Wall Street Co-Opting Nominally Liberal Think Tanks; Banks Lobbying to Become New GSEs

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.

Barney Frank’s great moral passion is low-income housing, and that’s not an accident. The traditional alliance in financial politics since the 1950s was between liberal low-income housing advocates and Wall Street financiers. Since the 1970s, Democrats tried to balance the two sets of interests by creating consumer protections but allowing the capital markets to manage themselves. This dynamic has created a serious political problem in the last four years, because complete capitulation to the banks in the capital markets has pillaged the low-income and middle-income communities the Democrats thought they were standing up for.

It’s not that the people who made this Faustian bargain are bad so much as they are fundamentally irresponsible and childish. The breakdown of law and order in the capital markets arena has created predatory lending, and ultimately has subverted any attempt to implement new laws. Dodd-Frank not just a weak response to the crisis, but actually downright pathetic thanks to the lack of prosecution for anyone who breaks the rules set forth in the bill.

And so, we return to the reform of the GSEs. The Republican mainstream wants to simply hand over government money to banks in the form of a government guarantee. No surprise there. Republicans see the world the way the banks do. Very conservative Republicans, however, aren’t on board. On the Democratic side, the dynamic works through the low-income housing advocates.

A think tank that calls itself liberal, the Center for American Progress, just presented a plan to reform Fannie/Freddie and the housing finance system. It would create an FDIC-like insurance fund for the securitization market, and create entirely private Fannie/Freddie like entities that can offer insurance wrappers on mortgage-backed securities, only these entities will carry explicit government guarantees. These entities can also be controlled by banks. There is a mechanism to funnel money to low-income housing, and ostensibly strict regulation of capital. These people believe that without the government guaranteeing mortgages, the American housing finance system will return to a pre-1930s model of a highly unstable predatory market.

Sadly, as well-intentioned as these people may be, this is just one more bank-friendly proposal designed to suppress debate on the Democratic side. CAP is THE mainstream Democratic think tank for Congress and the administration. Its CEO, John Podesta, ran the transition for Obama and was Clinton’s chief of staff from 1999 to 2001, so he is the embodiment of Rubinite/mainstream (meaning corporatist) Democratic party thinking. His brother is an enormously powerful corporate lobbyist, and I’ve heard his brother also apparently collects and ostentatiously displays pornographically-themed art (a tactic to impress/intimidate clients; ironically, anyone who has done time on Wall Street has seen worse and at closer range too).

That this kind of low-income-advocate/bank-friendly throwback would come from CAP isn’t entirely surprising, since the Administration has made the pet wishes of the financial services industry one of its top priorities, and the CAP generally provides cover for Team Obama initiatives.

You can read the Fannie/Freddie “reform” plan for yourself. Effectively all this proposal does is move Fannie’s and Freddie’s activities to new private entities that will have bigger loss cushions and and an explicit government guarantee. It thus preserves the incentives that led to their being placed in conservatorship in the first place, namely, socialized losses and privatized gains.

It is takes a wee bit of unpacking to depict accurately the multiple levels of hypocrisy involved in this initiative. First, the banking industry has long attacked Fannie and Freddie for distorting the mortgage market. Now they come hat in had to the government hat in hand wanting to be the GSEs.

Actually, that characterization is too kind. They are pushing for a better deal than the GSE had. They want the new entities, which they call to be fully privatized (they are called “Chartered Mortgage Institutions”, while the GSEs had an ambiguous public/private role that became more private over time, and they want an explicit government guarantee, while the old GSE had an implicit guarantee (actually, their documents declared loudly that they were not government guaranteed, but the reassurance of government officials to important foreign investors led them to demand that the US stand behind the guarantees).

The government would guarantee that in the event of the failure of the CMI investors would continue to receive timely payment of principal and interest on CMI guaranteed mortgage-backed securities that meet product structure, underwriting, and securities structure standards. The government guarantee would be explicit and appropriately priced, and the proceeds would be held in a Catastrophic Risk Insurance Fund.

Now the way the banks profit from all this is covered by a fig leaf. The CMIs would not be owned by originators, save through a “broad based cooperative structure”. Um, given how concentrated the banking industry is now, with 10 banks controlling 70 percent of the deposits in the US, who are we kidding? “Broad based” is likely to mean “little banks take token interests”.

But the bigger source of profit to banks will be no doubt be indirect. Take note of the huge lie at the heart of this: the idea that the new CMIs will charge a sufficiently high premium. If the insurance were “appropriately priced”, it would lead to the mortgages having pretty much the same terms as if there were no guarantee. “Appropriately priced” insurance has to cover the risk of expected loss. In fact, third-party insurance is typically more costly than self insuring because people are loss averse and are willing to pay more than the actual expected value of loss to forestall the consequences of Bad Stuff Happening to Them.

But the canard is in plain view; the document explicitly says that the insurance will NOT cover the risk of “catastrophic loss”; that is to be borne by the taxpayer. As we know, the odds of extreme events is higher than finance theory would have you believe. As the quants say, “tails are fat”. And we are vastly more likely to have bad outcomes where we explicitly allow private sector actors to dump the consequences of stupid or greedy behavior on the public at large.

Note also that these new CMIs get other right out of the current Fannie and Freddie charter privileges, such as the ability to own loans in their own portfolios.

The second bit of hypocrisy is the pretense that this program is anything other than a massive handout to the banking industry and is somehow necessary for the health of the housing market. If you want to see who is the real moving force behind this idea, compare the CAP proposal to a fall 2009 proposal by the Mortgage Bankers Association. You’ll notice the main provisions are the same, but the MBA proposal at least free of the sanctimonious posturing of the CAP plan.

As an aside, it’s important how the banks are maintaining message discipline on this issue. The only proposals receiving any sort of push are virtually the same, whether it be the CAP plan, the older MBA proposal, or those from the New York Fed and Financial Services Roundtable. The one partial exception is the Federal Reserve’s plan, which has the dubious distinction of being an even bigger handout to the industry by advocating that pretty much the entire asset backed securities market, including auto loans and credit card receivables, be government backstopped. Well, we did it in the crisis, why not make it policy? After all, we’ve conditioned the banks to expect it, right? Ain’t Mussolini-style corporatism wonderful.

People who are on the Fannie/Freddie beat, such as financial services industry expert and self-styled “recovering GSE analyst” Josh Rosner, recoiled when they learned of the CAP plan. From the Huffington Post:

“This whole cooperative idea, handing the banks the keys to the kingdom to become the new GSEs, that’s just a terrible plan,” says Joshua Rosner…”Why create a new class of too-big-to-fail GSEs? The banks have wanted to be the GSEs forever, and now they think they’ve finally got their chance.”

The report contains other serious distortions. It implies that this sort of scheme is necessary to preserve thirty-year mortgages. But we had a robust thirty year mortgage market ex Fannie and Freddie before the crisis, namely, so-called “jumbo” or non-conforming mortgages. And the premium over Fannie and Freddie mortgages was not high, typically 25 to 40 basis points, which ironically is less than the 50 basis point premium over current Fannie and Freddie pricing set forth in the CAP document.

Skeptics will argue that the private mortgage market, ex Fannie and Freddie, is pretty much dead. That’s correct, but the logic in having more heavily backstopped GSEs as the remedy is all wrong. The reason we have virtually no private securitization market right now is investors are on strike. And the reason they are still on the sidelines is the securitization industry has fought sensible pro-investor reforms tooth and nail. As we pointed out, the FDIC put forward a very well thought out plan a full year ago and presented it at the American Securitization Forum. The ASF, which represents the sell side (it pretends to represent the entire industry, including investors, but anyone close to the action knows better) has thrown its full weight against it as well as a weaker plan from the SEC. So the banks are engaged in a full bore effort to continue to suck as much blood as possible from the general public rather than clean up their act and suffer reduced profits and top brass bonuses.

Another major misrepresentation is that the alternative to this plan is to do nothing; the straw man is always to compare these proposals to shuttering the GSEs overnight. But there are other ways to get Fannie and Freddie out of the housing finance business, and some are remarkably straightforward.

For instance, we featured a vastly simpler plan here, one from John Hempton, which was later endorsed by Floyd Norris at the New York Times, and it’s actually pro-market as well. Just raise Fannie and Freddie fees gradually over time. That will eventually result in mortgages being priced so that it makes sense for private parties to offer them. Hempton also pointed out (boldface ours):

Every proposal for the government to get out of Fannie and Freddie is in reality a proposal for the government to get out of only a bit of Fannie and Freddie.

For example: if you are a business that likes managing interest rate risk you want Fannie and Freddie out of the interest rate risk management business but you want them to stay in the credit risk management business. You would prefer the government take the risks that you don’t want. And moreover you would prefer they took it at the lowest possible price.

The worst proposal out there (much worse than doing nothing) comes from Phil Swagel and Don Marron. They propose that the government exit the interest rate risk management business (the only business at Frannie that never lost money) and allow ten or so new competitive companies with government guarantees to compete with each other to sell government guarantee of credit risk. That means that credit risk (the risk that blew up the system) will be priced as close as possible to zero with the government wearing the downside. I can’t see that Swagel and Marron learnt anything from the crisis.

Note that the plan the Center for American Progress recommends looks virtually identical to the plan Hempton deemed to be worst. Now that stance may look unprincipled, but it’s a tad more complicated.

The banking industry has managed over time to get the affordable housing do-gooders into their camp. The problem, of course, is that providing housing subsidies that help the middle class actually doesn’t directly help lower income people much and in fact arguably hurts them, since artificially cheap loans actually increase housing prices. In addition, they conveniently obscures the true cost, since the subsidy appears cheap (it’s a mere guarantee) when in fact the bills come due in arrears, via the expenses of bailouts (first of the savings and loans, now of the GSEs).

And to the extent there are net plusses, it’s inefficient to achieve housing goals by laundering money through the banking industry. It’s tantamount to being in favor of having the mob run numbers rackets because it brings more funds into the neighborhood. And the banksters must be amused that they’ve gotten this crowd on their side on the cheap. They’ve no doubt respect them more if they insisted on being paid properly.

If we want to subsidize housing to advance social goals, the only sensible way to do that is through formal government programs with explicit goals, oversight, and accountability. And despite the bad name that overly aggressive and poorly thought out initiatives have garnered, we have had affordable housing programs that produced good outcomes at low cost. For instance, traditional FHA loans had low default rates because they had tough borrower screening and documentation requirements.

But we’ve learned what a bad idea it is to conduct housing policy by distorting the mortgage market, and separately saw what a bad idea it is to give the banking sector to place “heads I win, tails you lose” bets on the taxpayer dime. Yet a group that wraps itself in the mantle of representing public would have you believe that bankster-enriching failed ideas are just what the doctor ordered.

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  1. attempter

    A cesspool like the CAP isn’t just “nominally liberal”, it’s the essence of liberalism.

    Liberals are elitists who at least claim to want more of the elite-monopolized wealth to trickle back down (to the productive people from whom it was stolen) than the conservatives do. Individual liberals may or may not subjectively care about this.

    But their priority is always the elite robbery itself. That’s the only explanation which fits the evidence of all these decades.

    By now we know Rawlsian trickle-down doesn’t work. That was proven decades ago. So anyone who truly cares about low income housing would have renounced corporate liberal “solutions” long ago. He’d be demanding full scale Land Reform while trying to organize redemption of the land on a bottom-up democratic basis.

    Any true concern with low income housing has to, by definition, also be concerned with low incomes as such. This really means income inequality, and beyond that the even more important wealth inequality. There are no reform solutions to these systemic structural afflictions. Only fundamental structural transformation can solve our problems. Needless to say, there too, “liberalism” is empirically proven to have failed. More accurately, it has succeeded in preventing such solutions by misdirecting energy away from them and into its treacherous sham “reforms” which have done nothing but further entrench corporatism.

    And that brings us back to criminals like Frank and Podesta, and how they seek to extend the bankster tyranny under fraudulent slogan of “low income housing”.

    As I said, anyone who truly wants there to be adequate low-income housing would fight for restitution of the land on a food production stewardship basis. This would also give everyone self-supporting, spiritually fulfilling, politically redemptive work.

    For all those reasons such a plan is hateful to corporate liberals.

  2. steelhead23

    The long-running connection between Wall Street and low-income housing advocates is pernicious and cynical. It gives the word “Liberal” a bad name. I believe the HAMP program was similarly a fig-leaf for liberals and a prize for the banks. As much as one hopes the majority of Americans come to recognize the gargantuan crime that has been perpetrated against them an even more momentous awakening would be for liberal politicians to recognize how their desires to help low income folks without going through the political pain of appropriating funds to directly support such lofty goals, makes them easy marks for the Wall Street crowd. Or could it be that they are fully aware of the consequences of their actions and are cynically pandering for votes, regardless of the consequences?

    Regardless, at this point in time, the shark-like nature of the Wall Street crowd should be obvious to all politicians with an intellect above that of Sarah Palin. Anyone who actually introduces a bill resembling this CAP proposal should be vilified as a Wall Street tool, or dumber than Palin.

  3. Ray Butlers

    Where I live, housing has been overbuilt for decades. Nearly all of the big projects receive federal funding despite the questionable demand for either market-rate or “affordable” housing. They are sitting empty by the dozens now. They would not have been built without Federal dollars…channeled through banks (in the form of free money). In fact, one wonders where the capital for ANY big project would come from if the Federal Government were not providing it to the big banks. All they have to do is commit to a few units of cheap housing and they get millions to build lousy overpriced apartments for yuppies who will only live there for 5 years until they buy a real house and the trendy neighborhood deteriorates like it always does. Keep in mind that the demand was zero to begin with. No demand for this stuff at all even in good times. Do they think they are operating a perpetual motion machine?

  4. James Cole

    New York’s Mitchell-Lama-style limited-equity cooperative housing was the most successful housing program in the US in terms of number of affordable units built and resistance to both decay and gentrification. Individual units could be bought and sold but only at a fixed rate of return to the owner regardless of what the market price is. Not enough upside or financial gimmickry to interest wall street, and somehow the program has been lost in the liberal-left memory hole, but there are still thousands of units across the city and state where teachers, firefighters and CVS cashiers can afford to live.

  5. debt_slave

    Great! Let’s just completely remove any remaining facade of freedom by federally guaranteeing ALL debt for our banking overlords! Let’s maximize everyone’s debt and get everyone spinning on a perpetual hamster wheel, slave to their overpriced assets. Who cares if they can repay it? Just extract as much as you can from them! Where there is no risk, there is no capitalism. America is a glorified fiefdom.

  6. jake chase

    Liberals are magical thinkers addicted to a three card monte game in which wealth is perpetually sucked from savers and producers, and workers are saddled with escalating debts they can never hope to service. Racketeers game every program and system to extract maximum rents while the illusion of solvency lasts. Then comes the bust and the bailout of the racketeers. Regardless of its bells and whistles, the next mortgage fix will be a repeat performance. Nothing can stop this but an end to Fed counterfeiting. Critics are simply pissing into the wind when they focus on anything else.

    1. McMike

      So you are suggesting that liberals are secretly agents of elite capitalists, and their agenda is to enrich capitalists at the expense of the workers?

      This is a novel definition of liberalism to say the least.

    2. Pixy Dust

      “Liberals are magical thinkers addicted to a three card monte game in which wealth is perpetually sucked from savers and producers, and workers are saddled with escalating debts they can never hope to service.”
      How do you explain your novel parallel universe belief system when a producer, saver, worker just happens to be a liberal? Especially given the saver’s purchasing power is continually destroyed through currency degradation/inflation and wage stagflation and deterioration?

  7. TC

    I stopped reading here: “CAP is THE mainstream Democratic think tank for Congress and the administration.”

    These are choking dinosaurs about to be extincted by chaos the likes of which has not been seen since times predating the invention of the printing press.

    Leverage built up over many decades to an unimaginable extreme simply cannot be unwound “a little.” No! It MUST unwind fully now that confidence in lenders of last resort is destroyed. Pardon me for seeing through the solvency facade, but the backstop is bankrupt. So, its “guarantee” is absolutely meaningless. Given physical reality, this CAP plan all too likely is D.O.A.

  8. Paul in TO

    As this blog becomes more political and more partisan it’s important to be as rigorous in getting things right as it is in the economic sphere. On the economic aspect of this crisis there has been more good work posted here than almost anywhere else, but the recent trend towards political and ideological partisanship is more reflective of a high-school debate (which is pretty much consistent with all partisan political sites). The sketches of all political actors amount to little more than cartoon cut-outs in terms of understanding their positions and their actions.

    1. steelhead23

      Great idea. Now please explain Rep. Barney Frank’s positions on low-income housing in a nuanced manner, avoiding any cardboard cutout generalities and smears. It is my view that Barney Frank is an unwitting tool of Wall Street. I await your rebuttal.

        1. steelhead23

          He seems sincere – but you are correct. In terms of actions, Barney Frank is a slave to Wall Street. I stand corrected. BTW – I also agree that the tendency to paint all “liberals” or all “conservatives” with a single brush is ridiculous. There is a wide spectrum of positions and the ruthless dictator of “what is doable (meaning passable by Congress and signable by the president)” means that all legislation is a compromise (except of course for TARP and the Patriot Act). Thus, it may be that Dodd and Frank really, truly wanted to rein-in Wall Street and the fact that the legislation which bears their names is pathetic at best may simply be the result of placing getting to yes ahead of accomplishing the underlying goal. I think everyone here would agree that we need better leadership, less attached to special interests. Perhaps the real problem with U.S. democracy is that money has surpassed votes as political currency.

          1. Carla

            “Perhaps the real problem with U.S. democracy is that money has surpassed votes as political currency.” That happened a long, long time ago. But since the Supreme Court enshrined it as the law of the land with the Citizens United decision, have the people objected? Only a very few. I would suggest that’s the real problem.

      1. mezcal

        “…in a nuanced manner, avoiding any cardboard cutout generalities and smears…”

        You mean like you yourself did about 5 posts up this thread when you said:

        “…should be obvious to all politicians with an intellect above that of Sarah Palin”
        “…or dumber than Palin.”

        Perhaps you should learn to follow your own advice prior to demanding that others do so.

    2. DownSouth

      That’s without a doubt true. Recently almost all the commentary on this blog has been anti-Democratic Party. But I think there’s a reason for that, and that is that the Democrats controlled the presidency as well as both houses of congress. Now that the Republicans have regained control of the House, I think you will see more fire directed towards the Republicans.

    3. Yves Smith Post author

      Um, are you objecting to my characterization of Barney Frank? The passing remark in the post is actually far too kind. I’ve been hearing granular details of the Barney sellout on financial regulatory reform from people who have known him for decades in sordid detail. I could have filleted him if I chose to. To suggest I am engaging in hackery in this point is uniformed and naive. If you are unhappy about the comments on the CAP, I find that even more strange. To not inform readers of the biases and orientation of think tanks pushing policy would be remiss (or do you buy into the myth they promote that they are objective, when their raison d’etre is to provide a smokescreen for powerful interests?)

      If you are objecting to the discussion of politics, it suggests you are not paying attention as far as financial services is concerned. Their profits are dependent on the nature of the franchise the state gives them. The industry has been engaged in a remarkably brazen and effective effort to use the global financial crisis, a mess the big banks created, to restack the deck even further in their favor. That makes a discussion of politics of vital importance.

      1. Dirk77

        “That makes a discussion of politics of vital importance.”
        …and unavoidable if you want to discuss causes.

        By the way, Yves, the copyright at the bottom of your blog needs to updated to include 2010 and 2011?

      2. Paul in TO

        I was speaking generally, not specifically, but did reply to one comment on Barney Frank, who probably deserves as much blame for this crisis as anyone and I see no reason to assume he was well meaning any more than Greenspan, Paulson et al.

        The move from economics to politics to partisanship is a difficult road to travel and to keep up the same standards in the last of those as were present during the first is even more problematic. As a non-American reader I find it quite transparent: liberals/democrats = well meaning, but sometimes duped; conservatives/republicans = evil through and through (and some of the comments, merely the mirror image). That approach will never, ever enlighten anyone.

        From my perspective, the perceived “intentions” of politicians are constructed solely to appeal to whatever constituency elects them while their actions reflect a true lack of principles, deep corruption or an over-riding desire to dictate how others live. So I don’t interpret or excuse what they do. I just judge them by the impact.

        That’s why partisanship is different from discussing the political aspect of an economic crisis. The battle when dealing with anyone with firm convictions (especially economists) is that they will interpret everything as being consistent with whatever view they already held so that they don’t have to acknowledge what they did before was a waste. When things are as complicated as the last crisis it’s quite easy to do that and that’s why so few problems actually result in major changes that address the core issue.

        I merely observe that a site that really nailed some of the underlying causes of this crisis is in danger of becoming just another political blog and I really hope that doesn’t happen. There’s still a lot more work to do to fix this system.

        1. Yves Smith Post author

          You are engaging in drive by shooting. Tell me exactly how this blog is “partisan”. I’m attacking the Democrats, deservedly so, but that certainly does not make this blog pro-Republican.

          I’m most of all opposed to criminal behavior, hypocrisy, and the abuse of the rule of law. You are trying to say that stance is partisan? The reason I spend more time on and am harder on the Dems than the Republicans is the Republicans are pretty straightforward about what they are about. The Democratic party mainstream is more duplicitous and engages in far more complicated kabuki theater, so it takes some unpacking to show what is really at work.

          And your stance is contradictory. “Fixing the system” is INHERENTLY a political process. I’m told this blog is read by Congressional staffers as a source of independent analysis so it appears to be playing a useful if minor role.

          And from a higher level of analysis, this country is moving in a Fascist direction. If you don’t see it you are remarkably self deluded. Everyone I know over 50 (and these are without exception seriously monied types, there is no class jealousy at work) brings it up spontaneously. We have a civic duty to do what we can to prevent it. If you don’t like that, no one is making you read this blog. I suggest you stick to venues that don’t rattle your comfortable illusions.

          1. darms

            Wow. That’s why I come here. Yves you amaze me with your clarity & insights. Center For American Progress proposing essentially the same ‘fix’ as the Mortgage Bankers Association, of course the usual ‘privatize the profits, socialize the losses’ garbage. And yes of course it’s not cheap loans that make housing affordable, it’s reasonable housing prices. Cheap loans only fuel housing bubbles which in the long run makes housing less affordable. Have you seen any numbers as to how many sub-prime buyers still have their houses? (Personal example – I could (& did) afford my house in the pre-bubble days at $100K & 9%. But I could not buy it today at its current $260K value even w/a 5% loan. At its current valuation, if the house was fully paid for, property tax & insurance alone are $500/month which was the entire monthly payment on the house I bought in 1987)

            Can I ask about labels? Specifically about the liberal label? The CAP definition of liberal sounds an awful lot like the DLC version of liberal which I’ve long referred to as demublican, a ‘liberal’ who always takes the corporate side when it’s them vs. “We The People”. (A republocrat is of course the inverse) Is there still a place for a “New Deal” style of liberal, one who typically sides w/”We The People” when it’s “We The People” vs. the corporates? Or is this as clear a picture that will ever see of exactly how broken & corrupt this ‘two-party’ system has become? Is it time for some new labels? Yes, I’m 54 and see all too clearly our rapidly-approaching fascist state but it was that Mark Ames We The Spiteful linked in comments a few weeks ago that explained why it’s the people who will be hurt the most by it pushing the hardest for it. Ye cats…

          2. Paul in TO

            Well, I certainly see the country moving in a totalitarian direction, but I have trouble figuring out what the word “Fascist” means since it’s used so casually today.

            And I did not even address whether fixing this is a political process — INHERENTLY, or not — but merely said that the tendency to drift towards partisanship is a minefield and will diminish the site.

            To the comment that such (very mild) criticism amounts to a “drive by shooting” I have no response whatsoever.

            But I will certainly agree that your site is not pro-Republican. Hopefully that — along with the earlier praise for the work done on the causes of the crisis — will sooth thin skin.

          3. Yves Smith Post author


            This is not a matter of having a “thin skin” as my being frankly not tolerant of readers trying to censor what I write (and I must note an apology that it clearly begrudging and has criticism woven in is not an apology). And I’m not alone on this. Barry Ritholtz bans commentors for telling him “don’t write about this” or “why didn’t you write about that”. It’s very clearly in his comments policy and he adheres to it pretty strongly.

            BTW, “concern trolling” is a classic way to stifle dissent and unvarnished views.

          4. Dirk77

            Paul, I think you are confusing this blog with an academic journal. Yves’ posts are better reasoned than most, so I can understand that. However, it is a blog and she is the boss. You the reader are free to read and reflect upon what she says, and she is kind enough to let us also post, allowing us to flatter ourselves by contributing. But it still is just a blog. She tomorrow could start writing only about gumdrops and kittens and that’s okay because it’s her blog. Given this, if you are indeed concerned about, say, that the quality has dropped and she somehow is unaware of it, then the burden of evidence is on you to demonstrate this—and demonstrate it well. Anything else and it comes across as like those whining fans in 1966 ragging on Dylan for taking up that “noisy rock n roll.”

          5. jeff in indy

            as one of those over 50, i fully agree with your fascist comment. but getting there takes lots of money. barry spent his first 2 years disparaging the bankers, now he has to figure out how to continue slapping them with his right-hand, while patting them on the back with his left. it’s re-election time (i hear it’ll take a billion this go-round) and he won’t get there with $200 contributions this time.

          6. darms

            I agree that the word “fascism” got its meaning trashed due to overuse/misuse in the 60’s but it’s a word we should both remember and be aware of. Circa 2O04 David Neiwert at Orcinus made great steps towards restoring the word’s meaning which is loosely “the corporations are the state & the citizens of the state have the rights of non-union employees” which in other words means none – no rights. There is also a related thread wrt eliminationism in that in this fascist ethos certain people/beliefs have no right to exist & must be eliminated. His collection of essays entitled “The Rise of Pseudo Fascism” should be ‘required reading’ for those that care about this sort of thing.

            What Mussolini missed was that you don’t really need an active secret police to enforce order. When people are as afraid of losing their jobs or of what their neighbors may say or of random attacks provoked by media celebrities they self-censor their words & behaviours which is why we read of riots & demonstrations abroad but not here. Yes I remember the anti-Iraq war protests, I participated in quite a few. But they made no impact then and are off of the radar today.

          7. Dirk77

            “Concern trolling”? I’m so naive. Winning a Nobel prize in Medicine is all well and good, but looking back now I think turning down the starring role in Gladiator—and the related experience in the film industry—was a broadening I could have used.

    4. JTFaraday

      “but the recent trend towards political and ideological partisanship is more reflective of a high-school debate (which is pretty much consistent with all partisan political sites).”

      I can hardly see what you mean by partisanship, unless you mean post-partisan disgust with the duopoly that makes up the two headed serpent of our one party corporatist state.
      That seems the general political tenor of this site, most of the time, to me.

      If anything, far from evoking memories of high school, this site’s discussion of the role that nominally “partisan” political actors are actually playing raises the level of discussion for one simple reason: there are NO economies, there are only political economies. The “free market” is and always has been a myth, but the American academy railroaded the study of political economy off campus a long time ago and it’s not hard to figure out why.

      “That’s why partisanship is different from discussing the political aspect of an economic crisis. The battle when dealing with anyone with firm convictions (especially economists) is that they will interpret everything as being consistent with whatever view they already held”

      I can see why the growing corporatism that’s replacing the old familiar democratic framework, in which ideologically distinct political parties actually competed with each other, might make people uncomfortable– especially those who were deeply invested in it– but that doesn’t mean the rest of us are going to stop talking about it.

      And just because we’re talking about it, doesn’t mean we *are* partisan. Do you pay any attention to *how* most people on this site talk about it?

      I also agree that Democrats come in for a lot of analysis because they are filthy slimy with deception. This could be a whole site all of its own. Stripped of the slime of deception, today’s Democrats are to the right of the Republicans.

      On with the post-partisan discussion.

    5. Ray L Phenicie

      “but the recent trend towards political and ideological partisanship is more reflective of a high-school debate (which is pretty much consistent with all partisan political sites).”

      I would like to see some examples, otherwise, in the tradition of my 9th grade English teacher, Mrs. Ryan, I’ll have to give you an ‘F’ for you post as it was one long string of rhetoric and unsupported assertions,aka Ipse-dixitism

      I’m late in on this today but I see others have covered your error.
      On caricatures-the people mentioned in the article and indeed almost every person in the upper echelon of the financial circle and political venues are not nice people-they can’t be caricatured as shallow, cruel or vain because that’s who they really are.
      I know, I must back that up;
      It’s all here

      Not a plug for my site, I’m just a busy little follower of the political scene and I’ve found that the folks who run this country are commuting together to steal our wealth while they retire on a well sewn pillow.
      Happy reading!

  9. McMike

    We have reached the point where the facades and rationales are stretched to the point that they are merely simulacra of the original meanings and intents.

    This is full-on up-is-down-land.

    100% overt government support of “capitalism” is proscribed without irony, even as socialism is decried.

    Risk-free state-granted subsidized monopolies are blessed with the label of “privatization,” despite the fact that they are merely thinly disguised direct wealth transfers.

    Massive legislative corporate subsidies and captive market extortion schemes are labeled “reform,” and then the pigs make a big show of squealing and shrieking about “government takeovers” all the way to the bank, with their guaranteed profits and subsidized risk free cash flows in hand.

    Precious few blink at the Emperor’s g-string.

    1. Paul Tioxon

      If the federal government has intervened to point of being on average, 35% of GDP since 1975, the year Viet Nam war spending essentially died off, how capitalist is capitalism?


      State, local and Federal as a % of GDP now exceeds 40%. It appears that an empirical definition of capitalism is not whether of not government intervenes or is the overwhelming entity in society in terms of economic impact. What does the private sector do that distinguishes from all other economic activity? It operates a business solely for financial gain, and the highest financial gain. It works for a profit, even after all other expenses, including the salaries of labor and management are paid. It takes capital over and above the cost of doing business out the economic system and endlessly accumulates capital. Whether it can derive it from the state, another corporation, or individuals is immaterial, as long as capitalism is allowed to function, the system will adapt to endlessly accumulate capital.

      So, it should come as no surprise, that no matter the Machiavellian stage posturing for the masses, the rubes and the true believers in the free markets that it really doesn’t matter what the government does or does not do, as long as it can pursue its single minded goal of profit taking. In the absence of other opportunities, industrial manufacturing of consumer goods for example, any thing else will do. Like the housing industry. It is of the scale that is good for capital accumulation, and it can not really be outsourced, we have to live somewhere in America, the building and banking has to be done here for the most part. And it is culturally, since the New Deal, the hallmark of an egalitarian American politics. Homeownership is THE cultural metaphor of political enfranchisement, making the citizen a property owner and thereby a stake holder in the social order, by more than just a counting as a vote. IT REPLICATES THE EARLY POWER STRUCTURE OF STATE CONSTITUTIONS REQUIRING THAT POLITICAL OFFICE COULD ONLY BE HELD BY PROPERTY HOLDERS, FREE HOLDERS WITHOUT DEBT TO THEIR NAME, AND EVEN TO VOTE AT ALL IN SOME STATES. Homeownership is the passport to valid, universally respected identity in America, more than any other single achievement. Conversely, the loss of home, is the most shattering economic loss, because attached to it is loss of status, the implicit judgement of some failure to perform wisely and adequately to take of your business and your family. So terrible is the failure to be a failed debtor, that Robert Morris, a writer of the US Constitution and founder of the first bank in America, that financed the Revolutionary War, was jailed, lost everything and died in poverty, without any founding father to step to his aid, for the crime of owing money he could not repay from failed real estate investments. Attitudes have not changed much as seen in today’s foreclosures, which is the criminalization of laid off workers.

      So, of course, now that the industry is mature, with a tremendous history of predictable profits, measured in the trillions on an annual basis in transactions and consolidated into 2 great big machines of mortgage financing, cartel formulation would simply not be complete without Fannie and Freddie.

  10. Truthpartisan

    To attempter: “Rawlsian trickle-down,” although used in some discussions, is not correct as I understand the theory. (Thanks for mentioning Rawls and his principles of justice–we need them today.) In fact, Rawls’ difference principle allows for inequalities as incentives for work, but says that the advantage should be to the less advantaged, so it’s “Rawlsian suffuse-upwards.”

    For a far clearer explanation, see Freeman here, for example:

    1. attempter

      Thanks for the link, I’ll check it out.

      For now, you say it yourself:

      Rawls’ difference principle allows for inequalities as incentives for work

      We know that the Galtian drivel is just a lie. In a cooperative society most people would happily work at the much better jobs they’d have, and receive far more in true compensation. As for the few who can’t live without hoarding financial wealth in order to look down on others and lord it over them, such creatures have no place among decent human beings, and no human community would want any part of them or their “talent”.

      No decent human being demands an illegitimate, i.e. stolen, “incentive” to work, and we don’t need anyone who would demand it. Tell them to Get Out.

      As for trickling down, my understanding is that the difference principle agrees that if propaganda can claim paying the CEO a thousand times as much as the lowest paid worker will result in that worker making one extra cent, then that’s worth doing.

      But that’s both a lie in the first place, and it ignores the fact that as wealth concentrates it’s always, inevitably used as a weapon against those less wealthy, as well as to destroy democracy and civil society. So even if anything ever did once “trickle down”, later that’s all snatched back at an infinite interest rate.

      Besides, wealth inequality can’t exist without the elites rounding up the produce in the first place. How can a system legitimately “incentivize” one worker by stealing from another?

      We know for a fact that it’s a lie that allowing significant inequality causes non-rich wealth strata to become better off. On the contrary, we know it steadily erodes their wealth and quality of life, by design. That’s what systematic robbery tends to do.

      And by now the “we need inequality to provide incentives to our betters so they’ll create jobs” is a hard-core right wing talking point.

      By now anyone who wanted to adhere to the difference principle would be some kind of socialist and would fight for an end to land and infrastructure propertarianism, and needless to say would fight to eradicate the worthless and destructive finance sector.

  11. Joe Firestone

    I hesitate to write this out of a feeling that “resistance is futile,” and because I also know that there’s always a difference between normative definitions of positions, and definitions that arise out of common usage. However, if we look back to the Liberalism and Liberals during the period of the middle 1930s to the 1970s, then there’s no way that John Podesta, CAP, most of the Washington “liberal” establishment today and key supposedly liberal figures and of the 80s, 90s, and the past 11 years are “liberal.”

    No real Liberal ever believed in balanced budgets at the expense of full employment, or at the expense of maintaining infrastructure, or at the expense of good public education, or at the expense of public purposes. No real liberal ever believed in privatizing profits, and socializing losses. No real Liberal ever believed in “trickle down,” as Attempter claims above. No Real Liberal was ever pro-corporate; or trusted the free market alone to contain corporate looting by big business. No real Liberal ever believed in preemptive attacks on other nations that have not attacked us first. No real Liberal ever believed in torture. No real Liberal ever believed in the provisions of a law like the patriot act. No real Liberal ever believed in undermining Labor Unions. No real Liberal ever believed in anything but Medicare for All, or some alternative single-payer health insurance plan. No real Liberal ever believed in giving fraudsters, banksters, and banks a free pass for systematic accounting control frauds. No real Liberal ever believed in anything but tight and effective regulation of big business

    You get the picture I’m trying to paint. Jimmy Carter is no Liberal. Tip O’Neill was no Liberal. Bill Bradley is no Liberal. Dick Gephardt is no Liberal. Bill Clinton is no Liberal. Barack Obama is no Liberal. John Podesta is no Liberal. The Liberals in Congress today can probably be counted on the fingers of two hands, and this assessment may be generous since I’m having a hard time thinking of any apart from Kucinich, Sanders, Ellison, Grijalva, and Jim McDermott. At one time some of today’s Congressmen and Senators were Liberals. Barney Frank was once a Liberal. John Conyers was once a Liberal. Pat Leahy was once a Liberal. There are others who once ran as Liberals, but can’t be described that way now.

    Yves recognizes the problem I’m talking about here in her title. She knows that CAP is a “nominally liberal think tank.” That is, it calls itself Liberal; but that it is really not Liberal. Well that kind of thing has been going on for a long time as the US has moved right. It’s been a very long time since Brookings was Liberal. Maybe 40 years by my reckoning. But our mythmaking press still characterizes it as a Liberal Think Tank even though much of what it puts out may as well have been produced by the Rand Corporation, and is perfectly alright with Peter G. Peterson, one of the mortal enemies of Liberalism.

    Liberalism began to get a bad name during the early 1970s when it wilted under a blistering attack from Nixon and the right wing; and failed to defend its brand and the principles it stood for. That’s what’s led to the faux Liberalism in Washington today.

    The Liberals aren’t in CAP. They’re not even at the Campaign For America’s Future; and they’re not even so liberal at FireDogLake, which is, at best moderate liberal in 1950s terms. But if real Liberals like Rexford Guy Tugwell, Robert Hutchins, Paul Douglas, Dick Neuberger, Eleanor Roosevelt, Herbert Lehman, Wayne Morse, and John Kenneth Galbraith were alive today, you’d find them reading at blogs like this one, Correntewire, New Economic Perspectives, The Center of the Universe, BillyBlog, and New Deal 2.0 (where real liberals and faux liberals often debate).

    Starting with the right wing attack on Liberals under Nixon, right-wing commentators have systematically distorted the meaning of “Liberalism,” basically calling anything they didn’t like “liberal.” That tradition continues today with Rush Limbaugh, Glen Beck, and the whole stable of right-wing shrillers. But, I have to say that some of the comments above partake of the same outlook. Anyone can define “liberalism” anyway they want to. It’s a free country (oops, that’s debatable today). But the question is whether that definition even remotely corresponds to what the real Liberals of the 1935 – 1970s believed and practiced.

    The real Liberals today, in my view, are people like Jamie Galbraith, L. Randall Wray, Warren Mosler, Marshall Auerback, Elizabeth Warren, Bill Black, and in Australia, Bill Mitchell (though he’d probably deny the association).

    If you want to understand the real emotional temper of Liberalism, there is a blogger at Correntewire called LibbyLiberal. She isn’t well-known in blogging, and she’s an activist a well as a blogger. But she’s aptly named because she reflects the anger, discontent, and sense of justice of real Liberals.

    Another person who’s not really well-known, but who reflects the true Liberal spirit is Rusty1776, a blogger at the MyFDL community at FireDogLake. Rusty blogs about Justice and resistance and revolution and humanity. He/she reflects the true spirit of Liberalism in my view, not John Podesta, or others who are part of Jane Hamsher’s “veal pen.”

    1. McMike

      Orwell moves the goalposts… I remember a quote from maybe as much as twenty years ago; talking about how the definition of what is right and left on the football field of politics has shifted so far right that they are effectively now hiking the ball from over in the press box.

      We’ve reached the point that politicians who take the bulk of their money from corporate lobbyists, publicly deride unions and the retards of the left, and eventually leave politics to join a corporate board, are described with a straight face as “liberals.”

      The right is of course now doing the same thing to the words “socialist” and “progressive”. Twisting the meaning out of the language. They are alas quite good at this, as the media allows it to persist.

      My favorite is the current right-wing meme to redefine Nazism as a liberal ideology (it has the word socialism in it, you know).

      The unchecked rise of strident know-nothingism is cause of greatest despair to thinking people, and those of us who archaically believe that words and ideas matter.

      We seem drawn into debates with people who have come to wear the twisting of language and perennially contradicting themselves as a badge of honor. The degree of smug infantile projection and insistent provably falsehood is nearly unbearable.

    2. Florin

      I mostly agree, with the exception of (non)undermining Labour Unions.
      Both historically and today unions seem to be easily co-opted/corrupted by management, the mob, the CIA, the Democratic party establishment, you name it. Even if they were stronger, I am not sure that much good would come from them. For that their members would have to be much better educated politically.

      Sure, some strident anti-union noises are coming from very illiberal circles. But that’s not so much because they are against/afraid of the unions as they are today or as what they could become in the immediate future, it’s just useful/easy to rely on already ingrained prejudices. Just like the usage of “socialist”. They are not trying to redefine the term now, the term is already a curse word and a synonym to commie sympathizer/traitor in American English as a result of previous years of propaganda.

      1. McMike

        All large institutions inevitably become pathological.

        Unions and other classic liberal social institutions, alas, are not exempt.

    3. alex

      Joe Firestone,

      You’re conflating liberal with anti-corruption. As someone who leans to the left that appeals to part of me, but it’s still inaccurate.

      For example, you cite Bill Black as being a true liberal. How so? What’s so liberal about his politics? He believes that people should be prosecuted for financial crimes. That’s anti-corruption, but neither liberal nor illiberal.

      1. Joe Firestone

        Alex, you may have a point. I’ve read a lot of Bill’s articles their content and tone have much in common with Jamie Galbraith and Randy Wray. I know he not only wants to prosecute fraud and put banksters in jail but also wants to take the banks into resolution and change their mode of operation to make it impossible for them to speculate any longer. He also blogs at new Economic Perspectives which is UMKC’s MMT blog, where his other colleagues follow Liberal variants of the MMT approach to economics. Finally, he’s Roosevelt Institute Fellow, and also blogs at new Deal 2.0.

        So, looking at this as a profile, I’d guess that he’s an old style New Deal Liberal, but I could be wrong about that because all the papers Of his I’ve read are on the financial sector and the widespread corruption and fraud in it. I’ve never read anything from him that goes beyond that into broader realms of economic policy.

    4. attempter

      No real Liberal ever believed in “trickle down,” as Attempter claims above.

      Everyone you name with whom I’m familiar believes or believed in criminals stealing from the worker and then trickling back down some of what was stolen.

      No liberal..trusted the free market alone to contain corporate looting by big business….No real Liberal ever believed in anything but tight and effective regulation of big business

      So you admit – liberals support big business and propagate the “free market” lie. (They just claim not to trust it “alone”.)

      1. Joe Firestone

        “Everyone you name with whom I’m familiar believes or believed in criminals stealing from the worker and then trickling back down some of what was stolen.”

        Care to produce some evidence? Or are we just supposed to take your word for it?

        No liberal..trusted the free market alone to contain corporate looting by big business….No real Liberal ever believed in anything but tight and effective regulation of big business

        “So you admit – liberals support big business and propagate the “free market” lie. (They just claim not to trust it “alone”.)”

        No I haven’t said or implied that they supported big business. I said that they believed in tight regulation of it. Big Business doesn’t consider that support. It considers it control. Nor did I imply that the Liberals I mentioned propagated the free market lie, since clearly a regulated is not a free market in the normal sense of the term. Actually, the Liberals I’ve mentioned believed that the “free market” is unstable and requires Government regulation to keep in honest. Of course, that makes these markets “regulated” and not “free.”

        1. attempter

          Care to produce some evidence? Or are we just supposed to take your word for it?

          Those people don’t support capitalism, corporations, the “representative” pseudo-democracy scam, and land propertarianism? The evidence that they do is the evidence of their whole careers. But they’re actually stealth anarchists?

          I’d love to see the evidence for that.

          And I don’t understand the concept that one can want, as the main thread of his ideology, to “regulate” corporate rackets (something which has long sunce been proven to be impossible), but that this doesn’t mean he supports their existence.

          Then why try to regulate them? It’s proven that oligopoly rackets are purely destructive and can never be regulated. At the very best, the cycle of deregulation -> crash -> new regulation -> attrition -> dereg -> crash would go on forever and ever and ever. That’s the permanent war of attrition to which any “reformer” would doom us.

          What kind of sick agenda would want to doom us to this, to living under the thumb of these rackets in perpetuity, unless the agenda was simply pro-racket? Why choose this over economic democracy?

          Sorry, it’s clear that liberalism, including in your sense, is an economic elitism. It supports the existence of a ruling class which dictates economic policy from above. This is odious.

          And I didn’t even get into its political elitism. “Representative” government in principle, and having it be big, centralized, aggressive in practice.

          Do you know the record of the attitude of 30s liberals toward the Spanish Revolution? They preferred the fascist victory.

    5. Carla

      Thanks for this comment, Joe Firestone. I hope you might consider adding to your list of actual liberals in Congress, Senator Sherrod Brown of Ohio. And if not, may I politely ask, why not? Otherwise, I’m with you all the way, and I appreciate the tips to check out LibbyLiberal and Rusty1776.

      1. Joe Firestone

        Hi Carla, Sherrod Brown is too much in Jane Hamsher’s “veal pen.” I’ll change my mind about this when I see him vote against what Obama wants; or when I see him filibuster until they overwhelm him to block a lousy bill that came out of an Administration compromise. I’ll admit that Bernie Sanders folds too, but usually he’s the last man standing up to the President. Sherrod Brown’s not; and if he stood stronger for what he supposedly believes than perhaps he and Bernie could have forced more on the President on the hcr and finreg bills. If they had filibustered that stuff, maybe they could have gotten some limitation on credit card interest rates, or perhaps much, much more for Sanders Community Health Care Centers. People like Brown, Carl Levin, Barbara Boxer, Pat Leahy, and Sheldon Whitehouse should be making it impossible for Obama’s lousy centrist bills to pass the Senate. They should have held out for a much bigger stimulus in 2009. Everyone knew it wasn’t enough. They needed to force Reid to use the nuclear option
        to get rid of the filibuster in early 2009 so they could have cut down the influence of the blue dogs in the Senate. Instead, they played nice and have done nothing for their constituents.

  12. Hugh

    Think tanks don’t think but they are certainly in the tank for their sponsors. They are just an elite mechanism to give a “scholarly” gloss to whatever kleptocratic plan is being pushed. CAP is no different. It’s essentially a mouthpiece for the Democrats, and it’s great that Yves points to the people behind the curtain there. The Democrats are just as corporatist as the Republicans, and this is a thoroughly corporatist proposal. The banks have so fucked up the mortgage market that they have left it almost completely. They are only willing to return on no lose terms. Yves nails this. It is very much about privatizing of gains and socializing of losses.

    Other than kleptocracy, this brings up why we tolerate all these extractive layers which offer greater costs but no discernible efficiency or benefit. We have private insurance of healthcare even though this just increases costs while public insurance would deliver wider and better health coverage at lower costs. The same thing is true with banking. The vast majority of us derive no benefit from huge multi-tiered transnational investment entities. Banking as a utility would provide for our banking needs at much less cost and risk and with far greater transparency than under the current system with its predatory banking and casino mentality.

    Frank is not a nice but befuddled guy. He’s a crook. CAP is not a scholarly enterprise but an abettor of theft. We look with disgust and horror at Mubarak and what he is doing in Egypt. Well, folks, we have plenty of Mubaraks right here at home, some of them are in Congress, some are on Wall Street, and quite a few hang out in think tanks.

  13. Hugh

    Think tanks don’t think but they are certainly in the tank for their sponsors. They are just an elite mechanism to give a “scholarly” gloss to whatever kleptocratic plan is being pushed. CAP is no different. It’s essentially a mouthpiece for the Democrats, and it’s great that Yves points to the people behind the curtain there. The Democrats are just as corporatist as the Republicans, and this is a thoroughly corporatist proposal. The banks have so f*cked up the mortgage market that they have left it almost completely. They are only willing to return on no lose terms. Yves nails this. It is very much about privatizing of gains and socializing of losses.

    Other than kleptocracy, this brings up why we tolerate all these extractive layers which offer greater costs but no discernible efficiency or benefit. We have private insurance of healthcare even though this just increases costs while public insurance would deliver wider and better health coverage at lower costs. The same thing is true with banking. The vast majority of us derive no benefit from huge multi-tiered transnational investment entities. Banking as a utility would provide for our banking needs at much less cost and risk and with far greater transparency than under the current system with its predatory banking and casino mentality.

    Frank is not a nice but befuddled guy. He’s a crook. CAP is not a scholarly enterprise but an abettor of theft. We look with disgust and horror at Mubarak and what he is doing in Egypt. Well, folks, we have plenty of Mubaraks right here at home, some of them are in Congress, some are on Wall Street, and quite a few hang out in think tanks.

    1. lambert strether

      In the second and third world, a very substantial amount of rent extraction takes place in the layers of petty officialdom. (It’s worth remembering that the gentleman in Tunisia who set himself on fire, sparking two revolutions so far, did so over a permitting issue.) In this country, with a “market” that is implemented digitally, the rent extraction is both more efficient, quantitatively much greater, and lacks a human face (or, more to the point, an outstretched hand).

      1. McMike

        In the third world, when you bribe someone, you at least generally obtain the thing you seek. Here in the USA, we suffer baksheesh merely on the vague promises of competitiveness, prosperity, and freedom at some future date unspecified and specific payback not defined.

        Rent-seeking here has become pure non-symbiotic parasitism. You just pay, you get nothing in return. There is no pretense of value added.

        1. Pixy Dust

          “the vague promises of competitiveness, prosperity, and freedom at some future date unspecified and specific payback not defined.”
          Sounds like the concept of getting your reward after you die.
          Heaven with an unknown monetary value. Could be disappointing, no?

    2. attempter

      Think tanks don’t think but they are certainly in the tank for their sponsors.

      “Think tanks are paid to think by those who make tanks.”

      – Naomi Klein

  14. lambert strether

    “One side is lying, and the other is not telling the truth.”

    There’s a refreshing honesty about the R’s desire to loot the country and kill their enemies.

    The crawling hypocrisy, obfuscation through complexity, and Pilate-like handwashing from the Ds is (IMNSHO) even more vile and degrading, and in fact more dangerous, not least because their artificially created complexity works sucks well-meaning people into treating their proposals seriously, analyzing them, tweaking them, picking out the parts to be advocated “incrementally,” and so forth.

    The two parties are not the same, and do in fact hate each other, but they form a single entity that has nothing to do with public purpose.

    1. Yves Smith Post author

      Section 8 was a very good program, and a reader above correctly points out that NYC’s Mitchell Lama was also successful. It can be done. Yes, it has the side effect of enriching developers but as long as they don’t benefit disproportionately, is that so objectionable?

      1. steelhead23

        Thank you Yves, for avoiding ideological traps. Sometimes government subsidies work – for both recipients and society. It annoys me that many fiscally conservative individuals assume that all subsidies are ineffective or counterproductive. For example, there is an inverse relationship between education spending and crime, yet many “conservatives” wish to reduce public spending on education. Prisons are more expensive than high schools, so such positions are not fiscally conservative, they are socially reactionary. Thank you for avoiding ideological traps. Your quest for justice is not a partisan, or even ideological pursuit, it is part of human nature (please my fellow bloggers, I don’t wish to discuss that posit). I simply wish to throw my support to continuing your pursuit of justice and shining a bright light on the kabuki, wherever the theater may be.

  15. Tim

    I’m a private entity, and I want to buy some pink sheet stock to subidize those poor companies’ management and keep them employed. So I will help fund a future congressman’s and lobby him to submit a piece of pork/earmark to a legislative bill to backstop me by covering 100% of my losses while I keep 100% of the gains. It would be pro employment at zero up front cost to government. What a deal!

    Moral Hazard trickles down just fine.

  16. Hans Blix

    Barney Frank juiced everybody when he gave Fannie a clean bill of health back in July08. Right now there is almost nine years worth of vacant residential inventory cluttering up districts from sea to shining sea.

    So, what do we do, build MORE housing? With Christopher Dodd in retirement, we have a chance to stand up to the bankers unlike any we’ve had in the last thirty years. let’s not let CAP screw us out of it.

  17. CS

    Capitalism is a built-in wealth-accelerator for the rich/capitalist because the surplus value or profit may be used to create more wealth. (of course, that might fail in financial crises). The working class and, increasingly, the middle class have no such structural advantage in the capitalist system because the owners of capital can keep wages low simply by skimming off as much profit as possible. Bubbles like the recent one in housing and the one brewing in gold are simply pabulum chummed out to dazzle the public into believing they can “get rich too”. Additional hardship for the working/middle class; low rates for conservative fixed income investments.

    Therefore higher taxes on the wealthy – ie. wealth redistribution – is just because they enjoy the structural advantages of capitalism while wage-earne rs’ incomes stagnate.

    If you’re going to “work within” the capitalist system, I see no other “theory”.

  18. F. Beard

    If you’re going to “work within” the capitalist system, I see no other “theory”. CS

    We do not have free market capitalism. Instead our money system is based on government backed competitive counterfeiting of the government enforced monopoly money supply.

    The solution is pretty simple in principle. Disallow the theft of purchasing power in the first place and then there is no need to claw it back via taxation.

  19. decora

    “the insurance will NOT cover the risk of ‘catastrophic loss’; that is to be borne by the taxpayer.”

    so i cant imagine what its like to know as much about this market as Yves and the other folks on this blog know, and to see this type of stuff happening. im guessing it must be massively depressing and frustrating. like shouting into the wind!

    but… i think this blog is incredibly important. only started to understand securitization in mid-2010 thanks to books and articles &c. (EConned).

    i can clearly this this is a boondoggle, a morass. i think most ‘ordinary people’ understand the fundamental problems. you got the foxes watching the hen house, you got one group of people spending other peoples money, etc.

    i think eventually the message will break through out there. i know it broke through to me! its not some grand hard thing to understand. its a bunch of con-artist types putting fancy language on a carnie game and getting suckers to buy in. there are a lot of nit and pick differences, but thats essentially the heart of the matter.


    1. how is this big insurance fund any different from AIG or the monolines? they collected premiums to ‘insure against loss’. of course they werent real insurance, and their premium payment amounts were based on ratings —- which were made based on how much the product-creator paid the rater. how are you going to measure premiums when the whole industry (auditors, raters, product creators) appears to be conflicted and nothing appears to have changed? even after the entire planet has been to the brink of collapse?

    2. Fannie and Freddie started out as ‘explicit’ guarantees too, but they morphed into ‘implicit’ guarantees somewhere along the line. IIRC this was done to make the federal budget look balanced. in reality, it was never balanced, and thus the budget has been an utter lie, of by hundreds of billions of dollars, for decades, just on this one issue alone. what a total, utter, unbelievable sham. i think most ‘normal people’ will understand this perfectly, if its explained in plain language, and they will find it disgusting.

    keep up the good work, i think ‘the masses’ will get it eventually… piece by piece.

  20. hipparchia

    one small quibble — cap has never, afaik, billed themselves as ‘liberal’. they call themselves ‘progressives’. it’s the media, various bloggers, etc who describe them as ‘liberal’, ‘left’, and ‘left-leaning’.

    a lot of people who used to call themselves ‘liberals’ have now adopted the label ‘progressive’ because, like joe firestone says, the word ‘liberal’ has been so thoroughly demonized. these people are not to be confused with the other brand of ‘progressives’ — those who are corporatist democrats [and related ‘independents’], which is decidedly what the center for american regress progress is.

    1. Paul Tioxon

      I am not sure what everyone’s definitions are but there are two nearly identical positions of the status quo and a third position, wanting political progress all of the time. Conservatives want very little change at all in the overall structure of capitalism, income distribution, and all of the power and privileges currently in their possession. Liberals realize that change is inevitable, that people who have little power want more power to control their lives in more and more areas. Liberals want to control change and have been the dominant group for decades in setting the agenda for is acceptable and what is beyond the pale. Then there are the radicals, who can vary but are radical because they want wholesale change asap. American radicals have been typically co-opted by the liberals who have incorporated many radical demands for change into social programs, legislative changes, and business reforms to include greater opportunities for material prosperity, and some meager bits of power sharing.
      Radicals today are seeing a slight re-emergence due to the political crisis in America brought on by a fabricated national emergency of a war on terror, the disastrous wars in Iraq and Afghanistan, and finally, the ongoing global financial collapse. The PR re-branding of liberals as progressives or whatever is just more liberal mealy mouthed bull shit, due to their state of shock in being overwhelmed politically by the militant radical right wing conservative wealth, pouring out of the Sunbelt. The Northeastern Establishment has found that it has to also share power with people it typically did not want to share a stock exchange seat with, much less real political power. The 3rd option for people, who take a radical position, is for change, now, not delayed for another election cycle, that is change denied. Change now! In Egypt you are seeing the practical example of radicalism. You will see the practical example of reactionary conservatism, and if the Egyptian People are fortunate, in the coming weeks and months, a liberalization of their society starting immediately. Like the American military in Iraq, they can’t just click their heals and appear home. Moving 150,000 people and military material out that country took time, but it was done. All of the troops are not out of their yet, but that is not my point. Radical change can been seen by immediate change in key components, eg, Pres Mubaruk immediately resigning. The security apparatus being policed by the military until formal transition of the top commanders can be changed to those who will NOT punish the people for changing the government. And immediate plans for elections overseen by the military. They seem to be the only honest brokers. Here in America, radical change has happened in Barack Hussein Obama getting elected. There are those who think that he has not done anything radical. Well, he hasn’t, and he probably won’t. Unless, he is forced to by people who demand radical change now. But as you can see, there are an equal amount of people who will demand radical repeal of any change at all, including believing he is an American and legitimately elected by 67 million votes. But just getting a Black man with a funny name to beat a Viet Nam POW is almost beyond belief. There needs to be radical demands that almost no one will really doubt can be won. Social Security is one area for radical demands. Making it a constitutional right. Making all income, including capital gains be part of the tax and having no cap on the income level taxed. Social Security needs to be strengthened, promoted, and defended. Medicare is a part of that program and needs to be strengthened as well. Expanding it for everyone without health insurance, paid for by a payroll tax, like we currently do is THE goal. Social Security is the national retirement account and the national health care insurer. The personal income tax can be eliminated as a trade off. Corporations which have unlimited wealth and income producing capacity will be taxed to fund the government. Wages, which are an input into the cost of running a business, strictly proscribed as a fixed % of sales, should never be a source of state revenue. The contributions of social security are the cash we give to the government for safe keeping, and which we individually get back, as cash. It is pretty straight forward. It has worked uninterrupted for 75 years. It is a success. It is time for the sincerest form of flattery and to imitate it and scale it up. Now, asap. Or else.

    2. Yves Smith Post author

      I don’t want to dignify them by calling them “progressive”. They are “fauxgressive”.

      That’s why I use” liberal”. It fits to use a term which once meant “left” but now is best defined as “centrist but pandering to what is left of the left”.

      1. jeff in indy

        i think you’ll find that out here in middle-america the terms ‘liberal’ and ‘progressive’ are now interchangeable. wonder what the next iteration will be?

  21. Max424

    YS: “Ain’t Mussolini-style corporatism wonderful.”

    Too funny.

    I throw the Mussolini name around all the time on the Yglesias blog. I don’t think Matt credits Benito enough; in fact, Matt doesn’t credit Bennie at all, he just freeking robs the guy. Pilfering the dead of their ideas — what a racket.

    El Duce! Genius! Gave the modern world its operating system! As far as history is concerned, he’s Bill Gates, to the 50th power.

  22. bmeisen

    What’s the pornographically-themed stuff – big Helmut Newton prints? Are banksters papering those things on their office walls?

  23. John F. Opie

    For anyone not believing that history repeats itself, first as farce and then as tragedy, Yves has made the perfect case.

    The idea that the market “needs” to be controlled in order to make it possible for the poor to be non-poor continues to be the core idea here (and yes, I read the 64 pages of the document linked to above). Instead of realizing that the cardinal sin of the existing system was to try to manipulate prices by controlling the market, these folks think that the problem was that those controlling the market weren’t under enough control, and if they would only give them more control, then this sector of the economy would sit up and behave.

    Ye gods.

    This is nothing but more of the same, this time with no lubrication.


    /***The new mortgage finance structure we propose will provide stable, broad-based, privately capitalized housing finance so long as the entire mortgage market is subject to strong and consistent regulation.***/

    Meaning, of course, that real estate financing is to be strictly under control and subject to political goal-setting.

    /***Private mortgage markets are inherently procyclical, meaning they tend to provide too much credit during housing booms and too little credit during downturns, inflating bubbles and deepening downturns.***/

    Here their lack of understanding is clear, confusing cause with effect: it’s not that the markets per se are procyclical, but rather that during upswings people are earning more and can afford to acquire credit, while this dries up during a downtime. Here these progressives believe that the problem is purely supply-side, rather than demand-side.

    /***Risk oversight must be imposed over the entire mortgage finance system because private capital will naturally go to those products, entities, or structures where capital requirements and regulatory oversight are lower or nonexistent, creating the kind of race to the bottom that we just experienced./***

    Here another insight into the progressive mind-set: that capital always seeks to evade control, rather than seeking the highest rent with the lowest rate of risk acceptable. The separation from reality could not be greater: during the lead-up to the crisis, private capital flowed into the system massively because risks were reported as being non-existent, despite high returns. The lack of oversight and regulation made the fraud and deceit possible, but didn’t drive private capital into MBS.

    /***Gaps exist in the mortgage market—gaps that typically fail to direct sufficient affordable capital in a sustainable manner to underserved sectors, including low and
    moderate-income borrowers, economically distressed regions and communities, and affordable multifamily rental housing.***/

    In other words, this is subprime lending in all but a new name: lend money to those who are, per definition, incapable of affording it. Ye gods.

    I’ll stop here because there is simply too much more in there to dissect. Suffice to say: this is more of what got us into trouble in the first place.

    1. Boourns76

      You realize that subprime mortgages were not the purview of the government-backed part of the market, but were a private market creation, right? The part of the market that mispriced risk the most was the PLS sector? Do you speak English?

      When did this blog become dominated by right wing nuts?

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