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October 21, 2008

Diogenes' despair

Orson Scott Card in search of one honest reporter

So I ask you now: Do you have any standards at all? Do you even know what honesty means?

Is getting people to vote for Barack Obama so important that you will throw away everything that journalism is supposed to stand for? [...]

If you want to redeem your honor, you will swallow hard and make a list of all the stories you would print if it were McCain who had been getting money from Fannie Mae, McCain whose campaign had consulted with its discredited former CEO, McCain who had voted against tightening its lending practices.

Then you will print them, even though every one of those true stories will point the finger of blame at the reckless Democratic Party, which put our nation's prosperity at risk so they could feel good about helping the poor, and lay a fair share of the blame at Obama's door.

You will also tell the truth about John McCain: that he tried, as a Senator, to do what it took to prevent this crisis. You will tell the truth about President Bush: that his administration tried more than once to get Congress to regulate lending in a responsible way.

This was a Congress-caused crisis, beginning during the Clinton administration, with Democrats leading the way into the crisis and blocking every effort to get out of it in a timely fashion.

If you at our local daily newspaper continue to let Americans believe — and vote as if — President Bush and the Republicans caused the crisis, then you are joining in that lie.

If you do not tell the truth about the Democrats — including Barack Obama — and do so with the same energy you would use if the miscreants were Republicans — then you are not journalists by any standard.

You're just the public relations machine of the Democratic Party, and it's time you were all fired and real journalists brought in, so that we can actually have a news paper in our city.

They'll get right on that, Mr. Card.

Oh, say, about 2016?

(h/t LGF)

Posted by Darleen at October 21, 2008 06:24 AM

Comments

Please explain how Congress forced Lehman brothers and AIG to buy billions in CDSs and CDOs. I doubt you or the science fiction novelist you're quoting even know what they are.

Posted by: Josh at October 21, 2008 07:04 AM

They are free market responses designed to make money from the government "mandated" loans that were given to people who really couldn't afford them.

Posted by: Chris at October 21, 2008 05:34 PM

That was a Palin-eque answer, but I'll let it slide. Now what do you think of the question I asked. Why did Lehman and AIG and Goldman and Morgan Stanley buy so many of them? Did the government force them? Was that "mandated" as well?

Posted by: Josh at October 21, 2008 07:18 PM

There was a reason I put mandated in quotes. Fannie Mae and Freddie Mac were told to increase their lending to people with less ability to repay their loans, as were private banks (the Clinton administration used its regulatory power to persuade them.) The administrators of these entities (cronies and ex-Clinton officials) fudged their books to make it look like they were doing really well with these securities, and incidentally enriching themselves with performance bonuses. This is what Enron did, and their executives went on trial and went to jail.

Because of their quasi-governmental status, Fannie Mae and Freddie Mac were thought to be above default, that the government was implicitly backing them. This is exactly what happened when they were bailed out earlier this year. In the meanwhile, other banks and securities firms, not wanting to miss out on the supposed opportunity that was available, got into these securities in a big way. This is what the market does, it finds ways to make money and then does so.

The whole scheme was predicated on housing prices increasing. When the opposite happened, suddenly all of those securities weren't as attractive, and they lost a great deal of worth, at least on paper. This caused the firms holding them to be overly leveraged, causing many of them to be vulnerable to a credit crunch, which in fact is what took place.

The government set out to increase home ownership, a laudable but not well thought out goal. In its zeal to accomplish this, it ignored market forces and made several erroneous assumptions. In forcing banks and other firms to participate in this Ponzi scheme, the government warped the market, skewing the incentives and lowering the perceived risks. Congress, which had oversight of the FMs, failed to do its job properly. When Republicans warned of these possibilities, they were told that there was no danger. Without Democratic help, these attempts to stiffen regulation went nowhere.

Now extrapolate this whole mess to our health care industry, if you can stomach it.

Posted by: Chris at October 22, 2008 05:01 AM

You're wrong on the facts Chris. The CRA applies to commercial banks, which haven't had problems. Most of the bad loans were in the un-regulated sector.

And, once again, Chris, what does any of that have to do with Lehman and AIG, who have nothing to do with home lending, buying up all those securities? Why did the bursting of a housing bubble infect the entire financial sector?

Posted by: Josh at October 22, 2008 08:13 AM

Once these securities became available on the market, and with the FMs supplying them to the tune of trillions of dollars, the market jumped at the chance to get in on the profits. Thats what markets do. The most un-regulated funds, hedge funds, are not falling apart right at the moment, so regulation has nothing to do with it. Banks are highly regulated, and they are failing. Securities are regulated as well, but the regulators aren't any smarter than the private sector people, so if they get fooled, then why should the regulators catch it?

The CRA merely started the ball rolling. The FMs were instructed to not only get into the sub-prime market, but to expand their business in them tremendously. I don't recall if this was due to Congress or the administration, but they did it all the same. The assumption was that they could not fail, not only because they were fundamentally sound, which was not true, but because the government was backing their play, which was.

The bursting of the housing bubble caused the devaluation of these bundled securities, and caused what would have been the collapse of the FMs, but the government had implied that they would step in, and the general feeling was that they were to large to be allowed to fail. Firms that had bought up those securities now found themselves holding securities of dubious and uncertain value, even though they were essentially mortgages, and represented real property in the final sense. Because of the way the financial industry values their assets, many firms found themselves woefully leveraged, like Lehman and AIG, and Morgan Stanley before them.

A great many people had been leveraging their equity for a long time, and when housing prices fell, they were screwed. Remember how we were supposed to feel sorry for Ed McMahon, who owed as much on his house as he did when he bought it ten years ago? He obviously pulled his equity out for other purposes. All too often that purpose for a lot of people was to maintain a lifestyle they really couldn't afford.

I am not a finance person by any means. All of this is from what I have read from a number of sources. I was ambivalent on the original bailout proposal, and still am. I have seen arguments for and against it. It now looks like the danger was real, if somewhat overstated.

Posted by: Chris at October 22, 2008 11:43 AM

Hedge funds aren't falling apart, but neither are the highly-regulated commercial banks. It's just as silly to say "the government caused the problem" as it is to say "we need more regulation". The question is what kind of regulation would have prevented this. Clearly not allowing investment banks to be so highly-leveraged would have helped, as would stricter oversight of FMs. Both the Dems and the Republicans have unclean hands in this. The Dems want to blame lax regulation and ignore Fannie and Freddie, and the Republicans want to blame minorities and poor people and ignore the role of the investment banks. If we can agree on that maybe the discussion will be more than just partisan talking points.

Here is another non-partisan source for you to review.

http://www.imf.org/external/pubs/ft/fandd/2007/12/dodd.htm

Posted by: Josh at October 22, 2008 12:07 PM

Josh,

You're a bright light in a very dark room.

And will someone tell Orson Scott card that McCain's campaign manager WAS taking $$ from Freddie? And could someone tell the sci-fi geek about the Keating 5?

Posted by: Brad at October 22, 2008 12:16 PM

Will someone tell Brad that James Johnson should be in jail, not vetting Obama's VP candidates?

Posted by: Chris at October 22, 2008 05:54 PM

I agree that both parties were to blame, but Card's point is that the media are trying to lay this on the Republicans.

Posted by: Chris at October 22, 2008 05:56 PM