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Friday, December 21, 2007

Bubble Politics


Items of interest:

Paul Krugman / NT Times:
Blindly Into the Bubble -- Conservative Ideology Led to Housing Problems . . .

When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”

There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.” [...]

discussion:
William Anderson:
Did Free Market Ideology Cause the Housing Bubble? -- The collapse of the housing bubble was inevitable, but it was not the result of free market ideology. Instead, the housing bubble was nurtured and pushed by those entities that Progressives have created for more than a century. From the Federal Reserve to Deposit Insurance to government-formed financial entities to expand individual home ownership to the vast sums of money taken in taxes – that will be spent to bail out those who engaged in bad lending practices, lenders and borrowers – we see the fingerprints of the hoary Progressive Agenda at every turn. [...]
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Paul Jackson / Housing Wire:
The Changing Ethic of Homeownership? -- The Wall Street Journal has a thoughtful look at how the creative lending boom has perhaps fundamentally altered the way many Americans view homeownership.

It’s a change that has caught even Bank of America’s CEO Kenneth Lewis off-guard to some extent:
“There’s been a change in social attitudes toward default,” Mr. Lewis says. Bankers typically have believed that cash-strapped borrowers would fall behind on their credit cards, car payments and other debts — but would regard mortgage defaults as calamities to be avoided at all costs. That isn’t always so anymore, he says.

“We’re seeing people who are current on their credit cards but are defaulting on their mortgages,” Mr. Lewis says. “I’m astonished that people would walk away from their homes.” The clear implication: At least a few cash-strapped borrowers now believe bailing out on a house is one of the easier ways to get their finances back under control.
[...]
Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).
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Caroline Baum / Bloomberg:
A Complete Subprime User's Guide, 2007 -- Anyone looking to reflect on the high points of the year in business and finance can pretty much do it in one, maybe two, words: subprime mess.

How the non-payment of mortgage interest by a homeowner in Ft. Myers, Florida -- and others like him -- morphed into an international credit crisis, heaping such huge losses on Wall Street that its biggest banks had to look overseas for a capital infusion, is a story that will be told for years to come. Maybe Wall Street memories will be longer than the crisis this time around. [...]
------
K. Kelly & J. Horowitz / Wall Street Journal:
Bear's Woes Extend Beyond Mortgages
-- Bear Stearns Cos.' loss in the fourth quarter, the first in its 84-year history, is stoking concerns that the Wall Street firm's troubles extend beyond the mortgage market and into once-steady money makers like the firm's stock and asset-management divisions [...]
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John Berlau / National Review:
Follies of the Federal Housing Authority -- How could they have been so stupid?” That’s the million-dollar question being asked as mortgage defaults have increased on loans that carried much more risk then lenders, borrowers, and investors anticipated.

But this question may be overtaken by one with a multibillion -dollar price tag years from now. That may be, “How could our elected representatives have been so stupid?” Despite the valiant efforts of fiscal hawks such as Sen. Tom Coburn (R., Okla.), and several House members in the conservative Republican Study Committee, both bodies of Congress have passed bills to put taxpayers on the hook for more risky loans from the Federal Housing Administration (FHA). And the Bush administration is supporting these bills, despite the fact that this government agency already has a subprime record of subsidizing loans. [...]
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Juicy Gossip: Maybe Putin can bail out Wall Street firms with subprime problems?

Putin: Kleptocrat of the Year?Luke Harding / Guardian:
Putin ‘has secret $40bn fortune’ — An unprecedented battle is taking place inside the Kremlin in advance of Vladimir Putin's departure from office, the Guardian has learned, with claims that the president presides over a secret multibillion-dollar fortune. [....]

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