The Washington Post might have misled readers with its discussion of efforts to end the conflict of interest inherent in the current system where banks issuing mortgage backed securities hire the agencies that rate their debt. It told readers:
“Congress debated that idea when it put together the sweeping financial overhaul law in response to the 2008 crisis. But lawmakers pushing the idea were unable to include it into the final legislation.”
The Senate actually overwhelmingly approved (65 votes) an amendment from Senator Al Franken that would have had the Securities and Exchange Commission pick the rating agency assigned to assess newly issued debt. The provision was stripped out in the conference committee, apparently with the support of then Secretary of the Treasury, Timothy Geithner.
The main substantive argument against the Franken amendment was that the SEC may send over an auditor who was not qualified to rate a new issue. This raises the obvious question of why an investment bank would be trying to market a bond issue that a professional auditor at a major credit rating agency could not understand.
The Washington Post might have misled readers with its discussion of efforts to end the conflict of interest inherent in the current system where banks issuing mortgage backed securities hire the agencies that rate their debt. It told readers:
“Congress debated that idea when it put together the sweeping financial overhaul law in response to the 2008 crisis. But lawmakers pushing the idea were unable to include it into the final legislation.”
The Senate actually overwhelmingly approved (65 votes) an amendment from Senator Al Franken that would have had the Securities and Exchange Commission pick the rating agency assigned to assess newly issued debt. The provision was stripped out in the conference committee, apparently with the support of then Secretary of the Treasury, Timothy Geithner.
The main substantive argument against the Franken amendment was that the SEC may send over an auditor who was not qualified to rate a new issue. This raises the obvious question of why an investment bank would be trying to market a bond issue that a professional auditor at a major credit rating agency could not understand.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Actually the Post’s budget piece didn’t tell readers that. Instead it said:
“All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare.”
Pretty damn scary, huh? Just think of that — adding $5.7 trillion to the debt, and interest payments that will be larger than spending on any program other than Social Security and Medicare! Sounds like we’re going to hell in a handbasket.
If the point of the story was to convey information rather than advancing its deficit cutting agenda (which seems aimed largely at Social Security and Medicare), the paper would have told readers that the interest tab projected for 2025 is 3.0 percent of GDP. Before you scream about what we are doing to our children, consider that interest payments were 3.0 percent of GDP or more every year from 1985 to 1997, except 1994 when they were 2.9 percent. (These numbers are in the same document, Table E-6). These payments were larger than spending on any program except the military and Social Security.
Unlike the NYT, the Post makes almost no effort to put the budget numbers in any context, expressing terms almost exclusively in billions and trillions which they know are meaningless to almost all their readers. It’s just another way of saying that the government spends and borrows lots of money, the sort of claim that papers are supposed to leave to the opinion pages.
Actually the Post’s budget piece didn’t tell readers that. Instead it said:
“All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare.”
Pretty damn scary, huh? Just think of that — adding $5.7 trillion to the debt, and interest payments that will be larger than spending on any program other than Social Security and Medicare! Sounds like we’re going to hell in a handbasket.
If the point of the story was to convey information rather than advancing its deficit cutting agenda (which seems aimed largely at Social Security and Medicare), the paper would have told readers that the interest tab projected for 2025 is 3.0 percent of GDP. Before you scream about what we are doing to our children, consider that interest payments were 3.0 percent of GDP or more every year from 1985 to 1997, except 1994 when they were 2.9 percent. (These numbers are in the same document, Table E-6). These payments were larger than spending on any program except the military and Social Security.
Unlike the NYT, the Post makes almost no effort to put the budget numbers in any context, expressing terms almost exclusively in billions and trillions which they know are meaningless to almost all their readers. It’s just another way of saying that the government spends and borrows lots of money, the sort of claim that papers are supposed to leave to the opinion pages.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
That’s one question that readers of Eduardo Porter’s insightful column on the prospects of the euro must be asking. Porter commented on the concerns expressed by Germany about inflation in a context where the inflation rate has been drifting lower for years and is now near zero. He argued that:
“conditioned by memories of hyperinflation after World War I, they still fear higher inflation.”
Hmmm, “memories of hyperinflation?” Let’s see, we’re talking about a burst of hyper-inflation that took place in the early 1920s. If we say that someone had to be roughly 10 or so at the time to have a clear memory, then those with memories of this hyper-inflation would have to be over 100 years old today.
This point is worth noting, because hyperinflation is not something that any sizable number of Germans alive today actually experienced. For the most part, even their parents didn’t experience it. The Germans’ concern about hyperinflation is based on national myth, not their own experience. They are making the rest of the eurozone pay an enormous price for this myth.
That’s one question that readers of Eduardo Porter’s insightful column on the prospects of the euro must be asking. Porter commented on the concerns expressed by Germany about inflation in a context where the inflation rate has been drifting lower for years and is now near zero. He argued that:
“conditioned by memories of hyperinflation after World War I, they still fear higher inflation.”
Hmmm, “memories of hyperinflation?” Let’s see, we’re talking about a burst of hyper-inflation that took place in the early 1920s. If we say that someone had to be roughly 10 or so at the time to have a clear memory, then those with memories of this hyper-inflation would have to be over 100 years old today.
This point is worth noting, because hyperinflation is not something that any sizable number of Germans alive today actually experienced. For the most part, even their parents didn’t experience it. The Germans’ concern about hyperinflation is based on national myth, not their own experience. They are making the rest of the eurozone pay an enormous price for this myth.
Read More Leer más Join the discussion Participa en la discusión
Robert Samuelson used his column today to tout a new study that analyzes home purchases by the income level of the buyer in contrast to previous work that analyzed data by average income in a zip code. The conclusion of the study is that increased aggregate debt to income levels was the result of more people buying homes, not higher ratios of debt to income among purchasers. This means that the problem was not a deterioration in lending standards. It also finds that the growth of debt was proportionate to income in each quintile, meaning that low-income households were not singled out for bad loans.
This is an interesting analysis that seems to contradict much other evidence. For example, while it shows no correlation between income levels and delinquency, we know that African Americans were far more likely to lose their home in the crash than the population as a whole. It would be striking if this is exclusively a question of race and not income.
We also know that both subprime and Alt-A mortgages skyrocketed as a share of total mortgage issuance during the downturn, with the former going from around 8-9 percent in 2000 to 25 percent in 2005. The latter went from 2-3 percent to 15 percent in 2005. It is difficult to believe that the growth of these riskier mortgage types wasn’t not associated with a rise in the debt to income ratios of borrowers.
And, we have a survey done by the National Association of Realtors at the time. This survey found that 43 percent of first-time homebuyers in 2005 put zero down or less (many people borrowed more than the value of their home). This certainly would not have been the case ten years earlier. Part of the problem could be that the first year in the analysis is 2002, a point at which the bubble was already well underway. The deterioration from 2002 to 2006 would have been far less than if the analysis had begun in a year before the bubble began. The other possibility is that the analysis is not picking up second loans that raised debt-to-income as well as debt to value ratios.
However the deeper point in this discussion is that the question of banker fraud versus a mistaken belief that the bubble will last forever is not an either/or proposition. It is entirely possible that most of the bankers issuing mortgages that they knew borrowers could not pay, or that were based on mis-stated information that they had entered, believed that rising house prices would ensure the quality of the mortgages. The investment bankers who packaged them into mortgage backed securities may have also believed in the bubble.
However this does not change the fact that falsifying mortgage information is fraud and that knowingly packaging fraudulent mortgages into mortgage backed securities is also fraud. The people convicted of fraud charges in the Enron scandal all had large amounts of Enron stock. This indicated that they believed the company was a good buy and presumably had a good business model. They still committed fraud. That is likely true of the folks at places like Countrywide, Goldman Sachs, and Citigroup.
Robert Samuelson used his column today to tout a new study that analyzes home purchases by the income level of the buyer in contrast to previous work that analyzed data by average income in a zip code. The conclusion of the study is that increased aggregate debt to income levels was the result of more people buying homes, not higher ratios of debt to income among purchasers. This means that the problem was not a deterioration in lending standards. It also finds that the growth of debt was proportionate to income in each quintile, meaning that low-income households were not singled out for bad loans.
This is an interesting analysis that seems to contradict much other evidence. For example, while it shows no correlation between income levels and delinquency, we know that African Americans were far more likely to lose their home in the crash than the population as a whole. It would be striking if this is exclusively a question of race and not income.
We also know that both subprime and Alt-A mortgages skyrocketed as a share of total mortgage issuance during the downturn, with the former going from around 8-9 percent in 2000 to 25 percent in 2005. The latter went from 2-3 percent to 15 percent in 2005. It is difficult to believe that the growth of these riskier mortgage types wasn’t not associated with a rise in the debt to income ratios of borrowers.
And, we have a survey done by the National Association of Realtors at the time. This survey found that 43 percent of first-time homebuyers in 2005 put zero down or less (many people borrowed more than the value of their home). This certainly would not have been the case ten years earlier. Part of the problem could be that the first year in the analysis is 2002, a point at which the bubble was already well underway. The deterioration from 2002 to 2006 would have been far less than if the analysis had begun in a year before the bubble began. The other possibility is that the analysis is not picking up second loans that raised debt-to-income as well as debt to value ratios.
However the deeper point in this discussion is that the question of banker fraud versus a mistaken belief that the bubble will last forever is not an either/or proposition. It is entirely possible that most of the bankers issuing mortgages that they knew borrowers could not pay, or that were based on mis-stated information that they had entered, believed that rising house prices would ensure the quality of the mortgages. The investment bankers who packaged them into mortgage backed securities may have also believed in the bubble.
However this does not change the fact that falsifying mortgage information is fraud and that knowingly packaging fraudulent mortgages into mortgage backed securities is also fraud. The people convicted of fraud charges in the Enron scandal all had large amounts of Enron stock. This indicated that they believed the company was a good buy and presumably had a good business model. They still committed fraud. That is likely true of the folks at places like Countrywide, Goldman Sachs, and Citigroup.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Is someone paying them to give their readers inaccurate information? I’m inclined to doubt that explanation, but why does the paper keep using this description when it is so obviously not true?
The issue came up in the context of a discussion of the agenda of the Democrats in the House of Representatives. The article notes differences between House Democrats and President Obama and trade, and then tells readers;
“Republican leaders are preparing legislation that would grant Obama broad authority to finalize one of the largest free-trade pacts [the Trans-Pacific Partnership] in the nation’s history.”
The Trans-Pacific Partnership (TPP) is far from a “free-trade” deal. It actually will increase some protection in some areas, notably stronger and longer patent and copyright protection. Most of the deal is devoted to creating a uniform and largely business friendly regulatory structure. It creates special courts for businesses to sue governments outside of the normal judicial process. Since most trade barriers between the parties in the pact are already low, it will do little to reduce formal barriers to trade.
It is difficult to see why the Post cannot simply refer to the TPP as a “trade agreement,” or even more accurately a “commercial agreement.” It could save its praise of the pact for the opinion pages.
Is someone paying them to give their readers inaccurate information? I’m inclined to doubt that explanation, but why does the paper keep using this description when it is so obviously not true?
The issue came up in the context of a discussion of the agenda of the Democrats in the House of Representatives. The article notes differences between House Democrats and President Obama and trade, and then tells readers;
“Republican leaders are preparing legislation that would grant Obama broad authority to finalize one of the largest free-trade pacts [the Trans-Pacific Partnership] in the nation’s history.”
The Trans-Pacific Partnership (TPP) is far from a “free-trade” deal. It actually will increase some protection in some areas, notably stronger and longer patent and copyright protection. Most of the deal is devoted to creating a uniform and largely business friendly regulatory structure. It creates special courts for businesses to sue governments outside of the normal judicial process. Since most trade barriers between the parties in the pact are already low, it will do little to reduce formal barriers to trade.
It is difficult to see why the Post cannot simply refer to the TPP as a “trade agreement,” or even more accurately a “commercial agreement.” It could save its praise of the pact for the opinion pages.
Read More Leer más Join the discussion Participa en la discusión
Steven Rattner doesn’t like people focusing on stimulus as a path to help Europe grow because it is “simplistic.” Instead he wants Europe to focus on reducing business regulation, protections for workers, and taxes for the wealthy.
Interestingly, he presents zero evidence that these changes will boost the continent’s growth, in contrast to the now vast amount of evidence (e.g. here, here, and here) that stimulus will increase growth. On their face, many assertions seem outright wrong. For example, according to the OECD’s assessment, employment protection for workers in Germany are the second strongest in Europe, yet it has an unemployment rate of 5.1 percent. This suggests that labor market protections are not the biggest problem stunting growth.
Rattner also warns about Europe and even Germany losing “competitiveness.” It is not clear what meaning he assigns to that word, but Germany has a trade surplus of more than 6.0 percent of GDP, in contrast to a deficit of 2.4 percent of GDP in the United States.
In some cases, his complaints not only lack evidence, but they defy logic. It is not efficient to allow companies to dismiss workers at will. Long-term employees make substantial commitments and sacrifices to develop firm specific skills. It will often be difficult for them to find new employment if they lose their job in their late forties or fifties. Dismissing these workers imposes costs on them and the government in the form of unemployment benefits and other transfer payments. That might be good for the businesses who can chalk up higher profits, but it is bad for the economy and society.
In short, this piece tells us that Rattner wants Europe to be more pro-business at the expense of the rest of society. He doesn’t have any real argument as to why anyone who is not rich should support his position, although I suppose it is not simplistic.
Steven Rattner doesn’t like people focusing on stimulus as a path to help Europe grow because it is “simplistic.” Instead he wants Europe to focus on reducing business regulation, protections for workers, and taxes for the wealthy.
Interestingly, he presents zero evidence that these changes will boost the continent’s growth, in contrast to the now vast amount of evidence (e.g. here, here, and here) that stimulus will increase growth. On their face, many assertions seem outright wrong. For example, according to the OECD’s assessment, employment protection for workers in Germany are the second strongest in Europe, yet it has an unemployment rate of 5.1 percent. This suggests that labor market protections are not the biggest problem stunting growth.
Rattner also warns about Europe and even Germany losing “competitiveness.” It is not clear what meaning he assigns to that word, but Germany has a trade surplus of more than 6.0 percent of GDP, in contrast to a deficit of 2.4 percent of GDP in the United States.
In some cases, his complaints not only lack evidence, but they defy logic. It is not efficient to allow companies to dismiss workers at will. Long-term employees make substantial commitments and sacrifices to develop firm specific skills. It will often be difficult for them to find new employment if they lose their job in their late forties or fifties. Dismissing these workers imposes costs on them and the government in the form of unemployment benefits and other transfer payments. That might be good for the businesses who can chalk up higher profits, but it is bad for the economy and society.
In short, this piece tells us that Rattner wants Europe to be more pro-business at the expense of the rest of society. He doesn’t have any real argument as to why anyone who is not rich should support his position, although I suppose it is not simplistic.
Read More Leer más Join the discussion Participa en la discusión
