Oodles and oodles of data… now what?

So, Bernie Sanders, Ron Paul, and Alan Grayson finally got the FED to drop some documents that show all the things it was up to during the financial crisis that dated to around 2007.  I actually have no problem with that.  That kind of information is useful and I think it’s good to have it after the fact.

If you’d like to know how much data and what it’s about,  FT Alphaville has a pretty good site up that explains the types of data that have shown up. It’s an amazing amount of detail on $ 3.3 trillion worth of bailout funding.  What’s really interesting is the list of collateral.  The actual names of organizations running to the window during the time period is there, but really not all that surprising.  You can find the details on that at another post on FT Alphaville.  As was expected, BOA is most definitely the top hog.

If you read the link to the WSJ above, you can see what both Bernie Sanders and the FED think about all of this.

“After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” Mr. Sanders said in a statement Wednesday afternoon. “As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

The Fed has kept key deliberations closely guarded. It has taken steps to boost transparency, but has kept certain details secret, such as the names of banks that borrow at its discount window. Federal Reserve Chairman Ben Bernanke strongly objected to efforts to subject monetary-policy decisions to audits, saying it would “seriously threaten monetary-policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation.”

Matt Stoller (Policy Adviser to the now gone-pecan Congressman Grayson) has an incredibly long winded, hyperbole-ridden, populist rant against the FED that’s been published by Yves at Naked Capitalism and by New Deal 2.0.  He must’ve just popped out of cartoon bunny land because there’s a lot of cyber ink over there “full of sound and fury, signifying nothing”. It’s attracting the usual attention of economic dilettantes and Paultards.  It also has a bunch of paragraphs somewhat deferential to the P woman to whom he  just about throws the title of  “The Great Commoner”.  (Isn’t that a somewhat surprising action for some one who advises a Democratic Congressman?)  The bases of Matt Stoller’s arguments are not economics, data or theory because he dismisses all of that as being captured by the FED.  Instead, he holds up a pop culture book on the subject.

In 1989, Bill Greider published a remarkable book called “The Secrets of the Temple: How the Federal Reserve Runs the Country” in which he described how Fed officials were the real decision makers in the American political order. Shielded by the argument of ‘political independence’, most politicians wouldn’t and still won’t dare interfere with the workings of our economic structure, even though the Constitution clearly mandates that the monetary system is the province of Congress. The dramatic and overt coordination of this ‘independent’ central bank with the executive branch and the banking sector, and its flouting of Congressional and public scrutiny, have removed its institutional legitimacy.

To dismiss academic research in area is simply self-serving.  Every economist of every flavor comes up with data from all over the world that demonstrates a chaotic economy results from a central bank that is overtly influenced by politics and not independent.

The FED is simply a central bank which is the bank of bankers. It’s not supposed to be some arm of the political parties.   It doesn’t clear as many checks as it used to, but it’s FED WIRE is still the major financial transaction wire system for banks.  It gets coin and currency from the Treasury and it fills orders for them from banks.  It also ensures that banks meet the regulatory obligations.  It’s part of the trade off of getting insured by the FDIC.  They have capital requirements, they have requirements on their organizational structure and investments, and they do truth-in-lending.  Most of what the FED does outside of this is audit banks.

It’s really not some mysterious fraternity that they can’t get into.  My work with the FED was very mundane.  My staff gathered up orders for Treasury bills and bonds each Tuesday and sent them and tax payments where they would be applied.  My other staff paid the electric bills and watched to make certain our branch budget was in line with other branches.    I have never worked for a bunch of stuffier people than when I worked for the FED.  I was even told to wear nude hosiery, short heels, and a suited skirt.  Granted, I was not in NY where all the action is, but really, even bank visitations and teaching bankers how to watch their reserve accounts and use FED WIRE is not a glamor profession.  It also pays diddly.

Monetary Policy is done by the Open Market Committee and carried out by the NY FED.  No one any place else knows remotely what is done.  That’s because if any one in the market or near the market knew, it would be like the ultimate insider trading.  Would you really want YOUR congressman or Senator trusted with the ultimate INSIDER trading?  When the FED buys and sells bonds and bills, it does it through a number of brokers who get the job through a bidding process. None of them can see the bigger picture.  None of them can discern patterns any more than I could by transmitting bond and bill sales of the public every Tuesday.  It’s that way because you don’t want any one making big time money knowing which way the market moves.

So, almost every country has designed their central bank to look like our FED; that includes the Europeans.  Independence is valued above just about everything because as I’ve said, all the research shows that if you have a politically managed FED, you get a really bad economy.  Here’s an example from South Africa today of worries about central bank independence.

“During the year there has been a focus on issues relating to monetary policy independence in response to the letter from the Minister of Finance clarifying the mandate of the Bank, as well as the recent New Growth Path document, in which reference was made to a looser monetary policy stance,” Gill Marcus said.

There were perceptions that these documents had undermined the independence of the SARB, and there had been a tendency to over-interpret monetary policy actions in terms of these discussions.

“For example, when the repo rate was reduced at the previous meeting, some analysts argued that because there was no economic rationale for this move, it therefore must have been politically inspired.

“A few days later, when the disappointing growth figures were announced, these analysts conceded that our decision was vindicated on economic grounds,” Marcus said.

There is plenty of information about the FED should you want to delve into it. It produces a lot of research and a lot of information.  It just doesn’t share its immediate monetary policy targets, goals and actions with any one because that’s basically enabling insider trading.  It also doesn’t let congress tell it how to run things, but it follows the laws set forth by Congress to achieve the goals it was given. That would be:

Monetary policy has two basic goals: to promote “maximum” sustainable output and employment and to promote “stable” prices. These goals are prescribed in a 1977 amendment to the Federal Reserve Act.

The FED has no role in the stock markets and could not do anything to prevent or cause bubbles there. So, any one that tries to say the FED caused any stock market bubble is out there in la la land.  The FED can provide liquidity to credit markets through its open market activities and its activities to influence the FED FUNDS rate.  It only directly controls the rate at which it lends to financial institutions; the discount rate.  The FED FUNDS rate is a market established rate and reflects the price of loans between financial institutions. In some cases, it is a substitute for loans from the FED.

Even if the Fed suspected that a bubble had developed, it’s not clear how monetary policy should respond. Raising the funds rate by a quarter, a half, or even a full percentage point probably wouldn’t make people slow down their investments in the stock market when individual stock prices are doubling or tripling and even broad stock market indexes are going up by 20% or 30% a year. It’s likely that raising the funds rate enough to burst the bubble would do significant harm to the economy. For instance, some have argued that the Fed may have worsened he Great Depression by trying to deflate the stock market bubble of the late 1920s.

I’m beginning to think I should do more pieces on what the FED is and what the FED is not because of the disturbingly ignorant comments on that thread at Naked Capitalism.  Part of the Fed’s problem is that it puts out a lot of information but it really doesn’t do much in terms of prime time explanations.  Well,  unless you watch the twice a year briefing by the Chair on CSPAN, then you may get an idea of it.   However, that speech almost puts me to sleep and the stupid Congress questions just make me made.

So, any way, I just wanted to give you some information on this drop of data and let you know that most of the economists who know things are still pouring over it.  I’m going to be pouring over it too, so I’ll try to keep you informed.  All these discussions that are early to the media don’t appear to be coming from Financial Economists.  They appear to be all politically motivated.  Wait until some one who knows speaks up before you start forming any opinions.


56 Comments on “Oodles and oodles of data… now what?”

  1. Minkoff Minx says:

    Dak, is this part of the bailout data that was released?

    European banks took big slice of Fed aid

    Foreign banks were among the biggest beneficiaries of the $3,300bn in emergency credit provided by the Federal Reserve during the crisis, according to new data on the extraordinary efforts of the US authorities to save the global financial system.

    The revelation of the scale of overseas lenders’ borrowing underlines the global nature of the turmoil and the crucial role of the Fed as the lender of last resort for the world’s banking sector.

    http://www.ft.com/cms/s/0/4dd95e42-fd6d-11df-a049-00144feab49a.html#axzz16uw5zQG9

    • dakinikat says:

      yes, that’s it!! USB was number two after BOA so there were European banks that were bailed out too. very interesting!!

      • Minkoff Minx says:

        This is mind-boggling, and I know that is cliché but honestly. Yet the “powers that be” will not extend unemployment for their own citizens…I feel ill.

      • cwaltz says:

        I actually kind of suspect that the foreign element was an underlying reason for the bailout. If I am remembering correctly there were lots of rumbles from places about getting rid of the dollar as trade currency(China was one of them).

  2. salmonrising says:

    Didn’t Al Franken sponsor some kind of bill to audit the FED? I seem to remember it got way watered down so that it was just to be a one time only peek-a-boo, but eventually passed. Does this data dump have anything to do with the Franken bill or are these two separate things?

  3. “gone-pecan Congressman Grayson”

    *snicker*… Ok, back to reading.

  4. NW Luna says:

    “Wait until some one who knows speaks up before you start forming any opinions.”

    That would be you, Dak, so I don’t know what to think yet. TY for writing about this stuff. I’ll look forward (or maybe not) to finding out where our taxpayer dollars have ended up.

  5. dakinikat says:

    Well, the amazing thing to me at the moment is that McDonald’s was one of the companies that got help but I’m trying to dig deeper into the data than just that!!!! The other surprise is just how many foreign banks,etc we lent money to …

    • Minkoff Minx says:

      Hum, McD’s got bailout funds? So funding fast food…to help McDonald’s stay in business…doesn’t this go against the whole Michelle Obama “Let’s Move” campaign?

    • Zaladonis says:

      The other surprise is just how many foreign banks,etc we lent money to

      I thought that was obvious. When news reports kept referring to how “global” the crisis was, it seemed obvious to me that our Fed was lending beyond our border.

      I said so … did I know you back then? … well anyway when Obama was given the Nobel Peace Prize I kept making the point (and getting pounded for it) that he should use the leverage of our lending and his own standing, his obvious popularity and the high esteem Europeans held him in, to lead a major overhaul of financial regulations internationally. Not only did he fail to do so within the US but he squandered his opportunity –one I believe an FDR or Hillary would have taken given the same situation– for the US to take the lead internationally and get on top of the economic crisis that continues to unfold today. Changes were (and still are) needed that the US couldn’t do in isolation because it’d leave us at a severe, even crippling, disadvantage within the global market. Our Fed bailing out not only US banks but also foreign banks, and Obama’s standing when he took office, coupled to create exactly the opportunity that was needed for genuine major reform among all Western nations.

      • dakinikat says:

        All excellent points. Too bad he was more obsessed with proving he could do health reform at any cost.

        • Zaladonis says:

          It wasn’t either/or. He wouldn’t have tackled financial reform anyway. When he not only chose but stuck with Geithner, the die was cast.

          The enormity of the opportunities squandered by Barack Obama are what will, in the end, be most historic and unprecedented.

  6. fiscalliberal says:

    Barney Frank keeps up the mantra that Alan Greenspan could have done something about the Sub Prime market and stopped the bad loans form developing. Then Bernanke resisted and did something to late. Would you agree with Frank’s assesment?

    If possible could you expand on that and shine some light on that in terms of the mission of the Fed.

    • dakinikat says:

      I’m not sure how much the FED could’ve done with the subprime market because it’s involvement in lending was limited to ensuring truth-in-lending and the fine print was there even if it was confusing and even if there were problems. It really would’ve taken more addendum to the act by Congress to get them to look into that more. The FED doesn’t like putting a toe outside the laws that confine it because it doesn’t want to risk anything. The FED is the most RISK averse institution on the planet.

      I think if Frank would’ve been more proactive and stopped some of the deregulation that he would’ve been more effective in that. Remember, Congress was as excited by the idea of the ‘ownership society’ as any one was.

      Then, there was the laws passed that put a lot of bankholding companie’s subsidiaries in the jurisdiction of the SEC and not the FED. When they broke down the chinese wall, they stopped the FED from overseeing some of the investment functions. The FED only had regulatory authority over commercial banks.

      • Minkoff Minx says:

        “I think if Frank would’ve been more proactive and stopped some of the deregulation that he would’ve been more effective in that. Remember, Congress was as excited by the idea of the ‘ownership society’ as any one was.”

        From my perspective, being a real estate paralegal and having a husband who was a mortgage broker, I see the mortgage collapse in basic terms. Many of the loans that we closed were the “stated” kind of loans. Where the person getting the loan did not have to actually prove what their income was. All you had to do on the loan app was state whatever income you needed to get the house you wanted. So many times instead of getting a house that was within their budget, they opted for a larger house with a “plan” to refinance in a few years (usually when the loans adjustable rate went up) and move into a fixed rate mortgage. The other side of coin, was the second mortgage boom. Like in Florida, where the valued home amounts went through the roof, so people just kept getting more cash out of their “equity.” Here in Georgia, we did have higher home values, so we had a lot of closings for seconds/HELOC. So those who had a reasonable 1st mortgage payment, then got a larger 2nd mortgage payment. When the shite hit the fan, many could not pay both payment amounts. So then you have a situation where some sort of brakes on the deregulation thing would have help out tremendously. Perhaps buyers would have stayed within their means. However, we still would have had a majority of seconds/HELOC that would have been made because the housing values were inflated.

        Then you have the spec houses, and that is another story all together.

        Now, with all that said, there are those families out there, that did not overextend themselves. Their mortgages (both first and seconds) were reasonable and within their means. However, when you have such a massive loss of employment, like what we personally experienced, after a period of time…the savings runs out. And then you are forced into making decisions like “pay the mortgage” or “buy food” and that really sucks ass. Well, I am saying stuff that is well-known. I guess I had to put my 2 cents in…all I know is that with the unemployment funds drying up, and it seems that no extensions will be made, I can tell you we will have another “boom” of foreclosures in the coming months.

  7. newdealdem1 says:

    I’m beginning to think I should do more pieces on what the FED is and what the FED is not because of the disturbingly ignorant comments on that thread at Naked Capitalism.

    I think this is a great idea, Dak. There is so much bad info out here and the congresscritters aided and abetted by Mr. O are in the process of making very bad policy because of it. And, this bad information is all over the media who mimic the same crap about what the supposed problem is how to fix the problem. One example regarding the Fed and Bernake is that video gone viral about quantitative easing. It was great see some push back of it and by you some time ago.

    Wait until some one who knows speaks up before you start forming any opinions.

    There is just so much misinformation about the Fed and what they do and as you said right now the commentary is politically motivated.

    Wait until some one who knows speaks up before you start forming any opinions.

    Second this. You’re one of those people.

    Just to post something here about audits and auditing the Fed. This has nothing to do with the release of data by the Fed to Bernie Saunders and Co which is a very good thing. I’ve lots of reading to do tomorrow. I can’t wait.

    Regarding audit’s of the Fed. I’m an corporate auditor now and worked earlier in my career in public accounting which means I worked for a comparable accounting firm like Price Waterhouse (but not them) for a few years. From experience, although I didn’t work in the banking section of the firm, I worked with colleagues who did and I worked in the New York office and I know they audited the NY Fed’s financial statements. When I hear congress critters and the media buy into the lie that the Fed’s books have never been audited, it makes me nuts because I know that’s not true. And, the results of those public, independent audits are made available to the public on their website and in print as well with those reports submitted annually to Congress for review.

    There is also an Fed Reserve audit conducted by the GAO annually that is also made public and sent to Congress for review.

    This is nothing new to you Dak and most likely when you worked at the Fed, you experienced one of those audits.

    What can be an issue here is the scope of the audit. The scope of an audit maps out what the auditor is going to examine. So, it will include things like time period (we will examine your books for the period from January 1 to June 30) and we will perform a financial and operational (non-financial) audit of your income statement, balance sheet and Capital and/or Reserve accounts. And, indicates what type of tests they will conduct and will ask to have various documents ready for their review when in the field.

    From what I understand from my colleagues, by law there are things that the auditors are not able to audit over at the Fed and that includes monetary policy deliberations and operations which would be more of an operational audit not a financial one.

    When I first heard this explained to me, I was taken aback and annoyed that any auditor would be prevented from auditing any aspect of any business or entity like the Fed. Right away ones skepticism and “what is it they are hiding” antenna go up. However, I now understand why and I’m not in disagreement with the logic behind the limited operational scope.

    And, that is where there are going to be issues on both sides (pro and con for not limiting the scope: but the current false impression out there espoused by the congress critters and the media makes it appear that the Fed has never been audited financially or operationally before and not that it’s the limited scope that is at issue which puts a really distorted spin on everything), because if these audits are made public and that is what complete transparency would entail, the concern is it could have an adverse affect as Dak quoted from Bernake and “seriously threaten monetary-policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation.”

    I agree with Bernake about this one aspect of what shouldn’t be audited by independent auditors or by the GAO because the politicians and the media and all the other noise machines will make this into more of a political football and there goes the Fed’s independence and what could be an adverse affect on the economy. I don’t think he’s bs’ing here.

    In this one aspect, it’s like the Executive branch auditing operational workings of the Legislative branch or the Supreme Court for all of it’s decisions including the ones we agree with. And, making recommendations for changes. There go the check and balances and the independence of the three branches. Imagine all of the second guessing, back seat driving, conclusions that would ensue. Chaos.

    So, I encourage you Dak to do more pieces on this going forward including the audit aspect.

    I’ve bookmarked the link you provided. Again, thank you. I can’t wait to take a look at it tomorrow.

    Whoa, just doing a quick read of posts, the Fed gave bail out money to McDonald’s? WTH?

    • dakinikat says:

      Any one with access to knowledge and money to invest on what the FED does with monetary policy could either completely offset the policy or gain incredibly from the knowledge. Ongoing Monetary Policy is basically a National Security item. It’s like congress wanting to audit the codes to all the atomic bombs.

      There are multiple audits within the FED. As a manager of an accounting function, I was part of an audit committee that audited other branches. We were also audited by the Treasury in those functions that deal with the TREASURY. SO, my TT&L unit and my Treasury Bond/Bill desk were frequently audited by the treasury. I was also audited by FED auditors which came from the BOG. All FED internal auditors work for the BOG and not any of the branches. Part of the audit teams also come from other FEDS which are completely independent of each other.

      If there were any problems with fake money around, the treasury agents would take up residence in our area and live there for some time and audit the cash function too. As you stated, there were also other audits. Most of what I was involved in was the auditing of the accounts payable functions.

      It’s only the ongoing monetary policy that isn’t audited AT THAT TIME. The information gets released and looked at later when its use as insider knowledge is gone.

      • newdealdem1 says:

        I wasn’t expecting such a fast response, Dak. You’re the top!

        Thanks for answering my question about the internal audits that go on in the Fed.

        So much bad info out there and it’s not only with this topic. And, faux news isn’t the only place where the lies are being told and sold

      • newdealdem1 says:

        I wasn’t expecting such a fast response, Dak. You’re the top!

        Thanks for answering my question about the internal audits that go on in the Fed.

        So much bad info out there and it’s not only with this topic. And, faux news isn’t the only place where the lies are being told and sold hook, line and sinker to a gullible public which fosters groups like the TP and not only them but others who should know better who repeat garbage info as if it were the real deal and then political pressure is imposed and policy is made based upon false assumptions. Which is what is happening now.

        That’s why I wanted to straighten the audit issue out in terms of letting people know what the deal is and not some right wing, libertarian falsehood that the Fed has never been audited either financially or operationally.

        The issue that remains which I spoke about is the issue of the scope of the audit and what it is by law (and Congress makes the laws as we all know) that one aspect of the Fed’s operations concerning decisions made regarding monetary policy which you spoke well about. I didn’t think of the national security issue which you raised. Very good point.

        I have no idea where all this will go in terms of the Rand bill that is making it’s way through Congress but I hope they all think hard and fast about the implications of what they are trying to do over there and all of it’s implications. I hope voices like yours are heard and listened to.

  8. fiscalliberal says:

    So Dak – do you have any opinons to offer regarding the role of the auditors in the Financial crisis. With Enron, Arthor Anderson went out of business.

    However I thought SarBox was heavy on auditing risk, transpaency and the auditors reported directly to the audit committee on the board of directors. Also was not the Audit board member supposed to be a non corporate outside person.?

    • dakinikat says:

      Well, the biggest problem with a lot of this is the compartmentalization of risk in to the different special purpose vehicles or subsidiaries. This takes them out of the purview of many audit teams. So, I think this is a problem.

      Also, I think one function of an audit should be to look specifically at corporate governance practices in addition to the operational practices. For example, are all the officers buddies with the CEO? Who determines executive pay? How does the board approve it? And back to what I just said, who sets up the SUVs and SIVs and subsidiaries and why are they there? There needs to be a bigger operational audit of functions and their interaction; a process audit if you will as well as a governance structure audit.

  9. fiscalliberal says:

    Dak – I find this whole finance / economics subject facinating. I really appreciate your explaining things – kind of like Bill Nye the Science Guy in finance / economics

    • dakinikat says:

      I come from a weird doctoral program … it’s a blend of finance and economics. We literally do advanced work in both areas. The emphasis is also on empirical research, not theoretical.

      • fiscalliberal says:

        May I ask: where did you get your degree and did you do a thesis and what was the subjec?

        • dakinikat says:

          I’m actually doing that right now. I’ll be done within a few months. My thesis is on empirical essays in currency unions with emphasis on the GCC and ASEAN areas. I’m looking at how financial integration impacts FDI and if those areas are going to be able to successfully integrate in mostly financial institution/monetary policy areas. I just returned to academia about 9 years ago. I was out in the corporate world as you can see. And the FED.

          I have my first masters in monetary economics from University of Nebraska. My second masters is in Finance from University of New Orleans which is LSU and my doctorate will be from there too. My areas are corporate finance and international finance/trade.

  10. Dario says:

    So, Bernie Sanders, Ron Paul, and Alan Grayson finally got the FED to drop some documents that show all the things it was up to during the financial crisis that dated to around 2007.

    I have a problem, a huge problem with the Fed. First, it didn’t move fast enough to lower interest rates, and second, the Fed didn’t have all the tools to help the economy. Congress needed to move and help homeowners. If it was known that congress needed to do something, Hillary’s proposals to help the homeowners with subprime loans, might have had a chance.

    August 17 2007: 4:11 PM EDT
    NEW YORK (CNNMoney.com) — The Federal Reserve, reacting to concerns about the subprime lending crisis that’s rocked financial markets in recent weeks, Friday cut its so-called discount rate half a percentage point, to 5.75 percent.

    The Fed kept the rate at 5.75 percent! In the meantime the price of oil kept climbing at the end of 2007 and early 2008. The price of gas per gallon skyrocketed and people who commuted to work found themselves short of funds to pay their mortgage and credit cards.

    • dakinikat says:

      As I’ve said, the FED is a real conservative organization. It really was more on congress and the executive branches to do things like that. It’s really outside the FED’s jurisdiction. They always consider their congressional mandate.

      • Dario says:

        I understand the Fed is conservative, but all those economists must have known that congress needed to act. They must have known an earthquake had hit, and instead of getting congress to stabilize the building, the Fed sat on its hands.

        Btw, I don’t mean that the Fed had to scream fire, but the Fed could have talked to the economic advisers of G.W. and get their asses moving.

        • dakinikat says:

          Well, I’m not sure they didn’t say anything to Dubya and that’s still not really their job. That’s the job of the CEA. Plus, when the FED says anything publicly, it has repercussions in the equity and global markets so it would’ve had to be said sotto voce.

          I think the Dubya group is so adverse to any kind of regulation or oversight they wouldn’t have listened any way. They had tons of warnings from all kinds of people on the derivatives meltdown. Folks even tried to warn them and congress about Fannie and Freddie. Politicians just don’t listen until they have to act. Everything is reactive there.

          Sorry,it took me awhile to answer, I’m into it with Matt Stoller right now.

          • Dario says:

            Dak, you are right. I forget that our government has become an 800 Lb gorilla that can’t be moved. You are also right that the Fed might have told Paulson and G.W.’s economy team, but they sat on their hands until it was too late and the building began to tumble down.

            I know that pubic display of an economic emergency would make things worse, that’s why I said that those inside could have put some beams and stabilize the falling building.

          • dakinikat says:

            The government has become the original unmovable object but I love your characterization better!

          • Am *not* defending Dubya group, but didn’t W. try to do something in 2003 on F&F and Barney blocked it?

          • Woman Voter says:

            WTV,

            Yes, you are spot on, but it was also the congress, thus the SNL skit that got censored with Pelosi and the bankers.

    • fiscalliberal says:

      Could I offer the opinion that in 2007, the housing bubble was about to be burst and the last thing the Fed should have done is reduce interest rates. In a large sense the game was already over and a massive deflation in real estate was the only way out. Would suggest that easy money and lack of regulation using the laws on the books was the problem in 2004 to 2006. Mortgages were starting to fail in 2007. $500K homes on $70K salaries were made possible on easy money and was unsustainable. People who said real estate would not go down were in direct violation of the laws of supply and demand.

      The real story now might be that fiscal policy is not politically possible now and monetary policy is a weak sibling

      • dakinikat says:

        I think that there is some validity that easy money led to the over-purchasing of assets at that time. But there were other factors too. A lot of the mortgage selling business was driven by the demand for the derivatives. The demand for the investments wouldn’t be impacted so much by the credit channel and interest rates. I think people just saw the cheap loans and went for them but that the supply of the loans was driven more by the demand for the derivatives than by the availability of the cheap money. The secondary mortgage game was more the factor and that was a highly unregulated market.

  11. fiscalliberal says:

    Facinating subjects tonight – Eastern Time Zone checking out

  12. Dario says:

    O/T — Hillary and the cables
    No Quarter, Larry Johnson, has a great discussion on why Hillary has nothing to do with most of the cables that bear her name, especially those that are gathering intelligence. Here is the link because he hits Fox News.

    Fox News Joins the Parade of Fools (UPDATE)

    • dakinikat says:

      I read that Dick Morris thing … it’s so stupid it’s not even a good waste of time to read let alone discuss! I’m glad some one who would know about things like this spoke up.

      • Dario says:

        Larry doesn’t say much about Dick Morris. The importance of the blog is how to read the cables. Here is the good part:

        Let me help you interpret this message.

        The person who classifies the message is the person actually responsible for the message. In this case it is the Acting Director of the Operations section of the Bureau of Intelligence and Research. Owens probably did not actually draft the message. More likely that was handled by one of the junior officers in INR. However, OWENS is the one who signed this message out. It was not sent to the Office of Secretary of State Clinton before it was released.

        Second and most importantly, this message is simply FORWARDING A DOCUMENT THAT ORIGINATED IN THE INTELLIGENCE COMMUNITY. Got that? This was not a State Department initiative. State is simply acting as a letter carrier for the intelligence community.

        What is the “National HUMINT Collection Directive?” There are experienced intelligence officers (folks drawn from CIA and DIA principally) who work for the Director of National Intelligence and have the task of updating or creating intelligence collection plans for human assets. Our intelligence officers in the field do not come up with their own list of information they should gather. Nope. It is a highly bureaucratized process. They are given a prioritized list of the information Washington wants. That is what this cable is.

        And to put a finer point on this, the CIA officer in charge in an overseas assignment is evaluated by how well they do in getting human assets to provide the information requested.

        Take a look at the subsections of the first paragraph of this cable:

        He then talks about the different pieces of the cable.

      • Dario says:

        I didn’t want to make my post too long, but I skipped the first part of Larry’s blog, and I’m thinking it’s too important to skip.

        Add Megyn Kelly and Monica Crowley to the list of morons repeating the lie that Hillary Clinton ordered diplomats to spy on the UN. Kelly had Crowley on to comment on the Wikileaks lie that Hillary Clinton “authorized” spying against the United Nations. There is no excuse for this kind of irresponsible, stupid claim. Can these bimbos read? Now I realize that Fox is not the only one pushing this issue. Other mental midgets like David Corn and Jack Shafer also insist that Hillary crossed a line and must go. But do you think Fox would entertain this argument if the Secretary of State in question was Condi Rice? No and hell no!

        UPDATE–Add the name of Dick Morris to the list of the brain dead. It is clear that the hooker he hired years ago sucked every brain from his body.

        I never imagined that so many supposedly smart, informed people could be so abjectly stupid and simple minded. Let me walk you thru this systematically. Here’s the first paragraphs of the cable in question (the remainder is printed at the end of my piece). Read it for yourself, reprinted in its full glory (also linked here).

        • cwaltz says:

          It’s deliberate stupidity. This is a game to them.

          On the upside, I’ve never considered myself a Hillary Clinton cheerleader, particularly on foreign policy, and I think the brouhaha is ridiculous. Uh, everyone spies. China, Russia, France, the UK all have intelligence gathering services and they all use them to try to gain an advantage when negotiating or be able to determine veracity of claims and interests outside of our own. Anyone who thinks that other countries aren’t doing the same is living in lala land and totally devoid of any knowledge of history. Do these idiots really think it’s in the US’s best interest to go into any type of negotiation or discussion without background knowledge of whom you are talking to? Stuff like that gets you incidences like Chalabi, where the US believed someone indicted for fraud and who had ties to Iran. Uh hello? I get that nobody likes being told that their motivations are being questioned in the diplomatic community but quite frankly I question the logic behind a rule that makes no sense because it’s a natural inclination to question why and sometimes when you ask right outright you aren’t going to get honesty.

          Anyway I’m far more concerned about stuff like the covert actions in Yemen where the people of Yemen and ourselves were lead to believe something other than what occurred.

          • Dario says:

            I agree, but I didn’t understand that Hillary has nothing to do with gathering intelligence. That job belongs to the spooks who construct the cables, and use the state department as a carrier.

          • cwaltz says:

            The left hand is usually more than aware of what the right hand is doing when you achieve that level.

            That being said it’s kinda stupid to suggest we shouldn’t “spy” or intelligence gather. Trust but verify ought to be the mantra of our government when dealing with entities that have interests outside our own.

  13. Dario says:

    Back to the economy.

    CBO’s mandate is to provide the Congress with:
    Objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the federal budget and
    The information and estimates required for the Congressional budget process.

    I know that the U.S. Constitution has set in stone that congress is to control the most important tools, such as taxation, government expenditures, trade regulation, etc. and the CBO advises, but it’s not working. I’ve always felt that the Democrats didn’t do anything in 2007 and 2008 before the crash because they wanted a bad economy to elect as many Democrats as possible. I didn’t need a tinfoil hat to see it in 2007. When I saw how the Democrats supported Obama, I knew why. Congress must stop playing politics with the economy.

    • cwaltz says:

      Good luck with that.

      The Republicans are going to try to tank the economy now too. The latest is that they will not entertain any bill without the tax cuts they want being granted.

      They’ve already blown off unemployment extension, which if allowed to continue may cause more hardship as millions are no longer able to pay their bills. Something that adds $2 to the economy for every dollar put in is something that these dolts won’t extend. Meanwhile they’re stumping for something that the CBO says only adds 71 cents for every dollar to be extended. Economic geniuses, those Republicans. (shaking my head)

  14. BxFemDem says:

    We need need some Wiki Leaks action on the Fed, for sure.