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Levin: The crisis is 100 percent the fault of racial egalitarians
(Note: Since there are so many entries on the financial crisis, to make the discussion easier to follow, I will be posting most of the comments in this entry.)
Mark Levin on his radio show yesterday passionately argues that the financial institutions adopted these complicated and dangerous financial gimmicks, not because they wanted to, but because leftists in government were compelling them to make subprime loans to expand home ownership for minorities, and the gimmicks were necessitated by the institutions’ need to reduce the financial risk resulting from these bad loans. To hear the show, go to this page and click on the link for September 19.
Randy writes
I am sure you have heard the commentary on the causes of this crisis. Mark Levin presented an excellent analysis to which I will add an additional factor.
Although the Community Reinvestment Act was initiated in 1977, it gained momentum when the Clinton administration began aggressively to put pressure on the mortgage lenders to give loans to “minorities” and stop the “red lining.” In order to meet their mandated “quotas,” they came up with the creative financing. This was the inception of the sub prime category of loans. These loans were then repackaged with other investment grade assets and sold to Wall Street. Bearn Sterns was one of the leaders in this securitization process. Once the process grew, the lucrative profits were a catalyst to expand to the middle class—since all the “free” money caused prices to escalate out of control. Other factors were added such as the ridiculous lowering of the interest rates and ever more creative financing to provide loans to keep up with the inflated home prices. Fannie Mae, under Franklin Raines, began to buy up the loans that added to their assets that, in turn, increased his bonus ($200M).
However, I pondered the question, why wasn’t it until the 2002-2007 period that the market began to explode. Levin did not address this. I suggest two reasons. First, the lowering of interest rates to ridiculously low levels after the tech bubble burst and 9-11, and second, the encouragement of Bush and Greenspan to continue to expand opportunities for home ownership, especially among Hispanics. Although Bush did recognize problems with Fannie Mae and tried to address them, he also sought to use Fannie Mae to increase home ownership among Hispanics. There is ample evidence to support this. And, to this day, I remember reading about a speech that Raines made where he said Fannie Mae was not going to put a lot of effort into verifying immigration status. They were there to provide opportunity for home ownership, not enforce immigration law.
If we consider the amount of illegal immigration that vastly increased under Bush, it is not surprising that the amount of loans given to illegals greatly increased the level of bad loans issued in this period. Evidence of this can be seen if you go to preforeclosure.net and look at how many of the homes (particularly California) were owned by Hispanics with first and last names that are clearly not native born “Hispanic-Americans.” I live in a city that is 95 percent Hispanic with the majority non English speaking. It has astounded me how these people, who don’t even speak English, could be driving around in new SUV’s (with $1,000 worth of tires and chrome rims) and buying suburban homes. On top of that, they almost always had numerous kids, usually 4-6. One thing you will see often here is posted on the back window to the SUVs the cartoonish figures of Dad, Mom, Isaiah, Jose, Anna, Miquel, etc. all lined up in order of birth.
The welfare state has been expanded to 15-20 percent of the population of Mexico (and their descendants) living in the U.S. illegally. And now it was not just free education and health care, but a subsidized home loan. Levin noted the banks offset the sub prime loans by adding to the regular loans. This has transferred wealth from the middle class to Mexican citizens living in the U.S. illegally and has bankrupted the U.S. What we are seeing is the collapse of the welfare state with illegal immigration a key factor in accelerating the end. Another Clinton-Bush legacy.
- end of initial entry -
Alex A. writes from Britain:
I have been puzzled as to how and why many so-called “hard-nosed” bankers have got themselves into this financial mess. Now, thanks to VFR, I’m beginning to see the light. The roots of the crisis are being exposed as another ramification of the lefty-liberal egalitarian project. It costs a lot of money to “equalize” outcomes in the housing market—money which has been loaned, in the name of social justice, to millions of feckless and impecunious borrowers. What the “liberal thinkers,” who have dominated the Clinton and Bush administrations, consider to be moral pressure on behalf on underprivileged minorities, is to blame for pouring irrecoverable billions down a black hole.
Ralph P. writes:
I believe there’s a lot to Levin’s analysis and especially Randy’s extrapolation. I had seen the same thing going on in my Queens neighborhood with non-Hispanic legal Third-World colonizers. The takeover of my neighborhood really did play out as a colonization, and facilitated home ownership was the way they did it. They quickly learned how to play the minority grievance game. At the time, in the early ’90s, we were all wondering where people who were clearly un- or under-employed got the mortgages they did in a neighborhood with rapidly rising prices. The key was the opening up of ethnic real estate offices which employed obviously illegal practices, including block-busting and discriminatory selling, which my white broker told me would have landed him in jail. Also a factor was the turnover of bank employees in favor of the ethnics. Once a branch manager, how hard would it be for some Third-Worlder to take advantage of the governmental largesse to obtain loans for not just marginal people but clear deadbeats and criminals. In a phrase, liberals so weakened our financial and legal immune system that parasites and opportunistic infections just ran amok.
On a side note I might add that of all the talk-show hosts on WABC (which I listen to over the internet now), Levin seems the only one that might hold McCain’s feet to the fire after he’s been elected. I don’t know but that’s my sense. I highly doubt Rush or his mini-me will climb up out of the tank after November.
LA writes:
I don’t like Levin’s rude and abusive responses to callers. A caller reasonably asked him, since the Democrats are blaming the whole thing on Wall Street and Republicans, why aren’t there Republicans blaming the leftist Democrats who according to Levin made this thing happened? And Levin just insulted him as a Democratic hack, yelled at him, and cut him off.
Ben W. writes:
Thanks Lawrence, for having VFR address the economic crisis. Excellent material contributed. I have been sensing for some time that liberalism through political pressures can invade and radically change our economic structure. Economics can be arcane but liberalism in the guise of politics isn’t. People recall the financially “good Clinton years” but this economic crisis is an outgrowth of Clintonian policies (first started under Jimmy Carter).
Ben W. writes:
Here’s another component to factor into your assembling of all points of view about this economic crisis.
Can the US in fact play the liberal godfather in pressuring financial institutions to give minorities unlimited access to our economic resources? The US has an enormous trade imbalance and the federal government is operating a huge deficit. So what real money do we really have as a people to subsidize those who don’t have money? Unreal dollars backing unreal demands! No wonder the bottom has fallen—was there any real ground on such economic liberalism to stand on?
Rhona writes:
One of the catalysts was the cheap money that allowed people to borrow so easily it was a little like a kiting scheme where a salesman gets a piece for selling the mortgage and goes to a bank which packages it for sale to a larger institution. The last one is left holding the bag. The assumption is that when the variable rate reset those who held the last would make a huge profit. Given the historical evidence based on white rates of default and the history of housing prices increasing they felt that this was a secure investment. In addition you had a friendly gov that either looked the other way or passed laws to help grease the wheels. The whole thing is based on the false assumption. The expansion of housing to do not the prerequisites to maintain the housing or grow financially brought about massive defaults and decline of neighborhoods. This lead to the decline of housing prices. The final death blow was when the institutions kept these investments on their balance sheets. Now there is massive mistrust.
Bill Carpenter writes:
Levin deserves credit for not shying away from a racially-charged issue, which most Republican campaigners avoid like the plague. Too bad about his style. When I first heard him I thought he was just another Michael Savage imitator, but over time I found he has real value. Savage can be a savage to callers, but he can also be a true poet in his reminiscences and in his comminations directed at our enemies. Like preachers we should judge them by their fruits,
I look forward to more discussion of these financial issues. In a broad picture, it looks like an inflation/devaluation of the currency which governments and affiliated profiteers have engaged in at least since ancient times. It amounts to stealing. Here the excuse is social justice. There will always be some excuse. The Fed has been cunningly circumvented in its mandate to preserve the value of the dollar.
LA replies:
The word comminations was unfamiliar to me. My handy WordWeb dictionary gives these meanings:
1. Prayers proclaiming God’s anger against sinners; read in the Church of England on Ash Wednesday
2. A threat of divine punishment or vengeance
Kidist writes:
Bill Carpenter says: “In a broad picture, it looks like an inflation/devaluation of the currency which governments and affiliated profiteers have engaged in at least since ancient times.”
But it is more than that, more “evil” if I can use that word. It was done in the name of “bettering” others, and not in the opportunistic, monetary way gone amok, but in the god-like engineering of people’s lives.
But, borrowers could have said no, banks could have refused the policies (yes at a cost), and the investors must have known in their projections that there would be a problem in the future, and could have refused. Many of them must have, in some way, agreed to this engineering—at some subliminal level, to embrace it so full-heartedly.
This might be humorous, but not how Sarah Palin would have handled it, at least in Alaska. If she could take on the bigwigs, why not others?
As for dictionary definitions, from Dictionary.com:
Mortgage: Middle English morgage, from Old French: mort, dead + gage: pledge (of Germanic origin) A pledge to death. Very prophetic.
And I agree, Levin has the preacher/exhorter quality in his manner. Rudeness has never been something to be shunned in difficult times.
September 21
A. Zarkov writes:
To understand the roots of our current financial crisis, one cannot ignore how the Community Reinvestment Act (CRA) got the ball rolling. There is tremendous resistance to this story because of its racial aspects, but a few brave souls have dared. Stan Leibowitz was one of the first with his New York Post essay last February called “The Real Scandal.” It’s all very simple. You can’t have a sub-prime loan problem if there are no sub-prime loans, and those loans could not exist without lax underwriting standards. To understand the mentality behind reduced underwriting standards one simply has to browse the handbook published by the Fanny Mae Foundation (yes that Fannie Mae) called “Reaching the Immigrant Market: Creating Home Ownership Opportunities for New Americans.” Here you can see first hand the bizarre thinking that led to loaning people large sums of money they couldn’t ever repay. For example, the handbook authors write about “barriers to immigrant homeownership.” What are the barriers? Once you decode the Orwellian language, the barriers are obvious: 1. Lack of a verifiable income; 2. Lack of a credit history that demonstrates the will and ability to repay loans; 3. Lack of ability to speak and read English, the language loan contracts are written in; 4. Lack of a valid Social Security Number; 5. Inability to make down payments and closing costs. The handbook advises financial institutions on how to reach the immigrant market by using “nontraditional” measures of immigrant creditworthiness. Translation: no creditworthiness. You can find the whole prescription for lax underwriting in Chapter 6. Here they are. Again I decode the Newspeak:
1.Latitude in proving legal residence—give mortgages to illegal aliens
2. Low down payment—no down payment.
3. Higher qualifying ratios—ignore the fact that the borrower will spend most of his income on mortgage payments.
4. Alternative and nontraditional credit—ignore the borrower’s dismal credit score if he even has one. Substitute meaningless or easily faked documents.
5. Waive the mortgage insurance requirement (page 55)—the killer item! As the handbook explains, this give the lender the ultimate say in the underwriting decision because the mortgage insurance company is out of the loop. This important safeguard is gutted. Is it any wonder you get a worthless loan? Americans are forced to pay for mortgage insurance, but illegal Mexicans aren’t.
6. Closing costs assistance programs. Note these have been declared illegal by the IRS but that doesn’t seem to bother Fannie Mae. It’s important to understand how this works. In many cases the seller is actually paying the closing costs (he adds it to the price) by making a contribution to some community organization which in turn uses the funds to pay the borrower’s closing costs. In effect the “community organization” is a money launderer.
Chapter six also provides the names of various special loan programs for aliens. We have the Wells Fargo Community Homeownership Program—no mortgage insurance. How about the National of La Raza Home to Own Program. The table on page 58 gives others.
It’s now obvious how approximately half a trillion dollars in bad loans got created. It started with blacks and the CRA, then as the wave of immigrant Mexicans hit, the banks could satisfy their CRA demands and exploit a growing new market by creating special loan products aimed at the hordes of illegal aliens that had spread throughout the U.S. Financial engineering gave them the means to sell off this toxic junk and make money on the loan origination fees. Then you wrap the whole thing in a racism-xenophobia security blanket to immunize it against criticism.
Now the federal government proposes to buy all these bad loans and charge it off to the taxpayer! Once the feds own the homes, will they simply let the borrowers live in them indefinitely? A gift to Mexicans courtesy of the U.S. taxpayer.
You can read the Leibowitz article here.
You can download the Fannie Mae Foundation handbook here. I encourage everyone to download (before this embarrassing document disappears) and at least browse the handbook.
LA replies:
While it appears that the handbook was offering advice on how to increase immigrant home ownership, clearly the handbook was written to help lending institutions conform to the federal requirement, made law in the Community Reinvestment Act, referenced by Mr. Zarkov, that lending institutions make loans equally to all income classes within their respective areas. Here is the beginning of Wikipedia’s article on the Community Reinvestment Act:
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. ยง 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as “redlining.” The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.Contents
Original Act
The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution’s application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).
Clinton Administration Changes of 1995
In 1995, as a result of interest from President Bill Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.
Jeff C. writes:
You asked: why have subprime mortgages had such a large effect on the economy?
The simple answer is: leverage. Investment banks, Fannie May, Freddie Mac, AIG, retail banks, regional banks—they were all leveraged at least 30:1. Leverage means that they amplify the profits (and losses) from their investments. So to invest $1 when times are good, you can acquire a return of $30—but when times are bad, look out below. Fannie May was leveraged 70:1. So the next question is: why didn’t these “kings of the investment universe” realize that times could go bad?
Basically they didn’t think it could go bad. These companies pooled together a large numbers of subprime mortgages and bundled them together—the basic assumption was that it would spread out the risk. The ratings agencies bought this hook, line, and sinker, giving these collateralized debt obligations (CDOs) the highest rating you could get—AAA. With an AAA rating, which is the safest and strongest rating, financial institutions felt that they could leverage themselves on these instruments with little risk. The problem really accelerated when Greenspan lowered interest rates to 1 percent to bounce the economy back from 9/11 and the technology bust, because banks could in effect borrow money for free—which they did, borrowing huge, enormous amounts of it.
Money managers, hedge funds, CEOs, etc. all went along with it because their salaries and bonuses were tied to yearly performance. They wanted the largest gains for the smallest risk, long term future be damned, and they got it. Politicians went along with it because the vast majority of people don’t care or understand what would happen, and when times were good they got to piggyback off of the successes. They received massive amounts of lobbying and donations from financial institutions and those that didn’t accept were disadvantaged. For example, Congress repealed the Glass Steagall Act in 1998—look it up at Wikipedia and read the arguments touted at the time for and against its repealment. Scary stuff. Also in 1998, home price gains became exempt from taxes/mortgage interest deduction …
The next crisis, Alt A loans, hasn’t really started yet. But it will. Alt A loans are the next riskiest mortgage type after subprime.
Lastly: I think you would find Steve Sailer’s article on the housing crisis illuminating. He argues that affirmative action had a great deal to do with causing this mess.
Hannon writes:
Pursuant to your discussions on the mortgage crisis, this Wikipedia entry on usury may be of interest. Yet another example of laws and religious mores being corrupted over a long period to pave the way for progressivism—cf. the evolution of taxation!
Gintas writes:
I think the Austrians have been well ahead of the curve on the technical side of this, they have a keen interest in the Fed, banking, and money. And they’re analysis is: loose and easy money. In other words: money and banking with no constraints. This certainly suits the liberal brain, which uses it to achieve liberal ends. It also helps a government spend without limit (which used to suit the Democrats only). The Austrians have advocated a couple of constraints on banks: (1) the gold standard and (2) the spectre of total ruin. Neither is in play today, as the gold standard was discarded in 1971, and total ruin (for banks) is dodged by taxpayer bailout. But who will bail out the U.S. Government? The U.S. taxpayer?
A delightful little book is Murray Rothbard’s The Case Against the Fed. In discussing fractional reserve banking (which I now understand), he elaborates on how fractional reserve banking can fail. One is the run on the bank:
Hence the overwhelming nature of the dread process known as a “bank run,” a process by which a large number of bank customers get the wind up, sniff trouble, and demand their money. The “bank run,” which shivers the timbers of every banker, is essentially a “populist” uprising by which the duped public, the depositors, demand the right to their own money. This process can and will break any bank subject to its power.
John Hagan writes:
From 1999. The chickens come home to roost.
Robert B. writes:
You wrote:
It’s remarkable how everybody is blaming the crisis on his own favorite bad guy. John McCain blames it on Barack Obama (which makes about as much sense as Dinesh D’Souza blaming Muslim hatred of America on me). Obama blames it on “Wall Street.” Race-conscious whites blame it on improvident blacks. Liberals blame it on anti-black discrimination by predatory lenders. I want to get the whole picture before I start blaming anyone.
Actually, all of this was predicted way back around 1994-95. Hi-end financial news letters—the kind my father used to subscribe to, were not only forecasting this, but advising clients to get the money out of America. They also predicted in 1994, that the coming “Age of the Internet” would put an end to government taxing their captive citizens to death—that money could be moved from one part of the world to the other with a touch of computer keyboard key.
On a further note. Twenty-two years ago, I inadvertently married into the family that owned the largest provider of banking and mortgage origination software in North America. Bankers Systems, Inc. was once a 1,400 man corporation in St. Cloud, Minnesota. It was sold to CitiCorp in 1996. In 1990 it had revenues of 657 million. The deal was done in the Cayman Islands for a publicly undisclosed amount. Later, after breaking the company up into five different pieces, CitiCorp sold a much smaller company off for 200 million in 1999.
The point of all of the above? The supposedly “racially biased” software in the 1999 NYT article was in fact developed by Bankers Systems. It was one of the reasons they wanted to sell the company off—that and the impending financial crisis. The deal was done out of the country to avoid taxes, obviously, but also to avoid having to move the money out of the country afterwards.
Smart money has been leaving this country for a long time. The Clintons themselves had money invested overseas in their presidential blind trust upon taking office. In the end, economic catastrophe will end liberalism and this diverse society—the minorities cannot survive here under their own power. History has shown that they must have government subsidies to survive in America. This crisis could not have come at a better time, in my opinion. Indeed, I have been waiting for it.
Robert B. continues:
Back in the Spring of 2005—when everyone thought the bubble would go on forever, a few friends of mine and I sat down to discuss what we knew was coming. On one particular occasion, it was only about the over supply of housing. Our best guess in 2005 was that the country had as much as 25 percent too much housing. We did not base this on government reports. We based it upon what we knew to be happening. One of the individuals, Thomas Blanck, is a published author, architect and recipient of far too many research grants. Tom surmised, based upon the four of us driving around off and on for a month, that the tell tale signs were evident everywhere but in the best OLD neighborhoods. The reason for these meetings was in trying to decide when the time would come to go back into the rental property business—low interest rates had forced smart people out of it.
New developments and old, run down neighborhoods alike, there were, in the Spring of 2005, already houses whose lawns were not being kept, no curtains in the windows, etc. We developed the idea along the way that the over grown lawns were signs of abandonment and or non-sale (new housing) whereby the building in question had been in receivership for more than six months. IN 2005, these were few but not so far in between. So—we reasoned, based upon that, where would we be in three years and in five years.
Now, you must add to all of the sub-prime mortgages the simple fact that baby boomers are not going to be needing large houses in the very near future. Therefore, you will have a falling real estate market for the next twenty to twenty-five years.
We arrived at the figure of 25 percent too much housing stock. Now, what will be done with that stock? It will have to be torn down. Newer buildings simply will not hold up for long being “mothballed” and the older stuff cannot survive as it will become a public nuisance in myriad ways. Once the building is torn down, what will happen to the property? The municipality were it exists will have to maintain it into perpetuity. The reason is thus—most of the these houses are now inhabited by immigrants from the Third World. They do not take care of the properties they have now—giving them an extra lot will not suddenly cause them to mow their own lawn and the new one. Rather, it will be necessary to fence them off in a pleasing way and the city itself will have to care for it.
The fact is, is taking care of your home, no matter how simple and modest, is a “Western thing” and Third Worlders do not have the same cultural motivation to care for them the way Europeans did.
Robert B. continues:
LA writes:
A major question I have is, how could failures in just one market area, subprime mortgages, have such a devastating effect on such a huge institution as Lehman Brothers? Didn’t Lehman have holdings in hundreds of areas, not just subprime mortgages?
I don’t have time to fully answer this just now, as I am gold leafing some things, but, to put it into a nutshell, the answer is “no”.
Because our country has been gutted from within, the only game left in town, so to speak, was the construction industry. In the 1970s, before that crash, America’s economy was based upon manufacturing—about 64 percent. In 2005, construction and its related industries comprised 54 percent of America’s economy. What a ponze scheme, you cannot go on building forever—unless you intend to let the whole world in to buy these homes. This is how first the Clintons and then Bush solved the problem of the mass exodus of American capital to the third world—Asia mostly.
You see, Lawrence, once the dot com bubble burst (remember, we didn’t need manufacturing anymore, we had the new Technology Economy) there was no other place to put the money where they could count on “growth” to satisfy investors lust for ever growing markets.
BTW—my dad has his one seat on the NYSE back in the 1950’s—1960’s.
LA replies:
That’s simply an incredible figure. Fifty-four percent of the U.S. economy in construction and related areas?
D. writes:
According to John Lott, the Federal Reserve Bank of Boston produced a manual in the early ’90s that warned mortgage lenders not to deny urban and lower-income minority applicants on such “outdated” criteria as credit history, down payment or employment income.`
Alicia Munell wrote that Fed study. She was a real darling of the liberals there. I saw her get great press. Peter Brimelow tore her childish logic apart way back in 1993: “When Quotas Replace Merit, Everybody Suffers.”
Now take a look which states have the highest foreclosure rates. Florida Arizona California Nevada. All have large Hispanic populations with the qualification that Nevada got them only in the last 10 years as Las Vegas construction mushroomed. Miami has more Medicaid fraud than the 35 lowest fraud states combined (my estimate).
I peg “mortgages to minorities” as 40 percent of the subprime mess.
Karen writes from England:
I think that the current situation engulfing the Financial Sector has to be analyzed in the context of the larger framework of the whole economy of the Western world and in particular the USA and UK. It is apparent that the term “credit crunch” is a euphemism for “confidence collapse.” There is no shortage of liquidity in world markets. Any one of the following countries alone has sufficient wealth in liquid assets to bail out the U.S. financial organisations: China, UAE, Qatar, Saudi Arabia, Singapore. But they have lost confidence in the prevailing economic model on which the USA and UK are run and are wary of the imminent economic collapse of these countries and hence have blocked off access to their funds leaving a deficit of liquidity for Western banks. The crisis thus has deeper roots than the problems engulfing the Financial Sector and the latter is just the first sector to be hit by the approaching tsunami with an almost certain spread to other industries.
I think that the principal etiological factor is the relentless pursuit of the policies of globalisation and radical deregulation, the theories of which have now been tested to their destruction. The policy of economic independence of the world economy which had served the U.S. and Britain well, and maintained their political independence, was turned upon its head by Thatcher and Reagan, who were in reality the useful idiots of the globalists. Thatcher surrendered political independence to the EU and economic independence to global dependence upon the world economy. These policies have led to the following consequences:
- collapse of manufacturing industries in Britain and the USA
- negative balance of trade
- outsourcing of jobs to the Third World
- lack of investment in research and development
- large swathes of British and American companies in strategic industries in the hands of foreigners
- Large amounts of British and American assets in the hands of foreigners
- Reduced revenues from taxation for the U.S. and British Treasuries
- an increase living standards of millions of Chinese and Indians at the expense of Brits and Americans
- deregulation of banking which has brought about the increased use of securitisation and leverage as a means of increasing profits and shareholder dividends
- the tax exempt status given to certain “investment strategies” which are reality classed as forms of gambling.
- the failure to adhere to GAAP and increased incidence of false accounting in Company financials
- lax regulation of banks
- lax regulation of accounting and the failure of regulatory authorities and Government agencies to employ forensic accounting to detect and prosecute fraud.
Regarding the financial sector, the subprime mortgage defaults are not the main culprits. The damage has been done by securitisation and leverage. With derivatives (Warren Buffet rightly described them as weapons of mass destruction), the leverage is implicit in the price of the product rather than explicitly dependent upon borrowed funds. Thus the problem is greatly magnified losses and difficulty in valuing the assets which make the losses impossible or at least very difficult to value. Lehman Brothers was in trouble for over a year and its CEO knew it. A Japanese newspaper reports that Dick Fuld tried to offload the bank on Mitsubishi and various other Asian financial houses without success, as it looked too risky.
You can see that there is a situation of an emergent crisis which has been hushed up by the banking officials with the complicity of the media and political class, but nevertheless well understood in other parts of the world which have sought to limit their exposure and turned off the cash flow. Not even the Lehman employees understood the risky situation they were in.
This problem is compounded by the lack of political leadership in USA and Britain with Bush hanging about like a school boy while Comrade Paulson , an unelected official, uses Government money to seize 50 percent of the title deeds and mortgages of American’s properties. Now 50 percent of Americans are living in social housing, effectively. For how much longer can the dollar remain the reserve currency? Will 30 year USA Treasury bonds be junk bonds?
Other countries are noting the ineffectiveness of the political class. See this and this.
Ben W. writes:
I’ve noticed that many people are wondering how “hard-nosed bankers” could have been taken in by the sub-prime fiasco. In fact most corporation executives have liberal worldviews. These days American corporations have internally instituted many different forms of affirmative action hiring and promotion. Their advertising in the media always emphasizes their “community involvement,” especially in “low income” neighborhoods. It has been my experience in the corporate world that company executives want to be one the good side of liberalism to show their morality.
Ben W. continues:
If the current financial crisis was caused by radical egalitarian policies, then we may indeed be on the edge of a national apocalypse. Who knows what irrecoverable damage has been done to the American economy. And yet the general populace will not be aware that they are on the edge of a hurricane brought about by liberalism. Instead the discussion in the media is about “greedy bankers” while liberalism gets a free pass.
A reader writes:
Thanks goodness people are beginning to get it. Thanks for posting the comments. I could not digest them all. I want to add or emphasize the fact that not only do the illegals drive great cars and have big homes, they also have contributed to the financial crisis by the enormous amount of remittances sent out of this country.
It seems plain that huge amount of monies earned here and spent elsewhere are going to hurt us.
Please keep up the good work.
September 22
Josh F. writes:
I think what we are seeing is the “diversity is our strength” idea applied to our economy. We have invested in the elites, both private and public, and they have invested in the “Other.” It is the “diversified portfolio” taken to its logically destructive end. The parallel event is a divestment from America and hence Americans. Such investment in the “Other,” with its corollary—divestment from Americans—logically leads to a greater influence wielded by the “Other,” with the concurrent decline in our quality of life. Such results mirror the sociopolitical result of liberalism.
Buddy in Atlanta writes:
You wrote:
“That’s simply an incredible figure. Fifty-four percent of the U.S. economy in construction and related areas?”
This is not correct, judging from the government’s employment data. Employment is a reasonable proxy for the size of an industry. According to the latest monthly employment figures from the BLS, construction employment was 5.2 percent of total non-farm employment—7.2 million out of 137.5 million. That sounds about right to me for the size of the construction industry—five percent.
Even if you expanded the definition of construction to include construction-related industries—like lumber producers, fixture manufacturers, construction-product retailers, and mortgage professionals—you would probably add only another five percent to ten percent to the total. So 54 percent is way off.
The BLS data is here.
Posted by Lawrence Auster at September 20, 2008 02:55 PM | Send
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