XGOP4Hillary

(http://www.ft.com/cms/s/0/f84c9b80-057e-11dd-a9e0-0000779fd2ac.html)

Perhaps, over time, it will occur to Mr Schwartz that having equity capital well in excess of the statutory requirements would have been one very important thing that might have made a difference.

////

Read the above quote and then read my title. We have spent three decades telling people to 'wring the fat out of the system'. Everyone is supposed to maximize return on assets which means capital not used is 'wasted'. Spare parts are waste - do just in time. Put the capital burden on someone else. Leverage to the hilt. Never mention that when the wheels start to run in reverse the absence of liquidity is a killer. Never mention that 33-1 leverage means it takes next to nothing to wipe out your capital. The MBA's and masters of the universe live in the short term. The fools at the WSJ live in theoryland. They may kill us all. We are creeping to the point of nationalizing the entire banking industry to cover the systemic downsides of their bad bets. Greed is good may sound cool in a movie. However we have socialized the losses while keeping the profits private. remind me again why this is smart. And the sad part is how many otherwise smart people still don't get it, still live in theoryland.

(http://en.wikipedia.org/wiki/Community_Reinvestment_Act)

I can quibble with the wiki. As with most wiki’s it is from my POV incomplete and somewhat establishment liberal. It is good enough. The essential critique for your article is the endpoint. Some critics say…blah, blah, blah. Key things to watch for on finance industry articles from partisan sources are dates and numbers. Absence of both usually means ideological axes to grind. Your article had neither. Wiki has dates but no numbers. So let us begin.

1. CRA is passed in 1977. The big changes towards more permissive lending under it are 1995 and 2002. The 2005 change is actually a belated attempt towards stricter / saner standards. So ask yourself a simple question – if changes from 1977, 1997, 2002 are the cause of the problem why did it happen 2007-8? Why were these loans accepted into the market without major default rates until 2005-8? Why were most of these defaults fairly new loans?
2. Why were these things passed? Industry regulation is rarely a static exercise and often involves quid pro quo trades. To shorten a long involved multidecade political rap US banking industry was divided up into little boxes after 1929-34. These boxes made less and less sense by the 70’s and deregulation started. As in many such processes horse trades / political log rolls were made. CRA was one such trade.
3. Red lining and racial discrimination was real. So were credit standards geared towards middle class whites as opposed to working class minorities. This is well before credit bureau scores and the like were common and easily pulled up. For example many banks wouldn’t count payment history from small merchants [usually the only ones who operated in ghettos] or utility companies as a credit history. The actual CRA was a negotiated safe harbor for the banks. If they met CRA standards they were deemed not to be engaging in red lining or racial discrimination. There is still no consensus that credit standards were noticeably lowered in a provable manner – i.e. that more of these loans failed than under the old system. If so it was minor and this is over decades. YMMV.
4. In return banks were able to get Federal help around the state laws against multi-state and multi-unit banking. They were able to get easing [and eventual elimination] of Federal restrictions on banks getting into other types of finances. This was all done piecemeal but look at 1977 and 2008. We went from little corner banks who had passbook accounts for regulated interest rates to national chains that sell everything except insurance [and often backdoor that].
5. (http://en.wikipedia.org/wiki/Subprime_lending) - this is not a new industry. So ask yourself why is it a problem only in the last few years. There have always been merchants and credit card companies that work with bad credit people. I was offered my first new credit card within a few months of my bankruptcy finalizing. High interest and an annual fee but I had plastic again. Initial limit was near pathetic and I had to give them a balance as collateral but one has to start someplace…
6. Indeed both the CRA and subprime real estate lending existed during the last major financial implosion [S+L debacle]. Why wasn’t it a problem then?
7. The dog that didn’t bark in the night is the combination of securitization, phony ratings and absence of proper regulation / supervision. People were sold toilet paper and told by supposedly reputable investment banks, brokers and ratings agencies that it was AAA gold. THIS is the problem. The open press was full of endless ads for no document refinancings [referred to openly as ‘liar loans’]. There was a TV show on how to become a millionaire flipping houses. There is no problem with some marginal ‘social engineering’ lending. Big system can take mosquito bites. There is no way the system can cope with AAA ratings being fantasy on a massive scale. The problem was never the CRA or securitization or sub-prime lending or any of that. It was a regulatory environment which allowed Wall Street to buy high ratings for junk and peddle it as safe. When the lie became obvious the system froze because no one knew how to price the risk. If all the public information is deemed lies it is not safe to trade. No one knew what the real risks they were buying are. No one knew how deeply committed the major players were [many had complex guarantees as underwiters etc.]. Very hard to trade if you don’t have a clue as to whether the other party is solvent. It was these basic regulatory issues that were blown. The debate was public and the smoke and mirrors financial engineers were allowed to overwhelm those of us who argued that because of the catastrophic costs of letting the big boys fail we were letting people take ever wilder gambles with an implied put on the losses to be borne by the public purse.

Is this any clearer or anyone want more detail?

(http://www.voxeu.com/index.php?q=node/989)
1. When reading of Euro reserves and Euro transactions remember that the nasty words national and international get tricky with the Euro. Euro zone and USA are give or take of similar size. Europe is a transnational entity that may becomes a new style of state. US is a nation state. So the state treasury of California is a sub-national account while the state treasury of Belgium is national. So when I pay an artist in Pennsylvania [happened recently] that is not an international transaction while when the Frogs I used to write for pay their sales agent in Germany it is an international transaction. So unless VERY careful definitional models are used the normal ones of the finance industry overstate the Euro and understate the dollar.
2. Europe used to be a rich, civilized area. US was this rich thing off on the fringes. Then Europe spent the better part of a century dealing with two suicide attempts and a slow recovery in traction. US policy was always to bring Europe back to health. Policy worked. Big bad bear is dead and Europe is again our equal. Problem is that everyone alive now only remembers two periods of quite artifical US strength [45-50; 89-95] and treats any change from that as the end of the world as we know it. The post-war collapse was quite near to the abyss. Let us all thank god we are no longer there. 89-95 was something else. The European project preoccupied Europe. Russia was in a time of troubles. China was finally shaking off a bad bunch of milleniums and India was still coming into its own about doing decades of post-independence statis. What we are seeing is the multipolar world predicted by Nixon, Kissinger, Brandt etc. It took a little longer than expected but here we are.
3. Euro will continue to grow as fraction of reserves. This was always in the cards. If you take the period 1965-2008 the Euro/DM has been a better store of value than the dollar. Deliberate on all sides. Europe is more concerned about inflation that the US is and the US is more concerned with growth. Asia is frankly mercantilist. Net effect is that the US is the consumer of last resort. The formula for getting rich / developing is to run a trade surplus with the US. The problem is that this builds up dollars. Everyone knows the dollar will devalue and everyone wants to avoid this loss without losing market share. Asia is willing to game the system more strongly than Europe so Europe takes most of the hit. First it was gold. System was stressed till US went off gold. We then had dollar 'crisis' points 70's, 85-96 and now. Dollar fluctuates wildly against the major Euro currencies. Speculative forces, interest rates, our business cycles tend to be out of sync, our central banks see the world quite differently.
4. US priviledge of issuing debt in dollars is the flip side of US being the consumer of last resort. We are one of the leading exporters. (https://www.cia.gov/library/publications/the-world-factbook/geos/us.html#Econ). We can more than afford our imports of oil and a few key minerals. We buy from others because they make cheaper and / or better but that was true during our so-called greatest period [1945]. Europe always had higher quality AND frequently cheaper goods as well. US used trade protection. Part of the price of building the coalition against Moscow was opening the US market and usually opening it a bit mroe than other markets were opened to us [shall we discuss Airbus?; shall we discuss grains?]. So if the world decides it doesn't want more dollars US will be forced to buy less. We will have a bad few years. Factories do not reopen overnight. Retailers and truckers will lay off people fast as the flood of mall trash from Asia dries up. We are probably talking a recession on the 73-74, 79-82 level. 10% unemployment, we lose a year or two's growth, we are anemic for half a decade. Parties in power are voted out and the nation goes on.
5. There was never real sympathy for US troops, US high handedness or much of US policy. Europe saw us as uncouth cowboys in 45 and still does. They merely need us less. So the remaining troops can come home. Except I don't hear Europe asking for this. There are complaints about specific bases but so far US and Europe have been content to handle the transition slowly. There are many fewer troops and many fewer bases than in 1989 but no major voice asks for everyone to leave, even France. This is even more true for Japan. SK may ask us to go but that has been coming for a decade now. What they fear from the north is reunification more than another war. SK and US interests have diverged. Overall US will never be as strong relatively in military affairs as it was in 1992 but this again was inevitable. We didn't wish to be an empire and the rest of the world does not wish to be ruled by us. What has changed is not the ineviatble quarrels or long term trends but rather that with modern media the old breakdown between internal and external discourse is gone. Each nation now knows what other nations say speaking internally and most find it insulting. It is no longer a matter of editors and diplomats at the NYT, the Times of London and Le Monde sending coded messages. It is now streaming video and babble fish translations. More noise and more ranting but little real change.
6. The Louvre agreement was not a dollar bailout. (http://en.wikipedia.org/wiki/Louvre_Accord). The world had reacted to a too strong dollar [and a surging US trade deficit with resultant protectionist pressures] by pushing the dollar down. The Central Banks lost control and tried to reverse it. They mostly failed.
7. To 'save the dollar' first requires an agreement as to what exchange rate we are 'saving'. At PPP US imports too much and Asia exports too much. The giant Asian growth rates are in part low hanging fruit [playing catch up to the developed world is easier than continued growth once equality is reached - Europe and Japan both proved this]but mostly it is mercantilism. Let us presume that Asia won't change on this. They haven't since 1945. Their concepts of capitalism, governance, representative government and social harmony are simply far more different from either Atlantic model than Europe and the US are from each other [and we are quite different in many things]. So first you must adjust the exchange rates so the US no longer imports $3 for every $2 it exports. This will probably take a Euro of $2 [perhaps $2.25] and take Europe and the old white commonwealth giving up their markets to US and Asian goods. Note that this just stops the problem from getting worse. To 'solve' the problem you need the US to be allowed to run surpluses sufficent to bring the trillions of dollars of prior deficits home. Failing that they will slosh around the world as hot money [and we are living with the latest financial disaster this flood tide of homeless money has caused]. Forget all the silly equations they give up as supposed economics - the reality is that either the world takes IOU's from the US or we buy less. We have spent 50 years constructed this world and realigning it will mean many disruptions worldwide. Jobs will be lost. Businesses will fail. Properties will fall in value. Career paths will close. Yes new ones will arise. However the new winners do not know who they are and so don't vote for this. The losers see what they have to lose and expect their elected 'leaders' [who in economic matters they treat as fisher kings - bring propserity or we will sacrifice you to bring back the spring of plenty]. Needless to say those leaders, who mostly know little of business and less of practical economics, work to kick the can down the road.
8. Now one of the ways to paper over is with interest rates. If you keep US interest rates well above European rates [the Reagan-Volker years which led to the over valued dollar and the Plaza Accords [http://en.wikipedia.org/wiki/Plaza_Accord]]. However the ECB cares more about inflation and less about growth than the Fed does. Europe and the US are not the same and our central banks respond to different cues and have different institutional memories. 1923 means much more in Europe and 1929 means much more here.

Comments on the Eye please.

(http://www.latimes.com/news/opinion/la-oe-schiff31mar31,0,2496155.story)

This is a supposedly sane opinion piece in a supposedly establishment liberal major newspaper. ROFLMAO.

1. Housing isn't wheat or coal. Every house is unique as is every house purchase / sale decision. So market prices will always be murkier in housing.
2. There is a social disruption feature to mass foreclosures. Overall capitalism works better than any other system that has been found. Much of how it works is from the popular POV counterintutitive [invisible hand], unfair and fairly immoral [a lot of who wins and loses is nothing more than luck and inside information]. There is an implied social bargain whereby the mass of the public buys into capitalism's quirks [when Wall Street wins the gains are private; when Wall Street loses the big boys get protected to prevent systemic implosion - etc.] in return for various forms of safety net. We watched the current mess get created in steps through two Bush terms [liar loans was a common term in the financial press for years, etc.]. Without some measure of sane relief expect the public to vote for insane relief.
3. Yes prices have to come down but they do not have to come down 100% right now and all at once. Doing so frequently produces overshoots [the see the FX market for the poster child]. If we save the more deserving of the individual owners and ease the pain of losing their houses for the unsaveable ones we can still get market clearing prices for the 'flip this house' speculators. Clear those houses off the market at rock bottom prices first. This gives us time to see if a bottom can be found and if not to let the people who simply have more house than they can handle [i.e. they cannot meet payments even refinanced to proepr 30 year rates] liquidate over further time in an orderly market.
4. Mass foreclosures take down property values, tax rolls etc. for whole communities, counties and states. We give Federal money in huge quantities to fools who build in flood plains, on coasts with known storm dangers etc. We give drought relief to farmers. We are rebuilding a city that needs levees to keep out the river. Please tell me how this is different?

The collapse of lending standards to serve as a quicksand foundation for an endless superstructure of debt instruments and financial engineering devices did not happen in the dead of night with no public knowledge. Thsoe of us who said the so-called Bush recovery was all smoke and mirrors off a housing bubble were laughed at for half a decade. Many people and institutions profited from this and none are being asked to give anything back. Let them pay a bit more in taxes to clean up their mess. A super-rate on financial services income and a tax on houses / condos worth more than a million come readilly to mind as revenue sources.

Port Call
© Final Sword Productions 2004

The traffic control staff noted the new arrival as it triggered the sensors on the system buoys. They instantly issued an alert to station and habitat defense, swiftly downgraded to a caution when the IFF squeal claimed the new ship as the Lady Tara, a trade vessel known in their port. After a few minutes when visual and other sensors confirmed a positive match to the supposed IFF ID, the alert was cancelled. Lady Tara had a configuration that did not suit a major raider. So anything of that approximate size was probably reasonably safe.

However it pays to be cautious. A Scooby Gang was dispatched to the berth where the Lady Tara was scheduled to dock. The people had no Slayer. Although the end of Season Seven of the Holy Series had clearly activated all Potentials, apparently none had been part of their migration in the Diaspora. The Watcher’s Council kept reshuffling their available DNA for new births, but, so far, none had been Chosen.

Lacking Chosen Ones, the Watchers trained Scoobies and Wiccas. The Scoobies were augmented humans but had no superpowers. The Wiccas lacked the True Craft of a Willow or Tara, but were good empaths a bit outside the human norm. Still, none of the inhabited places in the system had a Hellmouth and Demonic Evil seemed not to be present. They were enough for normal human encounters or so the people of the system comforted themselves.

Lady Tara moved in-system on the assigned lane at the assigned speed. The probability of it being a raider kept shrinking. However nearer visuals showed clear signs of battle damage. Traffic control passed this datum to station management who in turn began discussions with the comm. people on the Lady Tara over what level of repair work they would require.

The Scoobies and Wiccas ignored the economic discussions that flowed past them at light speed lag. Others could see to such mundane things. They kept the faith. As the ship made dock, they prepared the Test for those who would debark. They were a small station far out in the Diaspora. They had no need for customs or other such formalities. But jihadis were an ever present threat. Hence the Test. Everyone who debarked had to drink of the alcohol and eat of the roasted pig flesh. No jihadi could do either and keep their bizarre faith. The Scoobies administered the Test and would righteously do battle with all who refused or failed. Behind safety glass the Wiccas observed, looking for trickery and deception. As always the folk of this ship passed the Test. They understood its meaning and had never had kind word for jihadis. Indeed they seemed to have a special dread for one subcult among them, the Jihad of the Prophet’s Last Wife.

Lady Tara sent two dozen of her people down the tube onto station. Most were garbed in the more normal ship suits and went to confer with their opposite numbers in repair, commerce, ship’s supply or whatever. Four wore robes of office. This was unusual. The robed senior officers did not always debark. Never before had four with robes, hoods and veils done so. The Scoobies escorted these to the office of the Chief Watcher, while relays of Wiccas observed, looking for trickeries.

The Scoobies left the party at the final doorway. No Scooby passed that door without a request from a Watcher and no such request had ever been given. The four robed officers entered, after which the door slid shut. Seated at a desk were the Chief Watcher and the Senior Wicca. The four robed officers took chairs across from them and then removed their veils and hoods. The hoods were an affectation. The veils were a necessity at most port calls. They hid the vampire fangs.

“Good thing you ran late. We’ve had a Fleet visitor or at least one claiming to be so. Was asking about you ladies.”

The chief among the ‘officers’, Mother Superior Mary K answered for her side, “And what did you tell them?”

“That we knew of no such group as the Holy Order of our Lady Mary the Destroyer, or indeed of any Catholic Order looking to bring the Apocalypse. We gave ID on your ship as peaceful post-Wicca trading folk, which is what the rest of our people know you as. Indeed many seem to think you can be converted to our Cult of Buffy.”

“As if we would take demented media fandom and elevate it to a religion.”

This was an old set of verbal volleys and the Watcher would not be baited, “Think what you will of our beliefs. We have not taken a syncretic Hindu-Christian Chaos Cult to the point where both religions have excommunicated us. Moreover, you’ve gone one step further. Fleet has now taken an interest. You’ve been officially labeled Wreckers.” He paused while the Senior Wicca passed across a sheaf of data sticks. “It seems they finally noticed what your theology plainly states beneath the verbiage. You want a Year Zero for the universe. They seem to have gotten some old Marxist idiocy into the evaluation. Someone named Pol Pot…”

The Mother Superior chuckled, “An offshoot of ours. Managed to mate our theology with two Marxist atheist cults. Khemer Rouge and Shining Path. Want us to do a data dump to the Watcher’s files before undock?”

“Only if it is gratis. We made it clear to your order two migrations ago that we had no interest in your theology or your wars. We’ll fence your booty and do your repairs. We’ll keep your secrets. Have you brought any of what we seek?”

The Mother Superior allowed herself a small sigh. These twit unbelievers were quite useful but utterly mad, “For the thousandth time in the last three hundred years we haven’t a clue as to what genes make a Slayer or a Willow Class Wicca. We bring you new genetic material. We bring you new herbs. We make no claim as to the efficacy of any of this. However we do have new Buffy lore since last time…”

The Watcher and Wicca were well trained. They did not rise to the obvious baiting. Instead they waited while the three attendants to the Mother Superior showed the new treasure trove of anime fan fic from the Second Diaspora, codexes to the commentaries on the never made Season Eight, the lifetape of a lady who claimed to be a reincarnation of the great but evil Darla, and a purported first draft script for the precursor movie, the one without the True Buffy. After much dickering, all were purchased for new nav data the Watchers had assembled from ships that had made this port since last the Lady Tara had called.

“How many have you for us this time?”

“Eight girls for your order as postulants and four boys for your Lay Brotherhood of the Silken Cord. They are all eager for anything beyond the life with us. None has a clue as to what they have volunteered for. I’m sure a few will work out and as for the rest…”

Some things need not be said. The newbies would adapt or die. Once one left the latest of the many Sunnydale’s in space, life could be both cruel and capricious.

The Watcher saved the best for last. “I’ve got a new version. Late 21st century so it needs antiquated equipment to play or copy.”

All four Sisters came instantly to full attention. “How?”

“Somebody from so far out he hadn’t a clue as to what he was selling. His ship barely survived jump and essentially limped into dock on good vibes. He was selling anything he could to meet dock charges and repairs. It is still in its original packaging or so it appears.”

“Which version?”

The Watcher slid it across the counter. The DVD was still in Old Earth plastic. It was the eight hour snuff version of the porno entertainment, ‘”The Last Wife of the Prophet”. Essentially it was an endless rape torture fantasy of Mohamud with his last child bride. A mere rumor of the existence of a copy could bring jihadis swarming like hyenas to a fresh kill.

“Your price?”

The Watcher slid a shopping list on a data stick across the desk. Eager hands snatched up the stick and DVD. While each side regarded the other’s beliefs as demented drivel, they honored their bargains with each other.

Lady Tara spent three weeks in port. Two other ships made station calls in the interval but there were no incidents between ship’s companies. It was a small station in a thinly populated system a good hundred lights beyond where even the fringes of the Diaspora would call the frontier. None who were welcome here made trouble on station or in-system except Fleet. Fleet went where they would and people adjusted as best they could. At least for now. The Sisterhood in fact had no schism. They all worked for the Year Zero when all the human infested galaxy would be slagged down and start over. The Jihadis of Prophet’s Last Wife would attack any system where there was a rumor any might have seen any of the many versions of the kiddie porn epic.

The Sisterhood regarded them as flatline ragheads but still a useful weapon to be aimed at systems and polities that stood in the way of the Mary Yurga. After undock they called holy service to announce the great acquisition. To show their gratitude to Kali, avatar of Mary the Destroyer in her chaos guise, they sacrificed one each of newbies, male and female. All ate of the body and blood, then the skulls were sent to the artifact shop for polishing. As they neared jump, they switched off the Lady Tara IFF ID squeal. The ship had over twenty registries. Only two would stand up at real ports. One day it would be their undoing but such was as the Mother of God in her dance of death willed it. Until then, under whatever false name they were in fact Mary’s Doom Upon Mankind, a bringer of the Year Zero that would end the world as others knew it and usher in the Age of Mary the Destroyer, the Mary Yurga. The Mother did not like what Creation had become. So slag it all down and start again. Kali was the Mother Goddess who ate her children. So the senior officers put on their necklace of skulls to go with their vampire fangs and prepped for jump. Her Will Be Done to the end and out the other side. Chaos and mother night called to them.