Wednesday, February 16, 2011

Quote Of The Day

Caption: Ask Google for an image associated with the term "reality based community", and this is what it comes up with. The Internet is an inexhaustible treasure trove of crazy.

Image credit: Richard Giles/Creative Commons

Eli sums things up pretty well again, this time discussing all those politicians who are so pints-pissingly concerned about the deficit, except when it comes to actually doing anything that would affect them or the only constituents who matter:
The people who tell us that the deficit is a deadly existential threat that nonetheless does not require their taxes to be raised remind me a lot of the people who told us that extremists in Iraq were a deadly existential threat that nonetheless did not require them or their children to volunteer for military services.

In other words, deadly existential threats that require the little people to sacrifice.

AAAAAHHH The Deficit Will Destroy Us All!!!!
In that vein, I found a recent discussion of the issue of what to do about the banks and other failed financial institutions over at Naked Capitalism to be a fascinating one. It started with a critique of the so-called liberal Center For American Progress's recently unveiled plan for putting the taxpayers on the hook for future misconduct of the banks:
One of my cynical buddies often remarks, “Things always look the darkest before they go completely black.”

His gallows humor comes to mind as a result of the hushed conversations inside the Beltway around GSE reform. While the shiny bright object these days in DC is health care repeal, or perhaps Egypt, in quiet corners in think tanks and trade associations the bankers and their allies are getting ready to appropriate themselves a permanent US credit card worth trillions of dollars. The dynamic that became all too familiar during the bailouts is about to repeat itself.

Wall Street Co-Opting Nominally Liberal Think Tanks; Banks Lobbying to Become New GSEs
"GSEs", by the way, are "government supported entities". At least, I think they are. Sometimes bloggers forget to spell out acronyms. I'm quite sure it's not "Ground Support Equipment", if that helps any. If it were, there would have been a different cloud of acronyms surrounding it, I think.

Anyhow, assuming I got the acronyms right, the gist of the article was that the new plan being proffered by the banks and CAP was to change the Fannie Mae and Freddie Mac GSEs into something that was somehow purely private but at the same time was backed by the U.S. government. This is such a stupid idea on so many levels that you have to believe that every think tank in DC is behind this, and many of them seem to be.

The CAP responded with a letter a few days later:
We must note that this message mischaracterizes some aspects of our post (for instance, we discussed at length in the our post why we thought the catastrophic risk fund would come up short, and this e-mail does not address our argument). Nevertheless, we thought readers would be interested in his message. From Min:
I don’t suspect I’ll change your mind. That being said, I would be eager to have the chance to try. The key question, obviously, is whether a government guarantee/public option is necessary to ensure broad liquidity and consumer-friendly products (including the 30 yr FRM). I think the answer is no, and I think the evidence supports our view (including both the pre-New Deal era, the 2000s era when PLS took a 38% market share, and commercial real estate, all of which indicate to me private capital’s strong proclivity towards providing mortgage finance to the wealthy, in the form of products with terms that are highly beneficial to lenders/investors and highly onerous to consumers).

Regardless, I would ask that you make a couple of corrections in how you portray our proposal, in the interests of an honest debate.

I think there are two major mischaracterizations in how our proposal is described:

The Center for American Progress Objects to Our Critique of Its GSE Reform Plan
From there, it goes on to mischaracterize what Yves Smith wrote in at least one of those two "mischaracterizations", and to largely miss the point in the other. All of which Yves explained in a rebuttal post today:
Taxpayers will not eat catastrophic risk. We need to back up and explain the CAP plan a bit (which happens to be close to a consensus plan; it’s virtually identical to ones presented by the Mortgage Bankers Association, the New York Fed and the Financial Services Roundtable; one later put forward by Mark Zandi differs only in cosmetic details).

Instead of having the GSEs, which were in a weird indeterminate state between public and private until the box was opened and they were revealed to be public (shame they handed out all that executive comp before they figured that one out), the CAP proposal claims to have a better version: the new GSE analogues will be private!

Peel the onion further and you see how questionable that is. The GSEs 2.0 are an even worse combination of public backstopping of private sector risk. We should know by now this movie ends badly and should be undertaken only when an entity is regulated like a utility (and that includes utility-company pay to the top employees).

Our Response to the Center for American Progress Objection to Our Post on Its GSE Reform Proposal
The main reason we had a financial system collapse wasn't that there were poor people getting mortgages they couldn't afford - that loss represents less than a quarter of the real estate-related losses, which weren't all of the losses by a long shot. What killed the market was that what was supposed to be insurance against loans failing, the so-called "credit default swaps", turned out to not be insurance at all. The companies that sold them couldn't pay off what they were obligated to, so the government, via the Federal Reserve mostly, had to guarantee all those potentially bad loans. I don't know how much we're still on the hook for, but I'm sure it's not chump change. None of that has been corrected by the legislation Congress and President Obama were ballyhooing late last year as a grand reform effort.

In short, it's probably going to happen again, and since there were absolutely no consequences to anyone who made the decisions that got us here, it will probably be sooner, rather than later.

This is where we are two and a half years after the bottom dropped out of the financial markets, and we sent Democrats to Congress and the White House to clean it all up. They didn't. They laughed at us when we complained, called us imbeciles and drug addicts, and pocketed the money the financial industries were offering. Needless to say, they were joined wholeheartedly by their sycophants and enablers in the "progressive think tanks" like CAP.

If you wonder why I've largely given up writing about politics, you have only to look to this situation, and the pathetic response from large portions of the progressive electorate. They won't ever do anything about this or any of the other things that we sent Democrats to DC to do, because that involves risk - risk of voting for third parties and being "irrelevant", or risk of not supporting Democrats and having Republicans in charge for another two years or more. So they'll keep supporting this crew of crooks and drones until they somehow magically become something else. I have news for these people - nothing's going to change until they do.

According to most recent polls, most self-identified liberals and progressives think that President Obama is doing a fine job, still believing that he is somehow just fighting a tough battle against all those forces of darkness, when in most cases he's clearly not only working with those forces, but continuing to curry favor with them even when they've told him to take a hike.

Most self-identified progressives and liberals are clearly not part of a "reality based community".

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