Twenty-three trillion is still a lot of money.

Schiller:

The effectiveness of our free enterprise system depends on allowing business people to manage the myriad risks — including the risk of asset bubbles — that impinge on their operations in the long term. And this process needs constant change and improvement.

This has to be some of the most self-serving gibberish for justifying the screwing of most investors. Total hogwash.

“allowing business people to manage the myriad risks — including the risk of asset bubbles”

Oh my favorite topic. Schiller, the free enterprise system is a chaotic system, and chaotic systems are just that, chaotic. That is unpredictable, and random.

Why is trying to manage these systems anything more than negligence coupled with gambling?

Maxim: fast, good, cheap. Choose any Two.

Actually, in a purist sense, Schilelr is right.
But we do not have a ‘pure’ economy.
We insist that risk be mitigated, and that makes no sense at all without control.

That is, er, the money quote.

Or, in the words of my favorite sign from a Wall Street demonstration last year
“Jump – You Fuckers”

As usual, wingnuts are fact free. They usually argue that homeownership rates went up as a result of financial innovation. (Why it’s “better” to own a home than to rent one is a different issue that should be discussed at some point.) But homeownership rates have completely recycled, from 67% in 2000 to 69% at the peak 2004-5, back down to 67% and falling. (Here, PDF, Table 4.) So all that housing finance innovation nets out to a big fat negative, when you consider what the bubble bursting did to other sectors of the economy.

More macroeconomically, the economy grew just fine when there were very onerous, and often stupid, financial regulations. Financial innovation is the biggest crock that humans ever devised.

I’m right with ya. however the term “manage” does seem to imply some modicum of control. But I think it means something to him that is different that what it means to you and me.

In blogging my little fingers away about the loan mod scam (ahem!), I couldn’t bring myself to use the term “homeowner”. I used the term “mortgage holder” instead. Or does that refer to the bank?

And, I’ll add, all the advertised benefits of deregulation and resultant “spreading of risks” turned out to be precisely backward. Turns out the risks under the innovative system were contagious, worldwide.

In the old days, 40% of households owned their homes outright, with no mortages. I own two outright. I’ll see if I can find what the figure is today.

I could live on just 1% of that for the rest of my life!!

I should have looked this up earlier. the bank is the holder, the person making payments is the mortgager.

Again I will quote this exchange with John D. Rockefeller:

reporter: how much is enough?

Rockefeller: just a little bit more.

The NYT has Barofsky backing away:

But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown. It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.
It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.
It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.

It seems to be around 30% today, and that refers to owner-occupied, non-seasonal. Concentrated in older households, of course.

You meant “mortgage slave”, I think.

So the lenders are innocent of selling mortgages to high-risk borrowers?
Even if the borrowers weren’t high-risk at the time? Even if the lenders lied about the risks? Even if the lenders falsified the loan docs themselves?

Isn’t that illegal?

Comprehensive Look at the Top 25 Subprime Mortgage Lenders

Since September, the watchdog organization Center for Public Integrity has pursued several investigations into the financial crisis, subprime mortgages, lending practices, and theuse of federal bailout dollars. And this week they share what these investigations turned up in a comprehensive online project titled Who’s Behind the Financial Meltdown?: The Top 25 Subprime Lenders and their Wall Street Backers.

The project centers on 25 banks that together accounted for nearly $1 trillion of the nearly $1.4 trillion–or 72 percent–in “high-interest loans” that were handed out between 2005 and 2007. CPI analyzed government data on 7.2 million loans for the project. The lenders include some of the nation’s largest banks (and recipients of TARP funds) like Wells Fargo, JP Morgan Chase, and Citigroup that have or had subprime lending units. Other lenders were subsidiaries of major financial institutions. Here are some of the topline findings of CPI’s research:

-At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization.

-Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were not banks and were not permitted to collect deposits.

-Eleven of the lenders on the list have made payments to settle claims of widespread lending abuses. Four of those have received bank bailout funds, including American International Group Inc. and Citigroup Inc

5/28/09 Graham Griffin.

Good fast cheap, you get ONE these days.

oh pish posh. there you go impinging on long term benefits.

Schiller speaks the mumbo jumbo of the financial and political dialectic….

“The effectiveness of our free enterprise system depends on allowing business people to manage the myriad risks — including the risk of asset bubbles — that impinge on their operations in the long term. And this process needs constant change and improvement”.

If we really had a free enterprise system that worked and that those who took the risk ie: share holders and bond holders, had to be held to account along with their boards, then any bank, insurance company or any other business run from profit must be allowed to fail and not be bailed out at the expense of the tax payer. It’s all so convenient that great minds like Schiller always seem to overlook this this one fact and always at our expense. The more things change in D.C. the more they stay the same. With real unemployment running at 20% as per testimony today in the exchange between Ron Paul and Bernanke, I’d say it pretty clear that Schiller needs to go back to school and learn what a free market is all about. Today we have none as the markets are nothing more than a casino who at best has the odds stacked in favor of the house and at worst, is so heavily manipulated by the Fed and Treasury that the free markets concept is nothing other than a wet dream.

Linky me!

o/t but my teen daughter is so bugged about people making money without working for it (i.e. stock brokers) and somehow this is linked in her mind to rich kids getting into Harvard when they don’t deserve it or something, that she pulled out her tiny little money market statement to see what her fund had invested in. I don’t know where this might lead, but she was sure curious. she’d never done that before.

Most financial analysts and commentators never saw the housing bubble or the financial crisis. Even more importantly, they still haven’t come to terms with the paper economy itself. CDOs written on CDOs and other exotic instruments have no reason for being in a real economy but in a paper economy they are essential because they shuffle the paper around. This allows those who write them like Goldman collect fees and it keeps buyers thinking they actually own something of value when in fact they don’t.

This is a very disappointing piece from Shiller. Do a search on steam boiler regulations and see what you find. Lotta regulations. The country tried voluntary guidelines and regulations for steam boilers and what happened was that they kept blowing up, wrecking stuff and killing people. So, now we have strong mandatroy regulations. But that was done back in the 19th centurey when people had a more progressive viewpoint than we do today.

Shiller says that private financial innovation is needed to spread risks, then he pisses on a weak and inadequate proposal, and kind of throws up his hands. So? This kind of twaddle from the recognized experts is causing a kind of learned helplessness in our society.

I think it is true that industry needs financial innovation for continued economic growth. Part of this process is hedging, and that might involve making what amounts to bets on outcomes in which you have no direct ownership or liability -like weather, or interest rates. This kind of betting is done all the time, but on formal futures and options exchanges with strong public regulations, and also strong private regulation imposed by the exchange because the exchange is responsible if something goes wrong.

There have proposals for doing this in the mortgage securitization market, other respectable economists (Alan Blinder, Joeseph Stiglitz are two examples) have said that is the way to go. ‘Plain vanilla’ does not necessarily mean simple. It can also mean ’standardized’ and standard contracts can be designed so that you can do very flexible, innovative, and complex things with them and also keep track of what is going on, and their use can be effectively regulated.

Does Shiller not know about weather futures and options markets on organized and regulated exchanges? Or interest rate futures markets?

In this column, it is as if Shiller says house fires are a big problem, talks about how spray bottles won’t help much in putting out housefires, doesn’t bother to mention fire extinguishers or fire departments, and then wanders off muttering to himself.

Even more importantly, they still haven’t come to terms with the paper economy itself.

Ding.

I forgot building codes. I gues building codes would be analog of regulations for financial instruments.

I think these guys collect a fee if you breathe their air.

OK, I found the link and it’s very interesting. thanks.

for you other pups, find it here.

Now that we know that financial innovation is trickle down economics on steroids, the prime directive of which is decoupling profits from risk and losses so that the latter two are dumped on the bottom 95% of the country….

When does the revolution begin?

@30

Thanks-I had to take a series of phone calls and couldn’t finish my thought(and link.)

Incidentally, the site “finding dulcinea” has a superb list of links re: the cause of the subprime meltdown.

I read another piece entitled 5 Myths about the subprime issue.

If my memory serves me correctly, 90% of the bad loans were NOT from first time buyers,but re-fis.

This BS about trying to victimize the homeowners really makes my blood boil.

MORE Republican classs warfare,

AND since we the people have paid and will continue to pay $$$$$$$$$$$ for the cost of the Free Market Casino Capitalism of the Wall Street thieves and thugs,(Wealth Care)don’t you believe we are damned well entitled to a return on our “investment’,namely HEALTH CARE?

The subprime mortgage mess: 5 myths put to rest – Pittsburgh …
Feb 10, 2008 … Today, Issac is a managing director at LECG, a global expert services firm … Most subprime borrowers — nearly 90 percent — aren’t … Myth 5: No one can make money on mortgage securities in the midst of the meltdown. …
http://www.pittsburghlive.com/x/pitts…..s_5… – Cached – Similar

Interesting. If she displays more interest, show her this link: http://www.edgar.sec.gov

I have to confess, masaccio is one of my faves. I always learn something new on these threads.

As such,perhaps Master Masaccio could proffer an opinion on this article about Basel II.It would be greatly appreciated.

I Never hear anyone discuss it’s impact.

Blame Basel II ~ Angry Bear
Look up Basel II on Wikipedia. Then click till you get to Standardized Approach (Credit Risk) and you will find a candidate for the source of the trouble. …
angrybear.blogspot.com/2008/12/blame-basel-ii.html – Cached – Similar

But didn’t this already occur in Japan?

Eclectic Investor: Lessons from Japan’s Housing Bubble – I
Japan is an excellent example of a housing bubble that went horribly wrong, … At the end of the Japanese housing bubble, some $20 trillion (1999 dollars) …
eclectic-investor.blogspot.com/…/take-it-from-japan-bubbles-hurt.html -

Japanese property bubble: Can it happen here? – July 11, 2005
Jul 11, 2005 … Japan’s problems went beyond just a housing bubble. The real trouble came from commercial land speculation. While residential-land prices in …
archive.mailtribune.com/archive/2005/0711/biz/…/02biz.htm – Cached -

Japan’s Housing Bubble, Busted – Mises Economics Blog
The New York Times ran a feature on the aftermath of Japan’s housing bubble. Reading the article, I was struck by the similarities: the …
blog.mises.org/archives/004481.asp – Cached

Jul 2, 2009 … There are more than 6 million vacant houses in Japan. Most will never be sold, … The China Bubble and the Convergence of Oligarchie. …
jessescrossroadscafe.blogspot.com/…/japanese-stagnation.html – Cached – Similar

I’ll take a look. This is complex.

Conning people into believing that shifting more and more paper around would somehow make them richer than if they actually invested in something productive was their real ‘product’. It made them trillions when they took a cut of all those transactions. Now we have no choice but to take our ‘cut’.

Were they behind the deregulation of the housing/mortgage-lending industry which made all those sub-primes turn into crap at midnight? Without that I don’t see how they can be blamed. Who among them would wish their assets should become worthless?

Of course, they might always have ‘known’ that being too-big-to-fail meant never having to say “oops”.

As I understand it Rep. Maxine Waters has a bill in the House to eliminate ALL Credit Default Swaps. Don’t hold me to that though. I haven’t read up on it.