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Where We Go from Here: Best and Worst Cases

by: Cam Hui October 10, 2008 | about stocks: XLF    
Cam Hui

Cam Hui

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There is little doubt that the US is entering a recession. The IMF's latest report also forecast that the world is entering a major downturn. The bigger questions are:

  • How long and how deep is the US slowdown?
  • Most importantly, will the US slowdown drag down the rest of the world?

As for the depth question, we have a good idea. Econobrowser pointed to a study that indicates the presence of financial stress is indicative of deeper recessions. How long it lasts and its effects on the world depends on the policy response.

What’s the policy response?
In Charlie Rose’s interview with Warren Buffett, Buffett stated that the depth of the slowdown is dependent on the policy response:

Unemployment is going to go up under any circumstances. The 6.1 is going to go higher. But whether it goes and quits at seven or whether it quits at ten or 11 or 12 depends on, among other things, the wisdom of Congress and then the wisdom of -- in terms of carrying out the plan that Congress authorizes.

Best and worst case analysis

As the financial markets went into cardiac arrest in the last few weeks, many observers began to compare the current period in the US to either the Great Depression of the 1930s or Japan’s Lost Decade in the 1990s.

I beg to differ. I have constructed best and worst case scenarios that may be better analogies.

Best case: German reunification

When the Berlin Wall came down, West Germany made the political choice to exchange West German Marks for East German Marks at a 1:1 ratio. The decision shocked the financial markets. I recall describing it at the time as a giant LBO of unproductive Soviet era assets which would create a drag on the German economy. The world began to slow down because of this macro shock and the Iraqi invasion of Kuwait toppled the world over into recession.

Yet the adjustment period was surprisingly mild. Germany underwent a couple of years of tough adjustments, followed by a period of anemic growth in the mid-90s (see analysis here). The former East continues to have problems, but overall Germany, Europe and the rest of the world were not dragged down by the macro shock in 1990. Germany has the reputation as an engineering powerhouse, whose principal export is its intellectual property.

The US parallels are obvious. Like Germany, the US is being weighed down by unproductive assets. Like Germany, much of US exports is intellectual property. It has an open economy, people from all over the world flock to its universities and its intellectual property exports have enabled it to re-invent itself periodically. I lived in Boston for nearly a decade and have seen it firsthand. Research on radar was done in Boston during the Second World War. Over the successive decades, companies based in the area have demonstrated that Boston is a center of innovation. Examples include Digital Equipment, Lotus Development, the dot-coms during the tech bubble. The biotechs that dot the landscape today are a testament to the brainpower that is the source of intellectual property exports and America’s competitive advantage.

If the US were a company, it could be best described as right business model but bad balance sheet. The solution to such cases is to re-capitalize the balance sheet so that the enterprise can continue. In his interview, Buffett opined that:

[W]e've got the same plants out there we had two years ago. We got the houses. We've got people that are more productive than they've ever been in the history of this country. We've got a wonderful economic formula in this country. But right now it is being - it's been brought to a halt by …the de-leveraging that's going on right now that has caused the credit crisis…

I think confidence will come back. I will tell you this, this country is going - will be living better ten years from now than it is now. It will be living better 20 years from now than ten years from now. The ingredients that made this country, the miracle of the world. We had a seven for one improvement in the average American's standard of living in the 20th Century.

If the German reunification analogy holds true, then the United States will likely suffer a deep recession for 1-2 years, but the rest of the world will recover relatively quickly.

Worst case: Depression of 1870

There have been some in the blogosphere that have suggested a better analogy for the current times is the Depression of 1870 , which lasted for about a decade:

The parallels are striking—it started with a housing bubble which popped and generated a mortgage crisis. Financial markets fell apart when investors, relying on complex financial instruments, did not consider counter-party risk.

The financial troubles began initially in Europe but eventually spread to America, culminating in the Panic of 1873. Such episodes of booms and busts no doubt heavily influenced works of later economists such as John Maynard Keynes as he sought out policy responses to smooth out these periods of volatility.

While a decade-long depression is possible, it is less likely and represents the worst case apocalyptic scenario imaginable. The authorities did not have the policy levers that are available today, however flawed they may be. Bernanke is known to have studied the Great Depression of the 1930s and he is no doubt determined to avoid such an outcome.

Policy response is key to resolving the crisis

Surprisingly, policy response so far has been relatively ineffective. I have written before that the overwhelming issue is solvency in the banking system and not liquidity. So far, the economic consensus concurs with that view. A partial list includes the following:  BCA Research,  John Cochrane , Paul Krugman, Greg Mankiw,  Nouriel Roubini, and Luigi Zingales and Diamond et al. Warren Buffett also agrees with the approach:

So there is - there are two things needed in the system. The one that's needed overwhelmingly is liquidity. When people are trying to de-leverage, there has to be somebody there to buy. And they don't have to buy at fancy prices, but to buy.

And then there's also a capital problem with some of the institutions. We have provided capital here with a couple institutions recently. The federal government did that in the '30s for the RFC and I think there could well be a proper role for government in that.

The UK is partially nationalizing its banking system and Gordon Brown urged the world to follow suit. The New York Times reported that the US Treasury is considering similar steps and the WSJ  reported that it may insure all bank depts. Hank Paulson is quoted as saying: “We will use all the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.”

Former Fed Chairman Paul Volcker wrote in the WSJ indicating that we have the tools to fix the problem, we just need the leadership. In other words, all is not lost.

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This article has 55 comments:

  •  
    Oct 10 03:13 PM
    To date, it's been measured steps. Worsening it has been the draconian decisions of who survives and who dies. The uncertainty left in the wake has left the market on a witch hunt for the next one to implode. This is not good when it comes to restoring confidence.

    Two steps to solving the problem. First, capital injections and preferred stock ownership in banks. Second, guarantee inter-bank lending. Once you've done the first, you might as well do the second. Once you jump in with ownership, you better make sure you can swim. That will restore confidence. Then you have time to sort out the wreckage, sell assets, even do the blame game.
    Reply
  •  
    Oct 10 04:08 PM
    "We have the tools, all we need is leadership."

    And we lack leadership to an incredible degree...
    Therefore what should we expect?
    Reply
  •  
    Oct 10 04:13 PM
    And then?... What do we buy, What do we sell? Hello??!
    Reply
  •  
    Oct 10 05:25 PM
    A reasonably hopeful case presented here to be sure. Some questions that popped into my head very quickly: Where has all that intellectual capital been utilized? Warfare and weapons of War comes to mind. Dubious and disastrous financial creations. Biotech products, while good, that few can afford. A truly highly creative and exploitive Lobbying creation. Marketing that has perfected the art of offering less for more money. Would that our children and grandchildren be better off than we, but I remain unconvinced by your nonetheless fine article,and one that I am better informed by reading. Thank You!
    Reply
  •  
    Oct 10 05:30 PM
    Wait a minute, the overall problem is "solvency" not "liquidity" but the solution proposed is more liquidity? I generally agree that solvency is the bottom line issue but all the liquidity in the world won't resolve that key issue. Sellers must find buyers. Finding buyers in a deleveraging process is easy - but only at a price. And thus we find ourselves back at the solvency issue.

    For a company to deleverage in the midst of a group deleverage is vastly more difficult than otherwise. If there is a group of companies trying to deleverage simultaneously and most have similar assets then prices for those assets must drop well below what any individual company wants to accept or would have to accept if it was the only company involved. Hence solvency is the issue not liquidity - or buyers.

    Frankly, I believe that the price for the assets that will clear the markets is a value that leads to insolvency for many financial instituitions and not a few industrial cum financial (think GE and GMAC) companies. And the government cannot fund all the companies seeking to deleverage (and now states as well) but it doesn't want the political hit from having dozens of firms going belly up scant weeks before a major election. So we have bailouts that won't work, rescues of favored firms, bankruptcy for the few and a depressing sense of capitalism being sold out for a selectively socialized economy.
    Reply
  •  
    Oct 10 05:39 PM
    Where to start?
    Fire Sec Chairman Cox-Over saw the leverage increase that the banks and brokerage houses from 12 to 1 and moved it to 40 to 1. This was supposed to be over seen by Cox-Never Happened. Dropped the Up Tick Rule on shorts. Never enforced regulations like Naked Shorting. No leadership, just a token head who has been in hiding so he can keep is job. Cox is not the man for this job.
    Paulson
    Was head of group when he was a goldman sacs which got the leverage ratio moved from 12 to 1 up to 40 to 1. He was on the inside and had lots of insight to the CDS problem which now loom so large. For an insider he has not been pro active and slow in general to grasp the leader ship that is need. He does not appear to have as much







    savvy as one would have expected with his wall street back ground. Lehman should not have been allowed to fail, they had to much counter party risk like the CDS problems which we are now seeing.
    Fed Chairman Bernanke
    Lacks leadership. Smart guy, just acts like he is still teaching not leading. Remember he said back in 2007, No Sub Prime Problem, it is contained. When you watch him speak he just plain looks nervous and his voice cracking, makes you want to head for the hills. He is also a reacts to problems and does not get out in front of problems and when he has a good thought he takes way to long and the problem has already grown larger. Run out of space. Above guy 1 o 4 is spot on.
    Reply
  •  
    Oct 10 05:39 PM
    I liked Cam Hui's balanced assessment of the financial meltdown, because he is reminding us that as of yet, this is only a financial meltdown. The means of production are still as dynamic and robust throughout the economy as when the Dow was at 14,000. Also, everyone still needs the products and services produced by these means.

    However, Keer-eh Khar asks two fundamental questions about marketing the financial sector's failures in order to re-capitalize our banks. What are we buying, and once bought, what will there be to sell? The genius of the financial sector is that it can create capital out of nothing, but without integrity and high moral standards, the lack of any sense of fiduciary responsibility quickly returns this capital to the abyss of nothingness.

    Finance is based on trust and the assumption that we will all be here tomorrow doing the best we can to pay our bills and service our debt. For the past 20 years, the financial sector has been sponsoring one get-rich-quick scheme after another. How can we trust the financiers to be any different this time around?

    Will they ever have enough money, houses, yachts, airplanes, country clubs, and day spas? Most of us work for food, shelter, clothing, transportation, and our human dignity? The financial "geniuses" seek wealth for wealth's sake and the power that wealth gives them over men and women with simpler lives and less ambitious goals.

    If we simpler folk are to buy anything from them or sell anything back to them, they have to become trustworthy citizens with a sense of responsibility to the whole economy. This won't happen without the rule of law, government oversight, and sensible regulations. So along with the re-capitalization of our financial sector, the federal government will have to sort out the good, the bad, and the ugly actors that created this financial meltdown.
    Reply
  •  
    Oct 10 06:16 PM
    The media have been incessantly repeating the mantra "banks are not lending.... banks are hoarding cash..... the fed needs to get banks to start lending again".

    Well, could it be that banks really want to lend, because that's how the make money, but cannot find creditworthy borrowers? Is there any point in lending to individuals or companies if you think they are unlikely to pay you back? Is'nt this what got us here?

    I wish the mainstream media would act responsibly and tell the public the realities, instead of trying to soothe them with sound bites that ".. as soon as the fed gets the banks lending again we'll be all set.."
    Reply
  •  
    Oct 10 07:43 PM
    Mr. Hui - best, most mature, and most realistic assessment I've read on SA. Thanks.
    Reply
  •  
    Oct 10 07:45 PM
    Mortgage the Future --

    Money is stated to be used as storage of wealth, a means of exchange, a unit of measure. Its value as a tool is of course debatable. How though do you ascertain the future solution of our solvency by comparing today's economic hardship to past experiences?

    Liquidity and solvency directed to the future means of sustainability are more apt to engage a future presence of time. An order to realize today, a value of money required to initiate (green) change leaving behind areas as the deconstructive component that now has stopped in place the common ways and means of borrowing and lending.

    Auto manufacturers ask for massive loans from govt. in order to retool for a new era. They prepared for a disposable car by 2014, and now they must also provide a clean vehicle. Or that, an alternative renewable energy solution is taken upon all parts of society to prevent further deterioration.

    It would seem more appropriate to put forth a coming of age and a new era, than to step back to a time when discovery and hope were mere shadows of horses and buggies.

    There is greater potential than has ever been realized and mortgaging the future to realize this gain was a passive mistake to seek knowledge that new accomplishments in the way we live are not where we live, but how we live.


    *Breaking News 10/10/08 7 pm

    U.S. will buy stock in banks, Paulson says
    Last time similar program was used was during the Great Depression
    Reply
  •  
    Oct 10 07:50 PM
    Prudent, I believe the problem is more in the nature of that the institutions that lend normally fear that all of their investments (Stocks, Loans, Credit, etc...) are not going to be worth what they expected, and so that means they need to hoarde/conserve/raise cash to preserve their companies. In the case of Banks, I think the leverage limit is 10 to 1.
    The problem with this is the leverage forces larger losses than are real, since the lleverage acts as a cash multiplier whether up or down.

    Now the companies that borrow from banks and such are also in trouble because they hiked their ROI often by putting as much cash to work investing so they don't keep enough on hand for long term obligations.
    The interesting thing in alll of this is that although this is a world-wide crisis, we know that the lax enforcement of existing policies, and the gutting, or plain ignoring, of regulations caused this, yet the rest of the World buys dollars to go to safety. This in turn gives us the money to keep adding debt, but at least we get the crisis addressed, instead of acting like the bankrupt (Financially, and now morally) Country we have almost become.
    Good luck to us all. We will perserve as always.
    Reply
  •  
    Oct 10 08:29 PM
    I fail to see the benefit of solving a debt ladden situation by going deeper in debt in the attempt to resolve the problem. Sounds very similar to a credit card addicted consumer having to borrow from one credit line in order to stave off defaulting on another.

    It is well known that we have been largely a consumer credit based economy for at least the last 30 years. It is only within the last 8 years or so that consumer spending began to go into a fantasyland where a never ending supply of credit was supposed to exist. That was, of course based on the housing bubble, an it's ability to allow those caught in the illusion to draw down equity for those spending sprees.

    So..............now what? What happens to our consumer credit based economy, now that our merry spender is busted? He is main source of equity decreased by half if not more?. Is there another source of "energy" for our financial machine? Personally I think not. And it certainly is NOT the artifical propping up by the Federal Banking System.....who is doing no more than printing more money to give the fleeting impression that they can stabilize/re-liquify the machine. In effect manufacturing new credit cards to use to pay off the investment community's gluttoneous rampage that has polluted the global economic system.

    Enough is enough.

    Reply
  •  
    Oct 10 09:29 PM
    Brilliant analisys,
    no wonder USA is no1

    cheers from Barcelona!
    Reply
  •  
    Oct 10 09:58 PM
    Cam Hui has provided useful analysis and information. His conclusion of optimism has been tempered by the wise views of SeekingTruth [he says America's intelllectual power has been misdirected to unsustainable pursuit of wealth] and SmartStop [he highlights the strength of STOP LOSS, and constantly adjusting to market conditions vs simply buy and hold Warren Buffet style].

    Reply
  •  
    Oct 10 10:39 PM
    No one needs the talking heads of "today" to tell us that the problem is capital and solvency, not liquidity. Read this from the book, "Fifty Billion Dollars", written by Jesse H. Jones, the director of the Reconstruction Finance Corporation (RFC) from 1932-1945:

    "Despite all these efforts, as fast as one situation was improved, several others got worse. It became increasingly evident to us that loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure." (page 22, Chapter 2, "Aid to Banks" )

    The book the provides what amounts to "instructions&quo... for how to handle widespread insolvency, beginning with the "A-B-C" bank plan and the use of preferred stock. Sadly Jesse wrote the text so in the future leaders could learn from the RFC experiences - what worked and what didn't work.

    If Ben Bernanke is such am "expert" on the Great Depression, I truly wonder what he and the Hankster have been thinking. Maybe Ben needs to re-read some of these old texts, as the only smart thing they have done so far seems to be the suggestion of direct capital injections into the banks.

    Are there other motives at work? Did they really not perceive the situation as being that desperate? Do they think its a OTC and NYC problem, rather than a real banking crisis?

    Let me add that this crisis is no where near over. There remains a woeful lack of a systematic program to address the banking crisis in a way that allows the separation of the true healthy, from the sick but recoverable, and the walking dead. There are no plans for such effort. Thus, we are destined to watch more banks fail - large and small - and customer and others lose more and more faith and trust in our financial leadership.
    Reply
  •  
    Oct 11 12:20 AM
    Redst8r,

    there will be solvency for those who grew with capital as opposed to debt. and YES, the liquidity will rear its head as soon as WORTH meets VALUE.

    Washington seems to forget that it CAN buy anything and determine the underlying 'VALUE' but just as the asset/security holder is realizing... the BUYER DETERMINES WORTH.

    Solvency will appear as some of these giant American companies (good/bad per your view) won't be here to see it through. The Gov. can't bail them all out....

    can I envision a world without Ford or GM? I don't care... there will be others later. Is it sad? yes. Would I like to see them succeed? yes.

    am I will to stipend their 'hard times'? NO

    If we are to be free, we must have capitalism and a free market.

    And to have a free market we must have BOTH success and failure...
    for without one, you can't appreciate the other...
    Reply
  •  
    Oct 11 12:20 AM
    It's amazing how long can "don't just stand there do something" approach can go and how much damage it can cause.
    Quick question for everybody, if Hank and Ben hadn't "acted to prevent the financial meltdown" would the meltdown still happen?
    And where would we be today if Greenspan didn't use all his financial engineering tricks?
    When manipulating the system one has to understand that the manipulation itself doesn't fix the system. Either you pay you bills now or you pay them later, with interest. The rest of the tricks is just there to confuse you and justify the high pay of those financial alchemists who pretend that they know something you don't. Some of them believe it too, but the good ones know the reality, they just aren't saying it outloud.
    Reply
  •  
    Oct 11 12:26 AM
    GROUNDHOG,

    your thought of the Gov. sorting out the bad actors would insinuate that Government is going to hold hearings on ITSELF!

    Not likely, congress and B. Frank won't own up to ANY culpability in the matter....

    I don't care what your political beliefs are, this is BLACK and WHITE.
    I'll give some to the GOP too... as they drank the kool aid too.

    you have to recognize this all started with folks not paying mortgages living in homes per democratic ideology.

    Answer: take your standard of living and multiply it by .5

    then actually purchase things with cash/capital... NO it's not sexy, but it's stable and real
    Reply
  •  
    Oct 11 12:26 AM
    If Warren Buffet were to take over an institution/company, using his own analogy of the USA, he would insist on a management change. He would find our bunch undereducated and not too bright. He would also desire a "moat", an edge which the US has lost to outsourcing and global trade. Finally, as a value investor he would require an offset to the large amount of debt on its balance sheet. There is no mention of the coming cost of environmental damage or loss of energy infrastructure/increas... cost of doing business as we face the twin crisis of global warming and increased cost of energy resources. There is no mention of the coming social security crisis (debt structure that makes even GM appear solvent in comparison). In short, I usually respect the "oracle of Omaha" but here, he's blowing smoke out of his hat. Sure, we'll probably recover from all of this in the short term...in fact, I'm betting my wallet on it by buying energy stocks. But, I'm also betting ol' Warren is mighty glad he's in his late 70"s right about now.
    The rest of us have a long, mean run ahead of us.
    Reply
  •  
    Oct 11 12:30 AM
    Vladimir,

    look around. The world still doesn't understand that the same cheap money that got us here isn't going to get us out.

    Actually, it may get 'us' out... do you have CHILDREN?

    8 year old's don't much care now do they!
    Reply
  •  
    Oct 11 12:43 AM
    User 245116
    -environmental damage

    as a forestry graduate I have studied 'global warming' as most put it and I call it by it's real name of CLIMATE CHANGE.... now, we agree on climate change, but the source is where we differ... you cannot anymore say it is manmade more than I can say its not... do we contribute? YES.. is it measurable? not in quantitatively.

    I say we not waste our breath here on this point.

    but to your larger point about ENTITLEMENTS:
    The government hasn't addressed it because of our financial crisis:

    It's like swatting at 100 wasps flying around your face while a bear is eating your leg.

    Democrats won't address it as they have no sensible answer that would pass the smell test. And dems can't possible abolish their only issue of 'entitling' the people to handouts.

    Obama said that healthcare was a right??? What constitution is he reading?????

    Life, Liberty and pursuit of happiness.... NONE of which cost money!

    Because the Gov. doesn't make anything! It can't guarantee anything with a monetary tag.... ie... see our current entitlement crisis.

    It can ONLY protect our rights
    Reply
  •  
    Oct 11 04:18 AM
    The local paper's October 10 front page news, ‘Nothing stops stock plunge,’ about the 679 point plunge in the stock market on Oct. 9, was juxtaposed with: ‘They all filled up for $20, and now they’re all wanted,’ and article about ‘possibly hundreds’ of criminals stealing from a local company by participating in a gas card scheme.

    Both articles are actually about the same thing: how far we have fallen, and how much farther down we have to go.

    In hindsight it is easy to see what has happened, but this chronology points clearly to what you should be doing next:

    1) Someone decided that instead of providing goods and services with real value, they could Get Rich Without Much Effort by tricking financially uneducated people into mortgage obligations called ARMs.

    2) This was so successful that many, many other people noticed these people Getting Rich Without Much Effort. They formed corporations that would buy, repackage, and sell these mortgages, Getting Rich By Not Really Doing Anything That Produced Value.

    3) These corporations were so successful that top financial people in The Leveraged Debt Industry noticed. They devised ways to profit even more by creating and trading derivatives on the packaged debt, Getting Far Richer By Not Really Doing Anything That Produced Value.

    4) This was so successful that nearly every 'bank' and many corporations devised schemes to buy and sell these derivatized instruments, Getting Even Richer By Not Really Doing Anything That Produced Value.

    5) Fast-forward to January 2006, The Housing Music Stops, and sales and prices start a precipitous decline.

    6) Over the next year, many poor people with ARMs experience at least one interest rate reset, and start missing payments.

    7) Now, three things happen in quick succession in 2007/08: housing prices decline by 25 - 40%, poor people start losing their houses to foreclosure, and the real estate market essentially stops functioning.

    8) This changes the whole game for the ARM persons Getting Rich By Not Really Doing Anything That Produces Value, which by now has grown to be the size of a small army and includes nearly every bank:

    a) They are now seen by the populace as liars and thieves
    b) They have NO MARKET into which to sell their products
    c) There is NO MORE PROFIT from their existing mortgages because a hefty chunk of each package isn't even returning the prinicpal

    9) The Dow 14,000 market, largely based on and supported by this army of ARM purveyors falls by 90% before slowly recovering (we are 40-45% of the way there, as of today). Don't believe it? Just look at the 85% drop in the NASD 100 in 2000-2001.

    What to do next:

    If you are in the army above, it is time for you to find a new profession. I am dead serious about this. If you insist on continuing to try to sucker poor people, you will now fail. Try something that uses your strengths to produce something with real value for someone; go back to school. Industry is STARVING for good workers, engineers, nurses, etc. And you will feel alot better about yourself.

    Stay in cash if you have any - Cash Is King, as they say.

    We are in for a good whipping, and we all deserve it, but we can come out stronger for it.

    In his prophetic vision in the early 1990's regarding the world's financial future, Rick Joyner saw that "everyone...was going down on their knees." No one was spared. He saw an ocean full of two kinds of ships - the hospital ships (churches, missionaries, orphanages) that were helping the wounded, and the warships. The warships were the banks. The amazing thing about the warships was that one would pull up alongside another ship and fire point-blank at it, destroying it. The banks were destroying each other. However, "somehow the banks will survive." - From "A Prophetic Vision for the 21st Century," by Rick Joyner, 1999 (a great read by the way).

    Ezekiel 22:12 NIV

    'In you men accept bribes to shed blood; you take usury and excessive interest and make unjust gain from your neighbors by extortion. And you have forgotten me, declares the Sovereign LORD.'
    Reply
  •  
    Oct 11 08:12 AM
    you guys health care industry is going the same way as the financial industry .Do you see what is going on there is systemic reap of going on.were medical profession has 200,000 dollar cars parked in front of there offices and the patient has to roll up on bicycles.unnecessary tests and procedures are the order of the day in the name of the best health care in the world were only the elite get any treatment.GOP says the same thing there leave the market deliver govt. should have no say in this look were that has lead us in the finance industry.
    Reply
  •  
    Oct 11 09:04 AM
    Gentlemen: Please be rational. Minding our usage, grammar, and syntax as much as possible would be helpful too. Remember, there is a logic to the English language. All of this the-sky-is-falling blabber is nonsense. It is as much of a mistake to be irrationally fearful as it is to be irrationally greedy.
    Reply
  •  
    Oct 11 09:08 AM
    Solutions:

    1) Those here need to teach Washington economics specifically Congress how to do there job.
    2) Since those in Washington will resist some of this effort and are selfish, constituent pressure from the 100 M citizens that acted responsibly and now are understandably upset about having to foot the bill must be harnassed and collected. Stop ignoring the innovators gentlemen, the next crop of leadership trying to step up and show you how to do this. Tell your secretaries to accept some calls and line up meetings. Some of you that have the money to fund the technology to connect the masses are to be commened in this regard. But your secretaries thinking they are doing you a service in saving you time are doing you a disservice which leads to point 3.
    3) Build profiling/database technology to connect and harnass the might of the collective and individual conservative groups. This has to be a movement. There must be automation determining those whom can help and in what way out of that 100 M number of responsible citizenship.
    4) After profiling the many independent groups and the one super group of activists, messaging must be created as to what we want the super group to do in bearing constituent pressure over the next three or so years and highlighting whom the corrupt are in the House of Representatives are that should go in the next voter revolution (voter revolution with 1/3 of the House of Reps occured in 1877 in reference to Mr. Hui's mention of 1873 fiscal crisis it also occured in 1911 and 1933, see the trend?). That takes courage to step up and declare yourself an enemy of corruption.
    5) I am asked repeatedly by independent groups what to do. I show them this simple plan: ragingdebate.com/about . Many of us have here have serious investments or run businesses, myself included (Consumer Healthcare sector, working on discount drug program) so it takes an attitude that devoting oneself to such efforts is the new philanthropy of our age.

    Best of success gentlemen. I hope some of these solutions I mentioned make sense. My business and economic mentors are in Boston, I live nearby in Maine. I thank you mentors for your stewardship. If not for those whom cared more then just for themselves, I would not be fighting for our country and citizens. America will come roaring back to life, but the leadership in Washington issue must be properly addressed.
    Reply
  •  
    Oct 11 09:13 AM
    According to Bloomberg Fannie & Freddie were pushed to get in to subprime because...

    The companies said they were urged to increase purchases of subprime debt by the Bush administration. The
    Department of Housing and Urban Development said in 2005 that Fannie and Freddie should increase
    financing for low-income areas or moderate-income regions with high minority populations to 37 percent of new
    business from 34 percent in 2001 through 2004. That rose to 39 percent last year.
    The updated goals ``were significant enough to force them to go down the credit curve to meet them, which
    meant participating in some way or form in the higher-risk areas of the mortgage market,'' said David
    Stevens, a former head of Freddie's single- family mortgage business who now runs lenders affiliated with Long
    & Foster Real Estate Inc. in Fairfax, Virginia. That included ``the subprime business.''
    Shareholder Pressure
    At the same time, Fannie and Freddie were under pressure from shareholders to generate profits to bolster
    their stock price. Fannie dropped 17 percent from 2004 through 2006 and Freddie declined 7.9 percent. The
    Standard & Poor's 500 Index, by contrast, gained 7.4 percent.
    Fannie and Freddie gravitated to the securities as yields on agency mortgage bonds often fell below the cost of
    selling their debt. In 2006, AAA rated securities backed by subprime or second mortgages averaged 0.57
    percentage points more than U.S. Treasuries, according to Lehman Brothers Holdings Inc. index data. That
    compares with 0.48 percentage points for fixed-rate agency mortgage securities.
    The public and private demands on Fannie and Freddie led to their demise, Paulson said on Sept. 7, when he
    announced the government was assuming control after their shares plunged more than 90 percent. HUD said the
    companies shouldn't blame policy makers for driving up subprime holdings. The companies weren't required to
    keep the debt on their books as part of their home- financing goals.
    Securities, Not Loans
    ``If Freddie Mac and Fannie Mae are holding securities backed by these loans, it is because they were attracted
    to their yields and not because of a public policy designed to promote affordable homeownership,'' HUD said in a
    statement on its Web site. Spokesman Brian Sullivan declined to elaborate.
    As they acquired subprime debt, Fannie and Freddie fed on mortgage-backed securities, rather than buying or
    guaranteeing individual loans, according to Judy Kennedy, chief executive officer of the National Association of
    Affordable Housing Lenders in Washington.

    www.bloomberg.com/apps...


    Additionally, EVERYONE was encouraging "Housing For All!!!"

    "On December 16, 2003, President Bush signed into law the American Dream Downpayment Act of 2003, which will help approximately 40,000 families a year with their down payment and closing costs, and further strengthen America’s housing market. This legislation complements the President’s aggressive housing agenda announced in 2002 to dismantle the barriers to homeownership.

    The Bush Administration has begun the final stage of its effort to reduce closing costs, simplify the settlement paperwork, and eliminate surprise closing costs for American homebuyers by reforming the rules governing the Real Estate Settlement Procedures Act.

    According to an analysis released in 2002 by HUD, meeting the President’s goal to close the housing gap will involve $256 billion in economic activity in the form of construction and remodeling jobs, spending on household goods, and other benefits. Because of rising home values, Americans are enjoying more than $2.5 trillion of greater housing wealth than they did at the beginning of 2001."

    and...

    WASHINGTON - The National Association of REALTORS® hailed the U.S. House of Representatives for
    passing legislation on October 1, 2003 that would provide $400 million in grants over the next two years to
    help 80,000 low-income families pay downpayment and closing costs on their first homes.
    The American Dream Downpayment Act, H.R. 1276, is one of NAR's top legislative priorities this Congress.
    The bill was introduced earlier this year by U.S. Rep. Katherine Harris (R-Fla.). U.S. Sen. Wayne Allard
    (R-Colo.) has introduced companion legislation, S. 811, in the Senate.
    NAR also commended President George W. Bush and U.S. Housing and Urban Development (HUD)
    Secretary Mel Martinez for first proposing the idea for the legislation as part of the administration's
    commitment to help low-income and minority families achieve the American dream of the homeownership.
    "REALTORS® applaud the Bush administration and Reps. Mike Oxley (R-Ohio), Barney Frank (D-Mass.),
    Bob Ney (R-Ohio) and Maxine Waters (D-Calif.) for their outstanding leadership and commitment to helping
    more families achieve the American dream of homeownership through the American Dream Downpayment
    Act," said NAR President Cathy Whatley, owner of Buck & Buck Inc. in Jacksonville, Fla.


    www.bloomberg.com/apps...


    also,
    Reply
  •  
    Oct 11 09:22 AM
    Culture of Life News here!

    This is NOT a typical melt down. This is the decline and fall of the US global empire! The US/G7 solution which is being hammered out this weekend, piles another $2 trillion in just one year onto the backs of US taxpayers. This, in turn, is being funded by totally fake, Japanese-style 0% interest loans being extended to us by our trade rivals.

    They want to keep us spending and spending and digging our trade hole ever deeper! This is NOT a solution. And the Pentagon is going to raise their own ante by another half a trillion in the next 2 years.

    This collapse is identical to the collapse of the Spanish global empire, the French Napoleonic empire, the Soviet Union Empire, the German empire even more fatally, the English 'sun never sets' empire that collapsed thanks to WWI and WWII.

    We might collapse in WWIII. The desperate attempts by England to 'grow' their empire after the Boer War showed their fatal weaknesses led to Germany lunging at England's throat in 1914. Nearly succeeded.


    Bleeding badly from that, England continued to try to expand the empire but was so feeble, the Japanese could knock the English off with barely any effort at all. In one case, using soldiers on bikes to take Singapore. The US again, pulled England out of annihilation.

    But no one is going to save us. Like when Russia fell, everyone will grab what loot they can and fly to better countries that aren't bankrupt.
    Reply
  •  
    Oct 11 10:05 AM
    a believer,

    I find it amazing that you place the blame on wall street without recognizing the government removed risk from the market with GSE's.

    In capitalism, greed is measured against risk. If greed doesn't account for risk properly... failure. Poor people shouldn't covet! and buy something they cant afford... I'm tired of people making them the victim. I started poor with absolutely nothing!
    Reply
  •  
    Oct 11 10:10 AM
    postmodernprimate

    Where do you get your information? Countdown with Olberman!

    I won't waste my time to reason with you as you probably already think you are 'educated' to the situation...

    CLINTON... CRA... 1998 ordered fannie and freddie to add 50% of its portfolio in subprime and alt a mortgages.

    no mention of b. frank or c dodd?
    you are a joke
    Reply
  •  
    Oct 11 10:56 AM
    thedozer, I said "EVERYONE was encouraging "Housing For All!!!""

    That meant EVERYONE. Barney Frank & Maxine Waters are mentioned prominently. Did you even read my entire post? Both D's & R's are mentioned in the articles I sourced. Clinton, Rubin & Greenspan all share responsibility as well. I know we've all had a bad week but try to be a little less defensive, you're coming across like Pvt. Francis "Psycho" in Stripes.
    Reply
  •  
    Oct 11 12:15 PM
    post.. I did read your post..

    and it again centers the arguments around 2000-present..
    yeah, you gave dems a 1 sentence mention at the end...

    you should re-read your post.. Bush mentioned in sentence 1 all throughout...
    where is clinton and the CRA section?

    mentioning a name in the article doesn't make your perverted view complete in its analysis nor does it change the primary argument you stated a