive to reassemble either the Russian Empire of the Romanovs or the Soviet Empire of Stalin that reached to the Elbe?

As for the downing of the Malaysian airliner, Putin did not order that. Sen. John Cornyn says U.S. intelligence has not yet provided any “smoking gun” that ties the missile-firing to Russia.

Intel intercepts seem to indicate that Ukrainian rebels thought they had hit an Antonov military transport plane.

Yet, today, the leading foreign policy voice of the Republican Party, Sen. John McCain, calls Obama’s White House “cowardly” for not arming the Ukrainians to fight the Russian-backed separatists.

But suppose Putin responded to the arrival of U.S. weapons in Kiev by occupying Eastern Ukraine. What would we do then?

John Bolton has the answer: Bring Ukraine into NATO.

Translation: The U.S. and NATO should go to war with Russia, if necessary, over Luhansk, Donetsk and Crimea, though no U.S. president has ever thought Ukraine itself was worth a war with Russia.

What motivates Putin seems simple and understandable. He wants the respect due a world power. He sees himself as protector of the Russians left behind in his “near abroad.” He relishes playing Big Power politics. History is full of such men.

He allows U.S. overflights to Afghanistan, cooperates in the P5+1 on Iran, helped us rid Syria of chemical weapons, launches our astronauts into orbit, collaborates in the war on terror and disagrees on Crimea and Syria.

But what motivates those on our side who seek every opportunity to restart the Cold War?

Is it not a desperate desire to appear once again Churchillian, once again heroic, once again relevant, as they saw themselves in the Cold War that ended so long ago?

Who is the real problem here?



Paul Ryan Lays Out the 'Way Forward' on Poverty

House Budget Committee Chairman Paul Ryan (R-WI) introduced a sweeping proposal this week to reform how federal and state governments address the issue of poverty in America. His plan, “Expanding Opportunity in America,” looks into a number of ways to create new programs and bolster some existing federal programs while eliminating others that just don’t work. Ryan is becoming the go-to Republican on poverty policy, which is key for a party that needs a more welcoming message on the subject – to borrow his upcoming book title, “The Way Forward.”

The primary element of Ryan’s plan calls for the creation of Opportunity Grants that would change how the government conducts fighting poverty. This brings together 11 existing streams of federal aid – from food stamps to housing assistance – into block grants that would allow states to tailor aid packages to the poor based on individual need. States would assign a caseworker to each person applying for aid, and together the caseworker and the individual would create a plan based on short- and long-term goals. These goals would form the basis of a contract in which the states would continue to supply aid so long as the person continued to live up to their end of the agreement – whether it be finding or maintaining a job, pursuing an education or remaining drug-free.

Ryan proposes changes to the Earned Income Tax Credit. The EITC is one of the few proven ways the government has to reduce poverty and encourage work, and he wants to simplify the application process. In addition, he wants to make all childless adults over 21 eligible to apply. He suggests adding the EITC to each paycheck throughout the year, rather than distributing it as a one-time payment in each year’s tax refund.

There are a number of fixes to education aid in the proposal, including converting Head Start funding into a block grant to allow states to experiment with different models for early education. A big part of the primary and secondary education component is the consolidation of multiple federal programs into flexible block grants to the states, which allows for more tailored solutions at the community level. The proposal also reforms the accreditation process to allow more institutions and specific courses to gain accreditation, thereby increasing the education options for students seeking federal aid.

Ryan addresses the problem of an exploding prison population and the negative effect incarceration has on upward mobility. He proposes allowing federal judges more flexibility in sentencing non-violent felons who would otherwise be subject to mandatory minimums, and he wants to tailor prison education and rehabilitation programs to those inmates most at risk for recidivism.

Ryan’s plan, which you can read in detail here, is a thoughtful consideration how to address what is wrong with federal aid to the poor. As Ryan notes, “Fifteen percent of Americans live in poverty today – over 46 million people.” In that, he sees opportunity: “There’s a vast amount of untapped potential in our country.” Federal anti-poverty programs have done little to actually reduce poverty ever since Lyndon Johnson began the so-called War on Poverty 50 years ago. Ryan’s plan calls for making aid more effective and more accountable, two goals with which Washington is not familiar.

To be sure, Democrats are already trying to shoot holes in Ryan’s plan. Rep. Chris Van Hollen (D-MD), ranking Democrat on the House Budget Committee, says Ryan loves block grants because they are easier to cut. Van Hollen and other House Democrats also note Ryan has proposed cutting numerous federal programs and therefore cannot be taken seriously. Only a statist would consider cost cutting a negative trait.

The fact is, many of Ryan’s proposals, like prison education and improved education funding, have already seen the light of day as individual legislative proposals that have drawn bipartisan support. Democrats don’t like his plan because it would mean lifting people out of poverty and freeing them from their poverty plantations. Ryan is also a possible 2016 presidential candidate, which makes him a prime target.

Beyond all the policy nitty gritty, the key takeaway from Ryan’s effort is that the GOP needs to do a better job of addressing poverty. Blue collar Americans need to hear that Liberty can work for them. As American Enterprise Institute fellow James Pethokoukis puts it, Ryan “sees low-income Americans as underutilized assets who need to be reintegrated into the work economy so they and America can reach full potential.” This is done, as Benjamin Franklin once said, “not [by] making them easy in poverty, but leading or driving them out of it.”



Leftists are religious too



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