Blumner Explains: Errors of the GOP on the financial crisis!

Robyn "Blumñata" Blumner returned last weekend with yet another senseless screed.

Blumner's column, perhaps once again inspired by a book from a liberal author, attempts to explain why Republicans are wrong to pin the financial crisis on the Community Reinvestment Act along with Fannie Mae and Freddie Mac.

But there's a problem. Blumner's column largely disagrees with the take on the subprime mortgage crisis published by her own paper, the St. Petersburg Times, back on Oct. 12, 2008. See my review and (relatively!) effusive praise of that story here.

A few of the juicier tidbits from Blumner's column:

Fannie and Freddie bought home loans that met certain underwriting standards to free up credit so banks could lend to other borrowers. Many of these loans were packaged into bonds (known as agency mortgage-backed securities) and then sold. But Fannie and Freddie kept much of the risk on its own books by guaranteeing the underlying mortgages against default.

Fannie and Freddie's buying allowed banks to profit from writing the loan and then selling the risk to American taxpayers!  How does Blumner not figure that out even if her nose is buried in an ideologically tilted fairy-tale account of the crisis?  The Washington Post explains:

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

The government made subprime mortgages profitable with its actions.

Another tidbit:

Since about 1995 Wall Street started encroaching on this business, but with a key difference. After Wall Street bought the mortgages, securitized and sold them, it did not guarantee them against default. Wall Street banks had no skin in the game and not surprisingly had less interest in making sure they were buying sound mortgages.

Wall Street still had a good amount of skin the the game, but they were able to peddle off quite a bit to taxpayers (through Fannie and Freddie) as well as to foreign investors.  But the system was enabled and originally forced on the banks by the government.

Blumner again:

Financial expert and author of Bailout Nation Barry Ritholtz puts it another way. He writes that if the CRA caused the crisis, then foreclosures in CRA regions should be the highest in the country, but in fact it's the "sand states" — non-CRA regions such as Southern California, Las Vegas, Arizona and South Florida — that have the worst rates. Ritholtz says the banks making CRA mortgages should be disproportionately failing. But again, Ritholtz notes, that's not what has happened. CRA banks have been relatively healthy. Compared with other factors, Ritholtz says, "the CRA impact is all but irrelevant." 

Ritholtz's logic is faulty, and Blumner shares the criticism for buying it.

1)  The government regulated banks by making the percentage of risky loans a key criterion for things like bank mergers.  The number of "CRA loans" is a red herring.  The risky loans didn't have to be CRA loans.  Banks simply had to use a certain amount of money on such loans to remain in compliance with government standards.

2)  The point above pretty much negates the point Blumner cites from Ritholtz about the prediction of banks with CRA mortgages failing disproportionately.  John Carney at Business Insider goes into greater detail and specifically debunks Ritholtz's objection, using the Countrywide mortgage company as an example.

Carney makes a comprehensive and fair case in "Here's How The Community Reinvestment Act Led To The Housing Bubble's Lax Lending," which contains abundant links to his more detailed arguments.

Orson Scott Card calls out mainstream media

To my shame, Power Line beat me to highlighting an excellent essay by Democrat-with-a-mean-conservative-streak Orson Scott Card, ensconced at the top of my Sith blog roll.

The essay isn't even his latest, but it's certainly worth attention.

I remember reading All the President's Men and thinking: That's journalism. You do what it takes to get the truth and you lay it before the public, because the public has a right to know.

This housing crisis didn't come out of nowhere. It was not a vague emanation of the evil Bush administration.

It was a direct result of the political decision, back in the late 1990s, to loosen the rules of lending so that home loans would be more accessible to poor people. Fannie Mae and Freddie Mac were authorized to approve risky loans.

Card provides much more detail along with stinging criticism of the media. Though some news stories, such as one I reviewed from The St. Petersburg Times, do mention the role of relaxed lending standards in bringing on the subprime mortgage crisis, Card rightly points out that a great deal more news reporting could have and should have come out of the situation.

John Hinderaker might be interested to know that Card is a Mormon and a science fiction writer in addition to being a conservative Democrat and columnist.

FDR and BHO

Paul H. Rubin writes on the potential parallels between Franklin Delano Roosevelt and Barack Obama.

In 1932, Democrat Franklin Delano Roosevelt was elected president as the nation was heading into a severe recession. The stock market had crashed in 1929, the world's economy was slowing down, and all economic indicators in the U.S. showed signs of trouble.

The new president's response was to restructure the economy with the New Deal -- an expansion of the role of government once unimaginable in America. We now know that FDR's policies likely prolonged the Great Depression because the economy never fully recovered in the 1930s, and actually got worse in the latter half of the decade. And we know that FDR got away with it (winning election four times) by blaming his predecessor, Herbert Hoover, for crashing the economy in the first place.

Rubin isn't the first to note the parallels in the election scenario. He may be the first to note in the context of the comparison that Obama is already blaming the economic problems on the other party. Read the whole of it.



I've been making a similar case lately over at the Center For Inquiry message board. The response from "Mriana," though anecdotal, may be instructive:

FDR was a good pres. He did not prolong the Depression, but rather instituted programs that helped to get us out of the Depression.

I wonder what programs she had in mind, other than World War II?

HuffPo fact-check finds McCain lied about his subprime warning letter

Jed Lewison of The Huffington Post offers us a full paragraph's worth of fact-checking John McCain's claim of having warned about severe economic problems relating to subprime mortgages.

John McCain lied right out of the gate during tonight's debate, claiming that he had warned us about the financial crisis that we are now facing. But in November, 2007 he admitted that he hadn't seen the mortgage crisis -- the root of today's financial crisis -- coming.

Lewison does offer some bonus material. He writes "Here's the video" and provides the following YouTube video to support his argument.



It's certainly fair to say that McCain denies having predicted a particular economic crisis as of November 2007. It's also fair to say that the economic crisis then is not the same as the present one. So what was the state of the crisis then?

After viewing a clip (hat tip to ProPublica.org for pointing the way) of McCain speaking in context, McCain seems to be talking about the manner in which mortgage-based securities caused the subprime crisis to affect the entire world. McCain used the example of a city in Norway that invested in such securities.

I would suggest that McCain's warning concerning the fallout from the lack of backing specific to Fannie Mae and Freddie Mac was specific to the United States economy and the government-associated financial entities. His statement in the video refers to a different aspect of the subprime crisis (the manner in which mortgage-based securities had tentacles touching everywhere).

As such, it is fair to say that McCain did not anticipate the current specific crisis nor the one from November 2007--but on the other hand the letter he signed does indicate that he anticipated frozen credit markets based on a crisis of confidence in the government if it was forced to back the red ink undergirding Fannie Mae and Freddie Mac.

It is also fair to say that the warning McCain signed is much more specific (and accurate) than the one Barack Obama sent to Bernanke and Paulson.

Grading PolitiFact: Did Obama warn about the subprime mortgage crisis?

I've written two different blog entries about the claims stemming from the Obama campaign about Obama's warnings about the subprime mortage crisis.

In the first one, part of my Legends of the Left series, I attacked the suggestion that Obama's written warnings about a subprime lending problem did not reasonably constitute any sort of prediction born of notable economic wisdom.

In the second one, I grant that it is fair to say that Obama warned about a subprime lending crisis, but I argue that it is not reasonable to see in the warning any concrete hint of the current scope of the problem. With all due respect to Andrew Sullivan, taking Obama's letter to Bernanke and Paulson as prescient is akin to thinking a Rhorschach inkblot represents a detailed diagram of the brain of a Beluga whale. Labeled.

Alexander Lane, writing for PolitiFact, disagrees.

"I wrote to (Treasury) Secretary (Henry) Paulson, I wrote to Federal Reserve Chairman (Ben) Bernanke, and told them this is something we have to deal with, and nobody did anything about it."

The last sentence appeared to refer to this letter that Obama sent to Paulson and Bernanke on March 22, 2007.

Obama's comments in the debate suggest the letter warned about the then-looming subprime lending crisis and its potential impact on the wider economy.

That's a fair summary; Lane's analysis on that point essentially agrees with mine. However, my post noted that the subprime problem was already extant. Lane's phrasing permits the reader to see the crisis as imminent rather than already present. A recent St. Petersburg Times story by fellow PolitiFact writers Robert Farley and Angie Drobnic Holan makes the point effectively:

Obama did send a letter to Treasury Secretary Henry Paulson and the new Federal Reserve chairman, Ben Bernanke, in March 2007, advising a meeting on the subprime mortgage mess. "We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes," Obama wrote.

But economists agree that it was too late by that point, a point that economists Baker and Calomiris agree on. In separate interviews, they both used the same analogy: The horse was already out of the barn.

The horse was out of the barn, and in any case Obama's warning carried no readily discernable hint of the scope of the ensuing crisis. That is, unless you are one Alexander Lane:

So yes, Obama characterized the letter accurately. In it, he not only called for action to head off the unraveling of the subprime mortgage market, but also warned about its impact on the nation's economy. He sent the letter about 18 months ago, a time frame for which "two years" is a fair estimate. We find his claim to be True.

Lane simply offers no support for his claim regarding "impact on the nation's economy" remotely sufficient to connect the warning to the "potential impact on the wider economy," namely freezing credit markets and plunging market values. A letter warning of that type of consequence would have placed far greater emphasis on the dire nature of that outcome. It is reasonable to conclude that Obama was concerned about Americans with low incomes losing their homes and on the relatively modest harm to the economy that would result.

It was not reasonable to conclude based on the letter that Obama saw anything akin to the present economic conditions as a result of problems in the subprime lending market.

Alexander Lane, PolitiFact: F. You didn't do your homework and you flunked the final.

The St. Petersburg Times offers its take on the subprime mortgage crisis

I've had a number of opportunities to bat around Robert Farley and Angie Drobnic Holan based on their work for the PolitiFact project, but the duo produced a surprisingly even-handed account of the subprime mortgage crisis ("What caused economic crisis? No one thing"). An excerpt:

Here's the McCain version: "One of the real catalysts, really the match that lit this fire, was Fannie Mae and Freddie Mac. I'll bet you, you may never even have heard of them before this crisis. But you know, they're the ones that, with the encouragement of Sen. Obama and his cronies and his friends in Washington, that went out and made all these risky loans, gave them to people that could never afford to pay back."

Obama's side: "Let's, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system. Sen. McCain, as recently as March, bragged about the fact that he is a deregulator."

In reality, the crisis was caused by a "perfect storm" of economic factors with lots of blame to go around, both in the private sector and government quarters.

The story acknowledges the role of the federal government in growing the housing bubble by encouraging risky loans. It also acknowledges Sen. McCain's past efforts to reign in Fannie Mae and Freddie Mac, though at the same time suggesting that the legislation McCain backed would not have ultimately addressed the present problem. Importantly, Sen. Obama's claim that the problem was caused by deregulation is punctured.

On the downside, the authors claim--without any substantiation--banks were in favor of making high risk loans.

Elected officials encouraged the relaxation of mortgage standards, motivated by the noble goal of trying to get all Americans into homes — even low- and moderate-income people with poor credit histories. The effort increased the number of home buyers, goosing housing demand.

But investment banks loved what the government was doing and encouraged it. Worldwide savings were soaring, and international investors were hungry for a safe place to park their money.

But that claim fails to acknowledge the concentrated effort by the Clinton administration to encourage high-risk loans. Housing and Urban Development Secretary Andrew Cuomo demonstrated that lenders would be aggressively penalized for not participating adequately in risky loans. The following YouTube video contains sufficient proof of that, even discounting the sometimes heavy-handed editorial commentary.



Perhaps the Times did not have enough room for that kind of detail.

But for the Times, I consider this piece overall a sturdy attempt at good journalism. I fully expected worse from these two writers. If I'm willing to pan their work at least I'm willing to offer credit where it's due. I would recommend this story with relatively minor caveats.

Obama warned about the subprime crisis. So what?

Democratic presidential nominee Barack Obama has claimed that he warned about the subprime lending crisis. His claims and those of his campaign have somehow been twisted by some into the notion that Obama foresaw and predicted the later deeper problems with the threat of frozen lending capital on a large scale. I wrote about the latter notion for a "Legends of the Left" entry. The commentary on that post led me to go deeper into what the Obama campaign means to say when it talks about his warning.

I intend to focus on the claim as used in the presidential and vice-presidential debates, analyzing its significance. Without further ado:

LEHRER: All right, let’s go back to my question. How do you all stand on the recovery plan? And talk to each other about it. We’ve got five minutes. We can negotiate a deal right here.

But, I mean, are you — do you favor this plan, Senator Obama, and you, Senator McCain? Do you — are you in favor of this plan?

OBAMA: We haven’t seen the language yet. And I do think that there’s constructive work being done out there. So, for the viewers who are watching, I am optimistic about the capacity of us to come together with a plan.

The question, I think, that we have to ask ourselves is, how did we get into this situation in the first place?

Two years ago, I warned that, because of the subprime lending mess, because of the lax regulation, that we were potentially going to have a problem and tried to stop some of the abuses in mortgages that were taking place at the time.

Last year, I wrote to the secretary of the Treasury to make sure that he understood the magnitude of this problem and to call on him to bring all the stakeholders together to try to deal with it.

So — so the question, I think, that we’ve got to ask ourselves is, yes, we’ve got to solve this problem short term. And we are going to have to intervene; there’s no doubt about that.

But we’re also going to have to look at, how is it that we shredded so many regulations? We did not set up a 21st-century regulatory framework to deal with these problems. And that in part has to do with an economic philosophy that says that regulation is always bad.

(CQ transcript wire, via "Clips and Comment")

In the first debate, Obama used the claim while not answering Jim Lehrer's question as to whether or not he supported the proposed bailout bill. Obama does come up with at least two different questions that we must ask ourselves, however. But how does the claim about warning about the subprime mortgage crisis fit in?

The key, it seems, is in his claim that "we were potentially going to have a problem." As I noted in the "Legends" post, when Obama gave his warning there was already a problem. His warning was akin to a child hearing a knock on the door and subsequently announcing to others in the home that someone is at the door, in terms of predictive value. It is not plausible that Obama had anything like the current subprime crisis in mind, for the language of his letter cannot support that view for lack of emphasis.

I judge that Obama intended for the reference to his letter to portray him as highly attuned to economics. Though he can't seem to answer Lehrer's question about the buyout/bailout bill, he hints to the audience that he has what it takes to answer the two questions he suggested during the course of his non-answer.

Vice presidential candidate Joe Biden made a similar statement during his debate with Sarah Palin (transcript edited slightly for length after including the original question for context):

IFILL (to Palin):

Now, let's talk about -- the next question is to talk about the subprime lending meltdown.

Who do you think was at fault? I start with you, Gov. Palin. Was it the greedy lenders? Was it the risky home-buyers who shouldn't have been buying a home in the first place? And what should you be doing about it?

(Palin answers)

IFILL (to Biden): Senator?

BIDEN: Well Gwen, two years ago Barack Obama warned about the sub prime mortgage crisis. John McCain said shortly after that in December he was surprised there was a sub prime mortgage problem. John McCain while Barack Obama was warning about what we had to do was literally giving an interview to The Wall Street Journal saying that I'm always for cutting regulations. We let Wall Street run wild. John McCain and he's a good man, but John McCain thought the answer is that tried and true Republican response, deregulate, deregulate.

So what you had is you had overwhelming "deregulation." You had actually the belief that Wall Street could self-regulate itself. And while Barack Obama was talking about reinstating those regulations, John on 20 different occasions in the previous year and a half called for more deregulation. As a matter of fact, John recently wrote an article in a major magazine saying that he wants to do for the health care industry deregulate it and let the free market move like he did for the banking industry.

So deregulation was the promise. And guess what? Those people who say don't go into debt, they can barely pay to fill up their gas tank. I was recently at my local gas station and asked a guy named Joey Danco (ph). I said Joey, how much did it cost to fill your tank? You know what his answer was? He said I don't know, Joe. I never have enough money to do it. The middle class needs relief, tax relief. They need it now. They need help now. The focus will change with Barack Obama.

Biden's answer, unlike Obama's, does address the question. And as with many answers in a VP debate, his answer attempts to shine a spotlight on the top of the ticket. Is it more than a coincidence that both Biden and Obama mentioned his warning? It is almost impossible that it is not a coincidence. The campaign wants that warning as part of the message.

What meaning is a voter supposed to draw from the message?

Biden effectively explains it within his answer. Biden blames unregulated Wall Street for the difficulties of the subprime market. And while blame can be placed partially on poorly-regulated trading in mortgage-backed securities, Biden doesn't utter a peep about the government regulation that was instrumental in encouraging bad loans and the concurrent housing bubble in the first place.

Biden implies that Obama had the answer for the present problem two years ago but went unheeded ("while Barack Obama was warning about what we had to do" contrasted with McCain's general view favoring less government regulation--the latter a Biden misrepresentation that others have and will cover).

Thus, Biden delivers the same message that Obama tried to communciate: that Obama knew things would get worse and tried to fix things early on. As I pointed out in the earlier post, the text of Obama's warning hardly supports that version of events.

From the second Obama-McCain debate:

BROKAW: Sen. Obama?

OBAMA: Well, Oliver, first, let me tell you what's in the rescue package for you. Right now, the credit markets are frozen up and what that means, as a practical matter, is that small businesses and some large businesses just can't get loans.

If they can't get a loan, that means that they can't make payroll. If they can't make payroll, then they may end up having to shut their doors and lay people off.

And if you imagine just one company trying to deal with that, now imagine a million companies all across the country.

So it could end up having an adverse effect on everybody, and that's why we had to take action. But we shouldn't have been there in the first place.

Now, I've got to correct a little bit of Sen. McCain's history, not surprisingly. Let's, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system. Sen. McCain, as recently as March, bragged about the fact that he is a deregulator. On the other hand, two years ago, I said that we've got a sub-prime lending crisis that has to be dealt with.

I wrote to Secretary Paulson, I wrote to Federal Reserve Chairman Bernanke, and told them this is something we have to deal with, and nobody did anything about it.

A year ago, I went to Wall Street and said we've got to re-regulate, and nothing happened.

OBAMA: And Sen. McCain during that period said that we should keep on deregulating because that's how the free enterprise system works.

Now, with respect to Fannie Mae, what Sen. McCain didn't mention is the fact that this bill that he talked about wasn't his own bill. He jumped on it a year after it had been introduced and it never got passed.

And I never promoted Fannie Mae. In fact, Sen. McCain's campaign chairman's firm was a lobbyist on behalf of Fannie Mae, not me.

So -- but, look, you're not interested in hearing politicians pointing fingers. What you're interested in is trying to figure out, how is this going to impact you?

This is not the end of the process; this is the beginning of the process. And that's why it's going to be so important for us to work with homeowners to make sure that they can stay in their homes.

The secretary already has the power to do that in the rescue package, but it hasn't been exercised yet. And the next president has to make sure that the next Treasury secretary is thinking about how to strengthen you as a home buyer, you as a homeowner, and not simply think about bailing out banks on Wall Street.

Again, Obama's words seem like an attempt to cast him as the guy who noticed the sky was about to fall but who got ignored, with the result a national and international calamity.

Barack Obama's public references to his warning letter strike me as a technique very much from the Bill Clinton notebook. Clinton was a master at carefully constructing sentences that were true in a sense but at the same time would mislead the listener.

Obama seems to have some of that same guileful gift. Yes, he warned about the subprime mortgage crisis but after it had already begun, and with only the most subtle hint that the subprime crisis would deepen and spread. His recommendations for action seemed geared toward addressing the immediate fallout from defaulted loans--and certainly "a potential wave of coming foreclosures"--rather than systemic failure.

Bottom line: The Obama campaign uses the warning claim in a misleading way, leading people to believe that the warning was more expansive and specific than appears was the case. In terms of the literal warning that Obama provided, there was no significant relevance to the current subprime mortgage crisis where the stock market drops and credit markets freeze up.

I note the PolitiFact seems to disagree with me. More on that in a later post.

***

One final note. Obama's claim in the second debate that "nobody did anything about it" appears false.

SNL bailout skit (Updated x3)

Hot Air has reported that a Saturday Night Live skit that effectively and humorously portrayed the Democrats' role in the subprime mortgage crisis was apparently pulled from the NBC and Hulu Web sites.

Perhaps details of the glitch/suppression/whatever will emerge soon. Meanwhile the sketch his available (at least temporarily) at YouTube:



Update:

That didn't take long.

The video was pulled from YouTube in a matter of hours after I posted the embed.

It has been suggested that NBC moved to take the video down from its home site and Hulu based on the suggestion that two of the skit characters (real-life persons formerly involved in the the subprime mortgage market) deserved to die for their role in the later crisis. Prior to YouTube pulling the video, I'd say that explanation was sufficient to explain NBC's actions. The move to pull the video from YouTube, I think, is more consistent with the explanation offered by Michelle Malkin, who thinks a lawsuit may have been filed.


***
For those who absolutely must have their own copy of the skit, consider the suggestion offered by Robert Arthur in the "Comments" section.

Update #2

The skit is back up on Hulu; here's the embed:




Of note, the caption suggesting that the Sandlers deserved death is missing. Obviously this strongly suggests that NBC pulled the videos because of concern over the caption.


Update #3

It appears that the disappearing caption wasn't the only change. Hot Air's Allahpundit posted to point out that the part of the sketch emphasizing Barney Frank's role in enabling the crisis has been expurgated from the new version.

How convenient.

Democrats help (accurately) fix blame for subprime mortgage crisis

The Wall Street Journal compiled a series of quotations from Democratic congressional leaders concerning Fannie Mae and Freddie Mac.

Please read it all, but here's a teaser:

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

You tell 'em, Barney.

Bailout fizzles, markets sink, Hoyer blames (Updated)

Though Democrats in the House could have passed the bailout plan without any Republican support whatsoever, Democrat Steny Hoyer thinks he's figured out whom to blame:

"As I said on the floor, this is a bipartisan responsibility and we think (Democrats) met our responsibility," said House Majority Leader Steny Hoyer, D-Md.
(AP, via Yahoo! News)

Apparently the spirit of partisanship is not entirely dead.


Update:
I was looking for a video of the Nancy Pelosi speech that Republicans credited with helping to kill the compromise bill.

Pelosi's speech is remarkably partisan, and completely ignores the role of inept government regulation, dating back to President Carter, that helped sink the lending market.



Hat tip to Ed Morrisey and Hot Air for coming up with the video link and embed.

Bailout deal reached for real this time

The Wall Street Journal reports a real deal on the bailout plan, with the major players in both parties confirming.

The deal doesn't mean that the bill automatically sails through the House and Senate to land on President Bush's desk, of course. Lawmakers still need to vote on it, and negotiators have not necessarily sold their respective parties on the deal. But they at least expect enough Republicans to vote for it to provide coverage for Democrats who won't go out on a limb without member of the other party inching out on the limb with them.

Voters don't seem to like the idea of the bailout.

I'm not crazy about it in principle, either--but the alternative to passing an effective bill (even if substantially flawed) is the worse of two evils.

Grin and bear it. With luck the debt purchased by the government will end up worth a good bit, and Republican leadership will have helped earmark (do I have to use that word?) the profits for debt reduction instead of new government spending.

And hopefully Obama won't get the chance to dig the hole deeper.

A classic case of projection at The St. Petersburg Times (Updated)

Headline on a brand-new editorial in The St. Petersburg Times:

Why millions are angry

If I had to guess, I'd say that Robyn "Blumñata" Blumner wrote this one on behalf of the editorial board. It's a classic case of projection and follows the Blumner pattern of focusing on corporate villainy.

On with the screed:

Here's why many Americans are having a tough time digesting spending $700-billion in tax money to prevent an economic disaster triggered by bad mortgages and greed.

For the sake of space I'll give away the three-paragraph punchline. Washington Mutual was once a profitable bank. Recently they hired a new CEO, but after only a few weeks on the job WaMu was possessed by the feds and sold. The CEO stands to gain millions from a signing bonus and more millions from a severance package.

Personally, I don't see why anyone would be angry over that situation unless the new guy was responsible for piloting WaMu into failure. Was three weeks enough time to accomplish that task? I doubt it.

But there's more to the tale. The proposed Bush administration plan will provide credit lines that both enable banks to keep from folding and continue to pay high executive salaries. That strikes many of us as unfair even if we don't exactly get angry about it. Supposedly the bailout plan is set to be modified to limit the weight of golden parachutes. I've got mixed feelings about that. After all, it isn't really the CEO's responsibility that their banks are failing. It's a failure of government regulation dating back to the Carter administration. Allow me to re-post a YouTube video from my previous post:



If you don't have time to view the whole thing, here's the takeaway: The government started penalizing banks if they didn't start lending money to high-risk borrowers. The government created the market for sub-prime loans. The banks, to avoid penalties, had to create financial products for those high-risk customers. Such products feature the potential for greater profits if the payments are made, since high-risk borrowers get charged for the risk involved. Those are now called "predatory loan practices" around the editorial table at The St. Petersburg Times.

Did lenders mislead borrowers regarding the terms of their loans? Probably, at least in some cases. Were banks implicitly pressured into selling the loans by the threat of penalities? I don't know for sure about that. But I suspect it is the case. As the video demonstrates, the stimulation to the housing market created by the easy money appears largely responsible for the housing bubble. And the deflation of that bubble led to the defaulted loans that ended us in the current pickle.

So, this Times editorialist apparently has no clue about economics (one indicator of Blumñatification) and some misdirected anger at the innocent, albeit overpaid, temporary CEO of Washington Mutual.

It's hard for most Americans to grasp the size and importance of the Bush administration's proposed bailout, even if urgent action is necessary to free up credit and protect the mortgages, businesses and retirement accounts for everyone who has managed their own affairs responsibly. But everyone gets this math: less than three weeks of work at a failing savings and loan for more than $19-million.

That is outrageous — and it explains why so many are so mad

It explains why the editorialist is mad, if we forgive the fact that the anger is focused on a guy who apparently had nothing to do with causing the conditions that created the need for the bailout. I don't think Americans are mad about the bailout. They're concerned that CEOs don't make off with taxpayer money under the proposed bailout plan. I don't think Americans are mad about Alan H. Fishman's signing bonus or potential severance package. Jealous, yes. Mad, no. I think the editorialist is mad, and projects that feeling onto people who don't really understand the financial crisis but who do not want taxpayers to foot the bill for CEOs whose companies failed--particularly if their leadership was to blame.

The blame, in this case, falls largely on the government. And that's you and me, once we get past the dingbat representatives who bollixed up the mortgage industry.


Update:

Democrats (such as Robyn Blumner?) who were upset at the amount of money received by Alan H. Fishman can console themselves with the apparent reality that Fishman is a Democrat who tends to give generously to the Democratic Party.

Aside from one donation to Mitt Romney ($2,300 and the only donation to a presidential candidate this cycle), Fishman has given consistently toward the Democratic side of the aisle. That includes a $2,000 donation to Barack Obama's campaign in 2004.

Charles Schumer (D, NY) has received the largest share of Fishman's donations.

Explaining the subprime mess

A GenX-style video explanation of the subprime mortgage crisis



Hat tip to Power Line.

Inside the political football: The subprime mortgage crisis

"Sharon" over at Common Sense Political Thought (she also blogs at Gold-Plated Witch on Wheels) has a nice summary of the subprime mortgage crisis and the etiology of blame. Click the link and read the rest once your appetite is whetted.

As Ed Morrissey of Hot Air points out, the collapse of Freddie Mac and Fannie Mae happened on George W. Bush’s watch, and for that, Democrats will try to pummel him. And he certainly didn’t pursue any regulatory solutions wholeheartedly, but it’s not like this was unpredictable. Indeed, the New York Times ran a story on this five years ago.
(read more)

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Hey, "Inside the political football" garners no Google hits. It's nice to think up something first for a change, especially after I discovered that "Elastic Waste Band" had already been used by a Grateful Dead tribute band.

Though I suppose somebody could have thought of the football thing and dumped it for something much better ...