A Guide to American Federal Debt Made Easy

[buffalo]

That is a funny one. It had nothing to do with excessive risk taking.

One can take all kinds of risks if they are convinced they will be covered, like government backed loans.

Back in the day banks lent money based on their ability to collect from the borrower.

 

[stinkcat_14]

One can take all kinds of risks if they are convinced they will be covered, like government backed loans.

Back in the day banks lent money based on their ability to collect from the borrower.

In 1900 perhaps. But banks have a long history of mispricing risk. The foreign loan debacle of the 80s comes to mind. Also, plenty of jumbo lenders went belly up too, and there was no government coercion there. AIG had no coercion for their excessive risk taking, neither did Lehman. Looks like greed is the most common factor.

 

[JimG]

In 1900 perhaps. But banks have a long history of mispricing risk. The foreign loan debacle of the 80s comes to mind. Also, plenty of jumbo lenders went belly up too, and there was no government coercion there. AIG had no coercion for their excessive risk taking, neither did Lehman. Looks like greed is the most common factor.

And of course, pure incompetence and miscalculation. AIG thought it was making good bets while making hugely bad bets.

There will always be bubbles. There have been tech bubbles, internet bubbles, all sorts of bubbles resulting in prices going too high for some item and then crashing. There was even a tulip bulb bubble in centuries past. We can have all the regulation in the world and yet there will still be bubbles.

Now we have a debt bubble.

 

[stinkcat_14]

And of course, pure incompetence and miscalculation. AIG thought it was making good bets while making hugely bad bets.

There will always be bubbles. There have been tech bubbles, internet bubbles, all sorts of bubbles resulting in prices going too high for some item and then crashing. There was even a tulip bulb bubble in centuries past. We can have all the regulation in the world and yet there will still be bubbles.

Now we have a debt bubble.

If you look at history, it is not too hard to come to the conclusion that bankers are lemmings.

 

[Spider42]

Indeed, obstructing something objectionable is a good thing.

For Catholics it can potentially be, not not always. For example, the Church sets a very high bar for armed resistance to political oppression (CCC 2243) This is because it is, in general, at odds with the Beatitudes.

On the other hand, assigning blame for the results of obstruction on others would seem to always be calumny, mortal sin under the 8th commandment. (CCC 2475-2479)

Now the Congress puts back in place a law that borrowers should be checked for ability to pay.

Actually, only sort of. The original bill version did, but it was watered down by, well, the same obstructionists. Most people in my position favored restrictions more in line with the original Glass Steagall act, since the core of the collapse wasn’t even the borrowers, but the heavy leveraging banks did on paper they knew was worthless.

No problem with Church position on unregulated capitalism. What is your opinion of distributism?

Do you mean to say that you agree with Pope Benedict XVI in his judgement that the austerity measures being employed by industrialized nations at this time is unjustly punative to the poor (see his 1/1/13 address to the US), or that you are in dissent with the pope’s judgement, but agree with the underlying teachings in principle?

I have no problems in providing my religious assent to either the Universal Catechism or Blessed John Paul’s Encyclical on the potential evils of socialism or other collectivist societal structures (which I think is what you wanted to ask). And I am in agreement with Blessed John Paul and Benedict XVI that our current efforts to distrubute wealth upward is unfair and immoral.

You - these are mortages that could not have been made under the conditions outlined by Congress in laws intended to promote certain types of home ownership. Source?

Federal law and the available objective facts. In order to participate in, say, housing programs from the Federal Housing Administration or other Federal loan gurantees, lenders had to operate as more traditional banks with more traditional loan structures and qualifications.

Those loans defaulted at a much lower rate than the sub prime loans and complex instruments offered by finance instututions that had opted out of the traditional system. They also represented a very small portion of the overall collapse.

 

[buffalo]

For Catholics it can potentially be, not not always. For example, the Church sets a very high bar for armed resistance to political oppression (CCC 2243) This is because it is, in general, at odds with the Beatitudes.

On the other hand, assigning blame for the results of obstruction on others would seem to always be calumny, mortal sin under the 8th commandment. (CCC 2475-2479)

Actually, only sort of. The original bill version did, but it was watered down by, well, the same obstructionists. Most people in my position favored restrictions more in line with the original Glass Steagall act, since the core of the collapse wasn’t even the borrowers, but the heavy leveraging banks did on paper they knew was worthless.

Do you mean to say that you agree with Pope Benedict XVI in his judgement that the austerity measures being employed by industrialized nations at this time is unjustly punative to the poor (see his 1/1/13 address to the US), or that you are in dissent with the pope’s judgement, but agree with the underlying teachings in principle?

I have no problems in providing my religious assent to either the Universal Catechism or Blessed John Paul’s Encyclical on the potential evils of socialism or other collectivist societal structures (which I think is what you wanted to ask). And I am in agreement with Blessed John Paul and Benedict XVI that our current efforts to distrubute wealth upward is unfair and immoral.

Federal law and the available objective facts. In order to participate in, say, housing programs from the Federal Housing Administration or other Federal loan gurantees, lenders had to operate as more traditional banks with more traditional loan structures and qualifications.

Those loans defaulted at a much lower rate than the sub prime loans and complex instruments offered by finance instututions that had opted out of the traditional system. They also represented a very small portion of the overall collapse.

I agree with the Pope. Unfettered capitalism leads to problems. I would still like your thoughts on distributism.

I didn’t see a source where I asked.

 

[ProVobis]

It was repealed in what year?

Passed in 1933. Repealed in 1999. Yes, under Clinton. The is appropriate.

usnews.com/opinion/blogs/economic-intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis

 

[CF_Mathews]

Thanks, Buffalo! I’m gonna send that video to my friends.

 

[Spider42]

Passed in 1933. Repealed in 1999. Yes, under Clinton. The is appropriate.

With a GOP Senate and GOP House…

Washington, at least the GOP and then moderate Dems, bought into the Greenspan world view. That businesses would self regulate for their own long term survival. In retrospect, they were clearly wrong. Unfettered business did what it always has done, run us into a fiscal ditch.

 

[Spider42]

I agree with the Pope. Unfettered capitalism leads to problems. I would still like your thoughts on distributism.

Having studied Rerum Novarum and Quadragesimo Anno at some length, I would say that my simple answer would be that it is largely admirable goals, but probably very difficult to enact on a large scale.

For example, for the concept to work ‘means of production’ must be spread through the general population as widely as possible. But most economic theory points to pressures in the opposite direction. That is, economic systems naturally trend away from subsidiarity, at least as Pope Pius XI viewed it.

Take something as simple as health care. Because health insurance is largely provided by employers in the US and because health care itself is devestatingly expensive, many people who otherwise want to start businesses, cannot, because of pre-existing conditions, etc.

To me this is a good example of where the theory has some correct worries, but misplaced. Situations like above, where inalienable rights of the human person are placed in hands of employers, creates a variant of the “Servile State”. On the flip side, none of the predictions about US Social Security from either Dorothy Day or Hilaire Belloc have born out. In fact, the exact opposite has occured.

One of my largest qualms about distributionism is that it does not favor any particular political system/order. The Church now teaches that a constitutional democracy is the best form of government and I whole heartedly agree.

I didn’t see a source where I asked.

I’m sorry, I presumably either missed or missunderstood your question. I’d ask you to repharse it, but I’m only skimming these threads sporadically at best. If you would really like to understand the mortgage crisis, I’d suggest something like this:

thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money

When people are still thinking in terms of mortgages and buyers, then they are largely still in the dark about what transpired and why. Some of the financial instruments and dealings involved are so complicated that even the people who concocted them can’t clearly explain them. Although I could quibble with some particulars, I have to commend Blumberg and Davidson for doing an excellent job of explaining things like mortgage backed securities in a way that average people can understand.

 

[buffalo]

Having studied Rerum Novarum and Quadragesimo Anno at some length, I would say that my simple answer would be that it is largely admirable goals, but probably very difficult to enact on a large scale.

For example, for the concept to work ‘means of production’ must be spread through the general population as widely as possible. But most economic theory points to pressures in the opposite direction. That is, economic systems naturally trend away from subsidiarity, at least as Pope Pius XI viewed it.

Take something as simple as health care. Because health insurance is largely provided by employers in the US and because health care itself is devestatingly expensive, many people who otherwise want to start businesses, cannot, because of pre-existing conditions, etc.

To me this is a good example of where the theory has some correct worries, but misplaced. Situations like above, where inalienable rights of the human person are placed in hands of employers, creates a variant of the “Servile State”. On the flip side, none of the predictions about US Social Security from either Dorothy Day or Hilaire Belloc have born out. In fact, the exact opposite has occured.

One of my largest qualms about distributionism is that it does not favor any particular political system/order. The Church now teaches that a constitutional democracy is the best form of government and I whole heartedly agree.

I’m sorry, I presumably either missed or missunderstood your question. I’d ask you to repharse it, but I’m only skimming these threads sporadically at best. If you would really like to understand the mortgage crisis, I’d suggest something like this:

thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money

When people are still thinking in terms of mortgages and buyers, then they are largely still in the dark about what transpired and why. Some of the financial instruments and dealings involved are so complicated that even the people who concocted them can’t clearly explain them. Although I could quibble with some particulars, I have to commend Blumberg and Davidson for doing an excellent job of explaining things like mortgage backed securities in a way that average people can understand.

Can’t start a business because of pre-existing conditions? Please explain.

 

[ProVobis]

With a GOP Senate and GOP House…

And if it makes a difference, under the threat of impeachment and a veto override.

 

[zz912]

1. We spend the most per citizien on public health care, covering the smallest percentage with some of the poorest outcomes.

False, because everyone is covered. Absolutely anyone gets treated at emergency rooms. While it may not be the most efficient method, they are given treatment. And we have the absolute BEST outcomes, when factoring in demographic differences, dietary differences, and truly comparing apples to apples (i.e. many socialist countries simply fib about their healthcare statistics to make them appear better.)

1. At the end of the Clinton administration the budget was at a surplus and there were concerns that we might be paying our debt down too quickly.

This is COMPLETELY false. At NO POINT was there ever a budget surplus during the Clinton Administration. PERIOD. While we came somewhat close one year to actually balancing the budget, we never did balance the budget. In every year our debt increased. And the projections made about surpluses flowing forever into the future were pie-in-the-sky fantasy projections assuming the dot-com bubble would continue to increase forever.

1. This was accomplished without dismantling our social safety net.

It wasn’t accomplished. And our social safety net was not at critical stage back then, because the Baby Boomers were not retiring yet. They are now. Math WILL force our social safety net to be reduced, period.

1. The following 8 years we focussed on policies that increase income inequality and waged expensive wars and that left a national debt that had doubled in size and structural deficits that will take some serious effort to fix.

Again with focusing only on defense, and completely ignoring the ballooning domestic and welfare/social safety net spending. Disingenous.

1. Individuals may have been clueless in regardless to both, but certainly not professional investors. I, myself, mathmatically predicted both and I was far from alone. The problem in both bubbles, though far more so in the housing bubble, was not stupidity, but criminality and immorality.

Oh it was criminal and immoral, but it was the immorality and criminality of govt and govt leaders. The housing bubble was caused by politicians using Fannie and Freddie as their own playtoy and lowering standards for mortgage lending.

1. The financial sector knew it was peddling garbage, it even profited from that knowledge at it’s own customers’ expense.

True. And they were only able to do so because govt was buying up all these **** loans. If they were using their own money, or private investor money, they wouldn’t have made such stupid/awful loans.

1. That is why the Church’s position is that unregulated capitolism is at odds with the natural law.

Not something we need to worry about, as we are VERY FAAAAAAAR from anything resembling unregulated capitalism.

1. I’m sorry, that is not legally correct. The president/executive branch has no unilateral authority to either increase revenue or ignore budgetary spending items (again, see Clinton v. New York City, which invalidated the line item veto on precisely these grounds). Yes, there is a constitutional obligation for the president to uphold full faith and credit, but the consitution does not give the president the right to break legally passed budget laws to do so. If it did, the debt limit would not be legally binding on the president to begin with.

I’m not talking about increasing tax receipts, but the President recognizing they don’t have satisfactory funds to pay all approved expenditures. As such, they most certainly ARE allowed to prioritize spending. The President would be required to pay interest on debt first. After that, he is legally allowed to prioritize spending with the funds that are remaining. The President is simply following the discrepancy between two laws which have passed, namely our tax laws, and our expenditures.

1. My obligation is simply to truth.

I hope so, but very little so far has given me much confidence in that.

1. No, my claim is that the Senate has approved a budget: That is why the government has not shut down. What the Senate has failed to do is pass a “Budget Resolution” which is a legislation required to be a “concurrent resolution”.

No, the Senate has not passed a budget. Harry Reid, the Senate Majority Leader, will not allow a budget to come up for debate and a vote. There are specific rules for budget debate and voting that allow for ammendments and changes to be made that are not available to other legislation. He doesn’t want this, because spending could be cut. So he only allows Continuing Resolutions to be brought up. This is what we have been operating under for many years. These ARE NOT budgets. There is a fundamental difference between them.

 

[zz912]

1. It’s not actually legislation that is sent to the President. The point of this procedure is that both houses agree to certain broad things so that budget legislation can be more readily reconciled at the end of the process. Since the two chambers can’t agree and because the minority party won’t permit the Senate to act unilaterally, this step has not occurred throughout the Obama administration. Recently, this failure has become political fodder, but I think that is more than a bit misleading and disengenous. If you are the party preventing something from occuring, it seems a tad immoral to publicly criticize your opposition for not overcoming your obstructionism.

**All legislation and Continuing Resolutions are signed or vetoed by the President. What you are confusing this with is the budgetary process known as Reconciliation. This is a process for bringing together the passed budgets from both houses of Congress so they can be fit into one bill, and then given final up or down approval and sent to the President.

And your description of the minority party allowing the Senate to act unilaterally makes no sense. First, why should the minority party allow themselves to be run over? They were elected to do a job as well. Their votes count for a reason. Quit trying to silence thoses you disagree with. It is not truthful to try and blame the budget problems on the Republicans.**

1. Not remotely. Banks had no obligation from Congress to pass out NANI (no assets, no income) $500K+ mortgages to anyone who would take one. They did so because they were profitably sellling the mortgages as AAA investment instruments on the global market.

**You need to educate yourself more on this. Bank WERE required to give out loans, bad loans, that they knew wouldn’t be paid back. They were required by coercion from govt. Govt leaders wanted loans to be made to more minorities, no matter if they could repay them or not. (And Obama worked for this as well while he was in Chicago) If they didn’t make the loans, the banks were denied in their requests to be able to expand. So they were forced to make these bad loans.

And to encourage more bad loans, the govt used Fannie and Freddie as their own piggy bank, and guaranteed banks that they would buy up the bad loans from them, so they wouldn’t be toxic assets on their books. Banks were happy (stupidly) because they earned the loan fee and thought all risk was gone. Except when the music stopped playing, the game of musical chairs ended, and very few found a chair.**

1. These subprime mortgages defaulted at, by far, the highest rate and led the overall collapse. These are mortages that could not have been made under the conditions outlined by Congress in laws intended to promote certain types of home ownership.

Simply untrue. Congress SPECIFICALLY wanted subprime mortgages to be made. And the chief leaders of this were Barney Frank and Chriss Dodd. Their actions were blatantly immoral, and should have been prosecuted. Even when others tried to make some changes or rein in the excesses, Frank and Dodd came to the rescue and bludgeoned anyone who dared to try.
.

 

[zz912]

And of course, pure incompetence and miscalculation. AIG thought it was making good bets while making hugely bad bets.

There will always be bubbles. There have been tech bubbles, internet bubbles, all sorts of bubbles resulting in prices going too high for some item and then crashing. There was even a tulip bulb bubble in centuries past. We can have all the regulation in the world and yet there will still be bubbles.

Now we have a debt bubble.

The problem we have now is the govt is interferring in these bubbles, and increasing the size of them and trying to postpone their popping. This only makes the bad effects worse when the bubble eventually does pop.

 

[JimG]

The problem we have now is the govt is interferring in these bubbles, and increasing the size of them and trying to postpone their popping. This only makes the bad effects worse when the bubble eventually does pop.

I agree. Rather ironically, when the government sees its role, for example, as fostering an increase in home ownership, it does things which encourage mortgage lending and ultimately increases the size of housing bubbles, which must eventually pop.

When the government insures loans through FHA or guarantees loans through VA, who is being insured or guaranteed against loss? Lenders. The government insures them against loss, thereby encouraging them to take greater risks. With government backing of loans, they face zero risk. Risk is absorbed by the taxpayers.

 

[buffalo]

I agree. Rather ironically, when the government sees its role, for example, as fostering an increase in home ownership, it does things which encourage mortgage lending and ultimately increases the size of housing bubbles, which must eventually pop.

When the government insures loans through FHA or guarantees loans through VA, who is being insured or guaranteed against loss? Lenders. The government insures them against loss, thereby encouraging them to take greater risks. With government backing of loans, they face zero risk. Risk is absorbed by the taxpayers.

Yup!

 

[stinkcat_14]

I agree. Rather ironically, when the government sees its role, for example, as fostering an increase in home ownership, it does things which encourage mortgage lending and ultimately increases the size of housing bubbles, which must eventually pop.

When the government insures loans through FHA or guarantees loans through VA, who is being insured or guaranteed against loss? Lenders. The government insures them against loss, thereby encouraging them to take greater risks. With government backing of loans, they face zero risk. Risk is absorbed by the taxpayers.

Part of the problem was that lenders took excessive risk in the absence of government interference. For example, jumbo loans were neither FHA insured nor bought by Fannie and Freddie, but lenders made too many of those loans out of their own greed and underestimation of risk.

 

[JimG]

Part of the problem was that lenders took excessive risk in the absence of government interference. For example, jumbo loans were neither FHA insured nor bought by Fannie and Freddie, but lenders made too many of those loans out of their own greed and underestimation of risk.

Another part of the problem is that the rising home price bubble pushed many homes into the “jumbo” category when it came time for sale or refinancing. When the market began to decline, those homes could not be financed.

Non-conforming loans always carry a higher risk, and lenders should be the ones to carry that risk–the risk of lending, that is. It is homeowners who have the risk of ownership.

Any market can and does get into bubble territory, whether it involves stocks, bonds, homes, antiques, or autos. Risk can never be regulated out of the picture.

 

[zz912]

Part of the problem was that lenders took excessive risk in the absence of government interference. For example, jumbo loans were neither FHA insured nor bought by Fannie and Freddie, but lenders made too many of those loans out of their own greed and underestimation of risk.

There is no such thing as an absence of govt interference in the mortgage lending market. You can’t pour sewer sludge into a pool and expect any of the water to remain “clean”.

Once one area of the market is distorted by govt interferrence, ALL areas in the market become distorted.