Look closer. Think harder. Choose the sound argument over the clever one.

Wednesday, December 17, 2008

Who Was Running That Scheme?

Thomas Friedman:

I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

The SEC's description of Mortgage-Backed Securities (MBSs) (emphasis mine):

Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. ...

Most MBSs are issued by the Government National Mortgage Association (Ginnie Mae), a U.S. government agency, or the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments. Fannie Mae and Freddie Mac also provide certain guarantees and, while not backed by the full faith and credit of the U.S. government, have special authority to borrow from the U.S. Treasury. Some private institutions, such as brokerage firms, banks, and homebuilders, also securitize mortgages, known as "private-label" mortgage securities.

So if most are from Ginnie, Fannie and Freddie, isn't it really those organizations' pyramid scheme? And if they come with "certain guarantees," why wouldn't they get high ratings?

It really does go back to the Community Reinvestment Act.


(Please keep in mind that each commenter's opinions are only his/her own.)

The whole financial system looks like a load of evil hocus pocu to me yet I can see that i am tied to it. the whole thing looks fake. How come fat greedy sly clever people are at the top of the pile? There is something wrong and there has been for the whole time this has been the case.

sorry I think that is hocus pocus

There's a lot of fat greedy people at the BOTTOM of the pile, too, looking for a shortcut to the top. How clever or sly they are determines how long it takes for them to get caught.

Capitalism has lifted us from a level of poverty that was the norm, and given us so much that we take for granted. Investment is a cornerstone of Capitalism.

Yes, highly motivated, resourceful people get rewarded. Greed motivates. Rewarded people get fat. (Is that a reward or a punishment?)

There are also rules to play by: monopolies get broken up; false advertising (theoretically, hopefully) gets you busted; you don't bomb your competitor's factory. Unfortunately, sometimes crime pays.

Highly motivated and resourceful people rise to the top of other systems, too, but typically in a much more ruthless way.

Yeah but its not like that at all is it. Ask Joe Stiglitz, he used to run it. Ask Jamaican farmers who are priced out of their own markets by subsidized American growers. etc etc etc. Sure not all capitalism is bad, some of it is just human nature but we need to move on and leave what is blatantly wrong behind.

Happy Christmas by the way.

we need to move on and leave what is blatantly wrong behind


I've been pondering this one:

Ask Jamaican farmers who are priced out of their own markets by subsidized American growers...

The Jamaican government could put a tariff on competing imports. But that would harm the entire population, as they'd all pay higher prices. (So, ironically, US subsidies seem to help many Jamaicans.)

How about this? If the number of Jamaican farmers is relatively small, you could put a very small tariff on those competing imports--just enough to subsidize those farmers and level the playing field.

I think farm subsidies are ridiculous, but I also think creative solutions can solve them.

(P.S.: Hope your Christmas was good, too.)

There is a video about this. Hang on..

Here you go.

Farmers throwing milk away, multinationals building sweatshops out of national juristiction, farmers priced out of their own markets etc etc etc

Its is hard to see what good "free market economics" is doing to people who are poorer than us.

I don't really have an hour and 26 minutes to devote to an anti-globalization thing like this.

I need something more concise. How about a five-minute version? Or point me to the five most important minutes of it?

five minutes? fair enough I can tell you are a busy man by your lack of blogging. Its all a mess. Jamaica's dairy farms pouring all the milk away and killing the cows for meat, jamaican farmers stop growing food, ostal areas of jamaica fenced off beyond jamaican law with cotton shipped in from the US and made into clothes in huge great big sweat shops which jamaican labour laws dont apply to. It is a nightmare, and if this is Jamaica the third world is going to be a lot worse isn't it.

I feel bad talking like this so early into the new year. I want to be positive. I really just can't go and talk palestine with my other repub buddies though! that would be much worse! Happy New Year mate.

Hey! Haven't forgotten about you or our discussion. Forgive my tardiness.

Please forgive, too, my refusal to invest too much time in that video, but I've seen enough Michael Moore to know that you might not be getting the unvarnished truth. I've not been able to corroborate Jamaican labour laws not applying within its borders.

I don't understand why they're pouring out the milk vs. selling it. Because imported milk is cheaper? If so, that's a mixed bag: hard on the producer, but easier on the Jamaican population as a whole.

For real rationing and slave labor, see leftist Cuba or North Korea.

Hope all's well with you.

No worries mate. I know you surface every so often!

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