To what degree is this financial melt-down likely to affect retirement funds? IRAs, 401K plans and the like?

To what degree is it likely that the Gramm-Leach-Bliley Act, which repealed regulations that had existed since the Depression, is the cause of this current crisis?

What are McCain’s and Obama’s policies with regard to the finance industry and how do they differ in practical terms?

How much will the student loan market be affected? Especially private student loans? Lehman Bro solely owned CampusDoor - a huge lender in the private student loan industry. Now Lehman is closing CampusDoor’s headquarters in PA and (I received the letter yesterday) — they sold the loan to AES (American Education Services).

What is the future of CampusDoor and the private student industry? Bank Of America stopped making private student loans. Wachovia no longer makes undergraduate loans - only graduate loans.

I have no idea if I’m going to get a loan for the spring semester and be able to stay in school full-time.

Will the government or people ever demand participation in whole equation — Profits as well as Risk? The government has been willing to socialize the risk, shouldn’t taxpayers be part of the good times also? Nationalize the Banks.

Is this somehow related to the Anne Rand-style deregulation of the Greenspan era?

As a Bank of America shareholder I’m very dismayed at BAC’s decision to acquire Merrill. They haven’t even digested their previous acquisitions, one of which, Countrywide, is still causing BAC indigestion with various pending lawsuits. BAC also has looming liabilities with regard to to auction-rate securities. And Merrill, meanwhile has had losses for four straight quarters, and also has billions of dollars interested in mortgage-backed securities.

Ken Lewis, Bank of America’s CEO, is like a teenager armed with a new credit card turned loose in a mall.

Banks are supposed to have a culture of fiscal conservatism and fiduciary responsibility, but in 2008 those things have gone the way of hoop skirts and whale oil lamps. Our entire culture, from top CEOs to mom and pop and the kids on Main Street, have gone mad with recklessness.

Nationalize the Banks.

Where is an example of where this has ever worked?

Even in Sweden the banks are private corporations.

The correct solution is proper regulation and oversight, two words that are not in the Republicans’ dictionary . . .

1. Higher loan-loss reserves.

2. Restrictions on the sorts of investments institutions with high presumed levels of fiduciary responsibility are allowed to make.

3. Restrictions on retail lending practices - anyone with half a brain could see that no-down-payment mortgages, “interest only” mortgages, ARMs with big balloon payments, etc were going to cause nothing but trouble. When my wife and I bought our first house in the early 80’s you were required to make a 20% down payment else you had to pay PMI, and even with PMI getting a mortgage with less than 10% down was almost unheard-of. We need to bring back those standards.

Lower-middle and middle-middle income classes will continue to lose their home equity and some of their homes while paying taxes to spare the newly rich of the world loss.

Spare liabilities, not equities of these financial intermediaries.

Truthfully, it’s difficult for non-Americans to care about a rich country taken over by those taking advantage of its ignorant and hostile majority.

We have allowed corporate fat cats to get rich on poor decisions. As such we have privatized the reward to exorbitant levels and we are now placing the risk on the pubic.

We need to push for reform in corporate compensation and encourage a fundamental change in the way all American business is operated. That is to say, get away from quarter by quarter measurement of success and reward to long term thinking and planning and long term measurements for reward.

Shut down the Harvard Business School.

One of the guests just made a point about the capital needed to fix this is going to have to come from us … presumably meaning US citizens and taxpayers.

My question is who really comprises the “us.” To date, when this happens, taxpayers and users of social services are the ones whose hide it comes out of. Those at the top of the wealth ladder will get their big bonuses and compensations still and they’ll find all the tax loops to boot. The folks who have gained most financially out of this industry in the last several years should be the first, not the last, to take it from their pockets.

We will only be able to understand the continuing financial crisis when we see it as a manifestation of underlying cultural attitudes rejecting reasonable limits. Investment banks over-reached reasonable limits on earnings, seeking 17-20 percent annual returns as a norm. Consumers over-reached their limits and have indulged in an orgy of credit leading to negative savings. We have over-reached the limits of the environment’s capacity to moderate global warming, replenish forests and fish stocks. We have over-reached energy supplies.

As the founder of an international organization focused on sustainable development, I see the convergence of our “over-reaches” pointing to a need for moral, financial, and political leaders who will encourage us to accept limits, not seek bailouts, or drill for more before we conserve.

The Chinese, with whom we work, have a cultural value of xiogang or “enough” which is essentially moderate wealth. Perhaps we are caught in a complex of problems where the solutions require addressing a host of moral and values issues and finding our way to “enough.”

I write from Vermont where banks weathered the depression because thrifty people had adjusted to living sustainably within limits. Perhaps it is time to look around the world at cultural values of moderation.

What would have happened if instead of bailing out the big businesses we let people refinance their homes at lower rates? Wouldn’t that have stopped the massive foreclosures? Why is bailing out big business more important than helping the working class people struggling to survive? Would helping the people have prevented this crisis?

Our current financial crisis is a direct result of Wall Street’s tendency to securitize concepts that are of little or questionable real value. Enron was a stark example of this, Mortgage Back Securities in the face of the proliferation of Sub-Prime loans another.

I worked on Wall Street in the 1960’s and as a young man heard senior executives in a Wall Street firm speak in terms of “we think XYZ corp is a $40 stock.” XYZ was an almost non-company created by the Wall Street firm. It had very little to offer investors.

In the 1990’s the Dot.Com bubble was a result of investments in phantom companies that were little more than conceptual designs for companies, not real assets at all.

We are now paying the price.

The last caller was absolutely correct. The watch dogs have been dismantled by the Bush administration and the Republicans. Whether it’s the Justice Dept corruption…the economy…The Agriculture Dept failure…where are the banking regulators?

Remember McCain-Palin are saying that the economy is sound.

Agencies don’t run amok…people run amok! How about the Dept of the Interior?

Government is NOT the problem…the Republican and greedy financial people are the problem.

Within the hour, John McCain said that “our economy is fundamentally strong” ???? Obviously, he’s not paying attention to current events.

Lower-middle and middle-middle income classes will continue to loose their home equity and some their homes while paying taxes to spare the newly rich of the world loss.

This is a common misconception, that the governmaent interventions in Fannie, and Freddie and Bear were in order to bail out rich shareholders.

In fact, as you can see if you just look at the share prices, the shareholders of those institutions lost nearly all their investment.

The purpose of the government intervention was to try to prevent a wider financial calamity that would have hit ordinary people even harder. Imagine an economy where no one could get a mortgage and no one could get a loan to start or expand a small business! So far this recession is fairly mild in historic terms. History shows that it could be a LOT worse and the government is trying to prevent that. Whether they’ll succeed is an open question.

Shareholders have no right to expect a government bailout and we’re not asking for one - we make our decisions and must live with the consequences. As of this minute I’m about $4000 poorer just on my BAC holdings, and I’m about $25000 poorer overall than I was when the markets closed on Friday. I’m not asking for Fed bailout.

The Masters of the Universe get their comeuppance.

While Wall Street might have hired the best and the brightest to find ways to make money and find the gaps in the rules, the best and the brightest have now succeeded in bringing about the collapse of at least three major i-banks: Bear Stearns, Lehman and Merrill.

Hardly a ringing endorsement of “best and brightest”.

Unfortunately, it is likely that the bankers will walk away with their high incomes from the go-go years, yet the cost of setting this right will fall to the American taxpayer.

This financial crisis was not caused by a general sleepiness of the system but a specific decision NOT to regulate mortgages by the Bush administration and Republican Congress over the objections of something like 40 Attorney’s General.

‘Poorly aligned incentives’??
‘Greedy snake oil salesmen’??

As banks take the promise of repayment and use it as capitol to make more loans, you’re left with debt as capitol. So all ‘new’ tools availed by the financial institutions are merely ways to create more debt, the capitol that keeps this upside down system slightly ahead of its ultimate demise.

What would have happened if instead of bailing out the big businesses we let people refinance their homes at lower rates? Wouldn’t that have stopped the massive foreclosures?

And where would the capital for all those loans come from?

Note that SO FAR the government hasn’t actually spent very much money on these “bailouts”. What they’ve done is transferred lots of liabilities to the taxpayers, which might have bad consequences down the road. Whereas what you’re proposing would require actually coming up with lots of money right now.

There’s also the moral hazard problem. If the government makes it clear that if you or I make stupid, reckless decisions and take out a loan we can’t possibly afford, they will bail us out, this removes a major disincentive for reckless behavior. As I said, above, recklessness, irresponsible behavior is a hallmark of our culture and it has to stop.

Great program, highlighting the incomprehensible scope of our problems.

However, I have to say that I was surprised at the last few minutes - sounded like Tom was almost browbeating his guests to make political statements - demanding whether Sarah Palin was qualified but not asking if Barack Obama was.

Tom’s erudition and passion makes this show, but something sounded odd about the end of the show today…

Great show. Thanks for not holding back the punches Tom.

I have to say, I’m GLAD Tom was browbeating his guests, as he never does… and showing his (our) anger at the fact that the biggest losers in all this is the middle class, while those most responsible for this debacle will continue to have weekends in the Hamptons on their private beaches.

I’m not for socialism, but accountability is a very un-American idea these days. McCain’s choice of Palin is a reflection of that–let’s get elected, it won’t matter if things go to hell because this vivacious, vote-getting woman doesn’t know squat about the world outside Alaska.

Dear Tom Ashbrook:

Your panelists seem naive to me, when they talk about our economy as if business were a discreet and separate entity. What they fail to realize is that the Bush Administration has made many bad choices for eight years that have put us in this hole. Our aggressive military policy has hurt us financially. Our policy to enforce draconian security measures has made it difficult and unpleasant to do business with the U.S.

Bush opposed CAFE standards for U.S. auto manufacturers and encouraged car manufacturers to build inefficient trucks and SUVs. We kept the dollar low. His go-it-alone foreign policy discouraged American leadership in economic affairs. I could go on and on.

The point is that this mess is reversible, but not by the likes of G.W.B. and his crew. They are living in the past, a past that will not work for us now.

Richard
Buffalo, NY

No one dares mention the big white elephant hiding behind the sofa: the war on terrorism.

Surely, wasting trillions of dollars in a sabre rattling exercise has SOMETHING to do with our current financial crisis. I think Ike warned us about the risk of an out of control industrial-military complex.

The sad thing is that raising that issue is still so “controversial” that intelligent pundits avoid the subject entirely.

Maybe we should invest a few billion dollars in guarding ourselves from the real terrorists: the CEOs getting rich on the backs of the people on Main St. USA and sending our sons and daughters off to die.

Financial failures and bail-outs.

Many comments this morning suggested that our free market system was the problem and that more government regulation is required.

My opinion is that a personally-held belief or tenet for business (an equation) “BIG = BAD” is the base problem. If Bear Sterns had been 500 small companies rather that the giant it was, 20 or so would have failed long ago, and no one would have even noticed.

When a perfectly sound public company is allowed to be bought up by another over and over the process causes the base problem. No one benefits but the people at the top.

More regulation for small/medium sized business is counter productive. Stop the giants from forming in the first place, and small failures will be seen as a normal part of our capitalist system.

Thank you.

This financial crisis was not caused by a general sleepiness of the system but a specific decision NOT to regulate mortgages by the Bush administration and Republican Congress over the objections of something like 40 Attorney’s General.

There’s an element of truth to this, as I mentioned above. But we should not forget that the Democrats were big supporters of loosening up mortgage standards, too. The general theory was that everyone should be able to buy a house - if people were all homeowners it was felt this would stabilize neighborhoods and give people more of a sense of roots in a community.

So both liberals and conservatives for different reasons looked the other way when mortgages were restructured to be more affordable to poor people who could never afford a house before, and really had no business taking out a mortgage in the first place. A mortgage is a huge financial responsibility and it requires income and income stability that many people don’t have. But we’ve made a fetish of home ownership.

Tom, great show.

The John and Sarah show will bring us more of the same trouble we have now. If we listen to both of them, it will be obvious.

I just wanted to make a comment about Tom’s tone on the program. He was much more willing to challenge the panel’s assumptions and establish a larger context that included his own perspective than we’ve been used to.

I appreciated it, and thought the conversation was richer as a result.

Tom Ashbrook and “on Point” = national treasure!!

When a perfectly sound public company is allowed to be bought up by another over and over the process causes the base problem. No one benefits but the people at the top.

That’s not true at all.

I’m an employee of a big tech multinational and I guarantee my job is better-protected by the fact that my company is big enough to coordinate basic R&D in many different disciplines, and worldwide enough to operate in many markets simultaneously. We employ thousands of people in New England, mostly in good-paying “white collar” jobs.

Companies grow and acquire to fill in gaps in their skill set or product lines, have products that compliment each other, or enter broader markets, and to enjoy the economies of scale. If they are successful it’s not just the people at the top who benefit, it’s the employees and the shareholders.

Also, in an earlier posting Nate asked, “shouldn’t taxpayers be part of the good times also?”

They can. Just buy stock. The financials are really cheap right now.

Peter Nelson,

Thanks for making the point that its a bi-partisan problem, however both parties knew the Wall-Street economy would benefit from mortgage restructuring rather than addressing decades of overinflated housing prices.

Homeownership is a noble egalitarian goal, the fetish is even the base of the pyramid scheme and those of the middle feel ‘invested’ in policies which clearly benefit the top disproportionately, as the caller today referenced with the 401k bubble.

It is ironic to hear that making the current tax cuts and the radical changes in our economic policies permanent is a solution to our economic situation when these policies might have created this problem in the first place.

Many credible economists warned of similar outcomes 8 years ago. Historically, economic stimulus has consisted of both demand and supply side stimuli. These economic stimuli have been largely supply side and many demand side have even been reduced (e.g. reduced federal spending on U.S. infrastructure, tax cuts for corporations expanding overseas, globalization of government purchases).

Now record federal budget deficits seem also to have taken some of the demand side economic stimuli solutions available to previous administrations off the table (e.g. borrowing and spending our way out of the Great Depression). What if China and other US debt holders say “no more”?

Thanks for putting on an objective intelligent and well informed program regarding the current fiscal health of this nation. Tom Ashbrook hosted/mediated a well chosen set of guests and gave a wonderful bottom line of inciteful wisdom in an impassioned yet truly professional manner. A very fine and honest performance.I just wish we had more of the media reflect that integrity rather than the mis-aligned political agendas that spew from the mouths of the ‘Pop-Press’ A stellar program of which I welcome more. Congratulations to all your team.

however both parties knew the Wall-Street economy would benefit from mortgage restructuring rather than addressing decades of overinflated housing prices.

Yet contrary to the above, The Wall Street economy did NOT benefit - infact, shareholders have collectively lost billions of dollars and thousands of security analysts and brokers are now unemployed, and no doubt thousands more will be after BofA digests Merrill.

Futhermore the decades of overinflated house prices you mention were partly the result of what I described above as a fetish for home ownership.

Basically subprime and other loosely-qualified mortgages designed to make home ownership appealing to people who previously couldn’t afford homes flooded the housing market with money, driving up house prices. Couple this with what I called recklessness (and Randy Kritausky, above, calls a rejection of reasonable limits) and we see middle class people stretching to buy houses way beyond their means. Back in the late 80’s when my wife and I bought a 2K ft^2 house in a Boston exurb for $180K, we knew people with our same income who were buying 4K ft^2 McMansions a mile away for 400K! You can’t really blame Wall Street for the bidding war that happened in suburbia.

“The financials are really cheap right now.”

How do you know this? I’m an investment professional, and I have no idea whether these things are cheap because I have no idea how strong their balance sheets are, i.e. how solid their loan portfolios are.

You don’t either.

How do you know this? I’m an investment professional, and I have no idea whether these things are cheap because I have no idea how strong their balance sheets are, i.e. how solid their loan portfolios are.

You don’t either.

No kidding, Michael. My stock portfolio is down about $25k from market-close on Friday.

I was being sarcastic, but obviously this was lost on you.

The other poster had suggested that the only way taxpayers could partake of corporate profits was to nationalize companies. I was simply pointing out that ANYONE can participate in corporate profits by simply buying the stock. My “cheap” remark was a reminder that if you want profits you must be willing to assume risk.

****One of the guests just made a point about the capital needed to fix this is going to have to come from us … presumably meaning US citizens, taxpayers. My question is who really comprises the “us”. To date when this happens, taxpayers and users of social services are the ones whose hide it comes out of. Those at the top of the wealth ladder will get their big bonuses and compensations still and they’ll find all the tax loops to boot. The folks who have gained most financially out of this industry in the last several years should be the first, not the last, to take it from their pockets.****

Thank you, can’t agree more.

But how do we make it happen, protest? What kind of democracy is this when most of your congress and government are corrupted, and they use legitimate terms for these corruption?

“You can’t really blame Wall Street for the bidding war that happened in suburbia.”

Actually, you can. They provided the investment vehicles that allowed lenders to sell their loans off and take the money to write more mortgages. Without Collaterized Mortgage Obligations, much of the fuel that powered those suburban bidding wars wouldn’t have existed.

And neat trick: claiming sarcasm when you say something indefensible.

I like the way Tom kept pushing the “experts” to say somthing substantive one way or the other. But it was to no avail. The content of what they said boils down to: the system needs to work better than it has.

No kidding. The question is, who is going to make sure it works better?

The guy on the show who said, “the system gave us two good presidential candidates and two good vice-presidential candidates” must work for the Emperor (as in “New Clothes.) Ask a psychologist to analyze John McCain’s statements and speeches the last few months…. he shows signs of memory gaps and disassociation. Anaylze Sarah Palin’s career and her statements and you find high ambition, coupled with a low ethical standard.

Obama has been sounding like a baloon with a slow leak.

It’s time to call in the poets to describe the situation we face in this country: “… the worst are full of passionate intensity, the best lack all
conviction.

Kathleen Cahill, Salt Lake City

Good to hear Tom be really passionate for a change and get angry and call people on the carpet for this financial mess.

“You can’t really blame Wall Street for the bidding war that happened in suburbia.”

Actually, you can. They provided the investment vehicles that allowed lenders to sell their loans off and take the money to write more mortgages. Without Collaterized Mortgage Obligations, much of the fuel that powered those suburban bidding wars wouldn’t have existed.

All that says is that Wall Street had the power to prevent it by limiting the available capital. That doesn’t mean they caused it. My wife and I had access to the same pool of mortgage money as the people a mile away who bought the McMansions; the banks would have happily qualified us for the same loans. But we are fiscally conservative and saw no need to stretch in such a manner. The cause of the bidding war was the same thing that caused the dot-com boom and bust; the tulip mania, etc- people irrationally bidding up the price of some asset because they think it will go up forever.

And neat trick: claiming sarcasm when you say something indefensible.

Since it was obviously indefensible how could it have been anything but sarcasm?

I like the way Tom kept pushing the “experts” to say somthing substantive one way or the other. But it was to no avail. The content of what they said boils down to: the system needs to work better than it has.

No kidding. The question is, who is going to make sure it works better?

I think you (and Tom) are expecting too much of economic analysis. Economic systems are not only incredibly complex to begin with, but at their base they start with human beings, who are, themselves, way more complex than we can model predictively, and economcs grows out of the interactions between these unpredictable actors.

There is a very young field in economics called “behavioral economics” which is starting to shed some light on how individuals make economic choices but the results suggest that humans are even less rational than was previously imagined!

So the bottom line is that no one can state with confidence how to fix this mess. Everyone has their own opinion. As I said above, tighter oversight and regulation might help, but I personally think the major problem is cultural - if we had a culture of fiscal conservatism and thrift it would help a lot, but no one knows how to change culture.

A few comments make a valid points on changing the root problem which is the culture of this country.

Please don’t take the example I am going to make too literally, it is just a metaphor.

When I first came to this country, people told me that “I deserve to buy this and that, hell, I work hard, even if I can’t afford it”. I have heard many people talked this way. Then I realize this is how they were taught by this culture of spending beyond your means.

To me coming from a foreign country, this kind of mindset sounded a little strange. If I can’t afford buying something even if we work hard, then I just don’t buy it, simple as that. And most people of my culture first priority is to save money before you buy something you can’t afford and go into debt.

Of course I understand how the system works here now, so it’s no longer strange to me with that mindset. But still it tells you how system sort of creating culture.

Just a thought.

****I worked on Wall Street in the 1960’s and as a young man heard senior executives in a Wall Street firm speak in terms of “we think XYZ corp is a $40 stock.” XYZ was an almost non-company created by the Wall Street firm. It had very little to offer investors.

In the 1990’s the Dot.Com bubble was a result of investments in phantom companies that were little more than conceptual designs for companies, not real assets at all.****

This kind of investment used to be illegal in some other countries. Not sure if those countries remain that illegal or have joined this game.

Tom and Onpoint Staff:
This was one of your BEST shows! Thanks, Tom, for taking your “nice” gloves off, with your grilling of your guests.
Thanks to Kathleen Cahill for capturing the quote ( by Alan Sinai?) about the…”good presidential and vice presidential candidates”. I looked at my radio in total disbelief, and asked it, “Is this guy an idiot? — or does he just think we’re idiots?!”.
Thanks for not letting that sort of statement “pass”.
We have a dismal slate of candidates by the two reigning parties.
Kathleen Cahill’s got it re. Obama - a balloon with a slow leak. What’s up with these candidates? Follow the MONEY in their campaigns from large corporate interests.
YOU TAKE THE MAN’S MONEY - YOU DANCE TO THE MAN’S TUNE.

This has been widely called the most important presidential election in many decades. Maybe so - but judging by the quality of candidates and the quality of debate subjects, you would NEVER know it.

Dan Treecraft
Spokane Washington

When I first came to this country, people told me that “I deserve to buy this and that, hell, I work hard, even if I can’t afford it”. I have heard many people talked this way. Then I realize this is how they were taught by this culture of spending beyond your means.

My wife and I save up for things and pay cash. The only debt we’re ever had in 23 years of marriage is our mortgage, and on our current house we made a 60% down payment. So at least there are some Americans who are fiscally conservative.

It’s true US culture may *teach* bad spending habits, but no one is required to *learn* those bad habits. So I still think it comes down to personal choice.

****The purpose of the government intervention was to try to prevent a wider financial calamity that would have hit ordinary people even harder. Imagine an economy where no one could get a mortgage and no one could get a loan to start or expand a small business! So far this recession is fairly mild in historic terms. History shows that it could be a LOT worse and the government is trying to prevent that. Whether they’ll succeed is an open question.****

What if those gigantic profit makers are not shareholders? Aren’t they supposed to spit out those gigantic profits they made when they were consciously making those profits. Wouldn’t that help to ease the burden before it roll back down to taxpayer?

Another question, could anyone tell me in what form of easing the burden that the government will ask the taxpayer to do? raising tax or come from other budgets?

Thank you.

In the 1990’s the Dot.Com bubble was a result of investments in phantom companies that were little more than conceptual designs for companies, not real assets at all.****

This kind of investment used to be illegal in some other countries. Not sure if those countries remain that illegal or have joined this game.

The dot-com companies were real companies, not “phantom” companies. I don’t know how you could make it illegal to invest in a company like that - new companies need to raise capital to grow and expand just to reach a point where they are profitable.

I’ve been an investor for almost 40 years and I have a strict set of rules, one of which is that I don’t invest in companies that are not profitable. But I can understand why a less risk-averse investor might be willing to put his money into a startup if he thinks it’s destined for great things.

****It’s true US culture may *teach* bad spending habits, but no one is required to *learn* those bad habits. So I still think it comes down to personal choice.****

Lots of college graduates are already in debt before they can even make money. Debt is considered so normal here, and if you want to get out of it, just file bankruptcy.

I think the younger generation is getting smarter from learning the mistakes of their past generations. But not until then, lots of lots of people were not raised in a environment of “encouraging” saving and moderate living. It is a system of fermenting and encouraging greed if you are not careful, and wise enough.

What if those gigantic profit makers are not shareholders? Aren’t they supposed to spit out those gigantic profits they made when they were consciously making those profits. Wouldn’t that help to ease the burden before it roll back down to taxpayer?

You mean the CEO’s? Their salaries might look big but they’re a drop in the bucket on the company’s balance sheet- making them give back the money isn’t going to have any affect. And anyway, on what basis can you legally do that?

Another question, could anyone tell me in what form of easing the burden that the government will ask the taxpayer to do? raising tax or come from other budgets?

Most likely they will sell more Treasuries, so indirectly it will come out of the budget in the sense that more of your tax dollars will be to service out incredible national debt.

Alternatively it’s been suggested they might monetize it - i.e., print more money. This would cause inflation so we would pay for this by reduced purchasing power - a sort of tax.

But in the most Panglossian view they won’t need to do anything. So far they haven’t actually spent very much money, they’ve just co-signed our name on lots of loans.

In brief, we are led by the people we hated in high school. Big money and big politics are comfortably in bed together. Solution? Probably impossible, but, in the best of all possible worlds: term limits.
I suggest all of congress and the exec. branch be limited to 5 years, single term. No retirement benefit, no health insurance included. BUT. This would mean all of us getting off our fats asses and revising both our constitution and our lazy acceptance of “the system”. It won’t happen, but these are my thoughts. Tom Broderick brodericktvt@yahoo.com

Hi Justanother - I too came from another country (former USSR). I too thought that first you earn, then you save, then you buy. However, I believe it turned out to be a big miscalculation on my part. While I was going to law school and putting off buying a house until after graduation people around me were buying houses and condos, ripping the benefits of quick appreciation. When the appreciation stopped those people either still own a house or, if they are unable to pay their mortgages, have become beneficiaries of the public sentiment that they are victims in need of help. The government in this country wants to help borrowers and spenders because this economy is 75% consumer spending. The saver gets a short end of a stick everytime because the gov. needs to lower interest rates to prop up the economy. As a result, your savings are eroded. Today, I am no better off than a subprime borrower facing foreclosure. He/she by definition put little or nothing upfront and was paying low initial monthly payments. What exactly is his/her loss here? So I don’t think playing by the “right” rules makes you better off.

“All that says is that Wall Street had the power to prevent it by limiting the available capital. That doesn’t mean they caused it.”

Once again when you argue with me you’re on the wrong side. I never said they caused it by themselves, I was responding to this:

“You can’t really blame Wall Street for the bidding war that happened in suburbia”

And you can blame them. Anyone with a rudimentary knowledge of what happened wouldn’t deny this.

And you write indefensible stuff like this all the time, so how are we to know when you’re kidding?

“You mean the CEO’s? Their salaries might look big but they’re a drop in the bucket on the company’s balance sheet- making them give back the money isn’t going to have any affect. And anyway, on what basis can you legally do that?”

Salaries show up on the income statement, but your point is valid. But attorneys genral do have legal recourse: fraud. these guys knew that this stuff they were selling as investment grade debt was closer to junk than it was to investment grade.

That’s criminal.

And you can blame them. Anyone with a rudimentary knowledge of what happened wouldn’t deny this.

We can legitimately blame Wall Street for a lot of things, such as lack of due diligence and fiduciary responsibility, lack of transparency, undue faith in certain mathmatical models, CEO compensation unrelated to performance, etc, etc, but if you think you can blame Wall Street for the bidding war in housing (or any price bubble) you’ll need to show us how.

I think my example demonstrates very clearly the role of personal choice by individual consumers in these matters. When you have ordinary $100K/yr software engineers taking out $400K mortgages this floods local real estate markets with capital and thus drives up house prices. When we sold our previous house we had three bids on the first day OVER our asking price!

Wall Street happily supplied the capital for this, but blaming them for the result is like blaming the liquor store for someone’s cirrhosis of the liver because he drinks too much.

Wall Street’s failure was not in making too much capital available, but simply in failing to assess the degree of risk of the resulting investments. The price bubble would have happened anyway, but its risk would have already been expected. An analogy is the stock market where 20% declines happen routinely - we call that a “bear market” - so the industry takes it in stride. A 20% decline in house prices should have been expected and its risk baked into mortgage-backed securities.

****“You mean the CEO’s? Their salaries might look big but they’re a drop in the bucket on the company’s balance sheet- making them give back the money isn’t going to have any affect. And anyway, on what basis can you legally do that?”*****

Not just the executives, but also including all the transition fee and the bonus that were made by the brokerage firms. There are billions of dollars made by brokerage firms.

Salaries show up on the income statement, but your point is valid. But attorneys genral do have legal recourse: fraud. these guys knew that this stuff they were selling as investment grade debt was closer to junk than it was to investment grade.

Certainly if fraud can be shown then it represents a way to recover compensation paid to CEO’s (not to mention sending them to jail!). We’ve seen a few recent successes in the last few years. Another way that’s been used is shareholder lawsuits, although they are seldom successful - The Supreme Court actually toughened the standards for them in 2007.

But I had the impression that the prior poster wanted to recover the money just on the principle or fairness, because the CEO made bad decisions and drove the company into the ground, costing the economy, shareholders, and employees zillions of dollars.

Speaking as a BAC shareholder I have doubts about the wisdom of the Merrill acquisition so soon on the heels of Countrywide and with so little time to do due diligence. But I don’t think I can make any claim on Ken Lewis’ salary if BofA crashes and burns.

Those who made the points about the disassembling of the regulatory apparatus were on the mark. There were too many people looking only at whether the debt in question was good enough to unload through the next financial instrument and too few looking at whether it was good at all.

Capitalism as practiced in the U.S. has become an extractive practice with a few harvesting as much as possible to the detriment of the many.

Hi Alex,

I do agree with surviving under a system is to play part of their games.

In this credit system, even if we are debt free, we still need to hold at least one credit card to show our activities in developing our credit.

Most people in this country would finance their houses and cars, or major purchases. Also taking risk to invest is universal throughout the world. No more or less than in this country, When you invest, you lose or gain, that’s a fair game (in most cases).

What I was talking about is more of a mindset problem here. Average people without the mind of taking risk of investing, would keep spending even if they can pay them off, I do consider that a more unique culture here.

Correction—-

***Average people without the mind of taking risk of investing, would keep spending even if they can pay them off, I do consider that a more unique culture here.***

“if they can pay them off” should’ve been “if they CAN’T pay them off”

Not just the executives, but also including all the transition fee and the bonus that were made by the brokerage firms. There are billions of dollars made by brokerage firms

And do you think they just keep it in a big box in the basement?

By the time you get to the point where some firm is on the ropes, like Bear or Merrill or Lehman Bro’s, that money is gone. Look how little JPMorgan paid for Bear Stearns. You can’t squeeze blood from a stone.

***Average people without the mind of taking risk of investing, would keep spending even if they can['t] pay them off, I do consider that a more unique culture here.***

Well, what sets this country apart is a pretty humane system of personal bankruptcy laws (even after the 2005 amendments). The borrower buys stuff thereby financing the economy. The use of debt provides even more blood for the system. If borrower goes overboard with debt he can file for bankruptcy and get rid or adjust most of his debts. Creditors include the losses into the cost of doing business. The borrower can start spending afresh thereby financing the economy… And so it goes. I think this system largely contributes into the mindset you speak of. It encourages people to spend, sure, but also to start businesses. Because you have the right to start and fail without spending the rest of your days in debt prison.

Other countries don’t allow the use of credit to the same extent and do not provide an easy way out. They do not hold the economic growth as the most important thing there is. The US does.

“But I don’t think I can make any claim on Ken Lewis’ salary if BofA crashes and burns.”

If making a bad acquisition was legally actionable, Carli Fiorina would be in jail.

I’m talking about fraud, not bad business judgement.

And Eric, you wrote “There were too many people looking only at whether the debt in question was good enough to unload through the next financial instrument and too few looking at whether it was good at all.”

It’s worse than that: the people who get paid for assessing the quality of debt - Moody’s and S&P - totally blew it. It was so bad that this joke was circulation in the capital markets community a few months ago.

MOODY’S PLACES ITSELF ON NEGATIVE WATCH

Washington - Moody’s, the ratings agency, has placed itself on negative watch, citing it’s horrendous track record at rating just about everything except t-bills.

“We suck. We couldn’t spot an investment-grade bond in a box of Confederacy Debentures or Continental Bank CD’s.” said one source at the agency…

****Other countries don’t allow the use of credit to the same extent and do not provide an easy way out. They do not hold the economic growth as the most important thing there is. The US does.****

That will depend on how big you want to grow, the bigger the growth, the more give and take there is If you always want to remain yourself as the biggest and most powerful country in the world. I know it sounds real cliche, but it is true the bigger you grow, the harder you fall.

There is a better and ethical way to grow, this is not the only way.

Tom, you were great! Thanks for being tough on this one.

“That will depend on how big you want to grow, the bigger the growth, the more give and take there is If you always want to remain yourself as the biggest and most powerful country in the world. I know it sounds real cliche, but it is true the bigger you grow, the harder you fall.

There is a better and ethical way to grow, this is not the only way.”

I agree. I am not convinced at all that America took the right turn with the Reagan revolution. This free market puritanism is just as dangerous as the communism puritanism. I think the US will do well by learning from other countries’ experiences. No one advocates government-owned means of production or central planning here. But some basic rules of the game for the business folk and protections for the middle class and the poor are absolutely necessary for the society as a whole to be strong and viable.

I listen to Onpoint every day. Today’s crisis program scared me like no toher on the subject. It made me very angry, but I’m so glad it was aired.

I was one of the small corporation founders raped by the SEC’s policy in the 80’s of looking the other way at frauds less than $4M. God knows what their policy limit is now. There seems no limit to the corruption and lack of regulations and enforcement.

I especially liked Tom’s challenge to the snake oil snide comment. NO amount of fancy language can disguise that deregulation has been preached to allow near criminality without punishment for the few. Enough!

“if you think you can blame Wall Street for the bidding war in housing (or any price bubble) you’ll need to show us how”

Sigh. I’ll try to keep this simple.
To use your example, how does someone making $100K buy a $400k house? They either save forever or take out a loan.

Banks make the loans and collect interest AND fees on those loans, so the more loans they make, the more fees they collect and the more profitable they are. But they are limited in the loans they can make by the equity on their balance sheets, so how can they keep making loans? By selling their existing loans for cash and writing new loans.

And the drive to generate more loan fees led to the relaxation of credit standards.

Here’s where Wall Street comes in. They go to the banks and offer to underwrite the selling of the banks loans to Structured Investment Vehicles, pension funds, insurance companies, etc. The problem they have is that those customers require investment grade debt, but many of the mortgages that Wall Street wants to sell are of poor credit quality. So what did they do? They bundled the good loans with the bad ones and voila!, S&P and Moody’s give them investment grade ratings.

Wall Street knew that mixing good debt with bad debt doesn’t result in good debt, but they sold it anyway. Why? The fees, and thus the bonuses, were huge.

But selling something to clients that require investment grade securities that you know isn’t violates one of the most important legal and ethical standards of the industry: investment suitability. So it wasn’t just that they created excess liquidity in the market, they actually inflated the excess fraudulantly.

So your liquor store analogy is not a good one. A better one would be if a liquor store owner has a product that smells and tastes like grapefruit juice and sells it to a diabetic recovering alcoholic as grapefruit juice, and the alcoholic goes into diabetic shock.

Thanks Peter Nelson for pointing out the free market point of view. I don’t agree with all of your comments, but a few are a worthwhile read. I think we get the point. None of us wants to throw the baby out with the bath water.

On the other hand, the sheer quantity of your comments on this page is overwhelming… to the point where some may think this is the “the Peter Nelson blog.” Consider this a plea to cut down on your quantity (but not quality) of postings.

Anyway, this was among the best On Point shows I’ve heard. It ranks up there with the post 9/11 “Special Coverage” shows. (The others are good too.)

This is it, the final nail in the coffin of unregulated trickle down economics.

Anyone voting should take heed of this.
I, for one, am sick of being lied to, just furious.

Thank you, Tom, for beginning to delve into this complex issue and getting to the point about the context in which this economic devolution is happening. One would have to be totally unaware not to realize that the real estate market has been artifically healthy for at least 10 years. The equity loans, voracious appetite for credit and the price of land/homes have been out of control.

I listened to this show and I thought they were talking about the 1929 crash.

I am sick of both parties lying to us.
I am tired of the rhetoric and the platitudes from both men running for president.

A few points, Obama might have what it takes to the country through this, maybe. It will take more than one term to fix however. Bidden is seasoned enough to know how to use the system and despite my complete lack of faith in this man he is miles better than Palin who is a political neophyte.

McCain would be a disaster, his economic platform is tax cuts. He does not understand what is going on.

The two houses of our esteemed Government… I don’t know what to say about these idiots. It’s dumb and dumber as far as I can see. They need to start to wake up do the jobs they were hired to do. Something has to give here.

The top 20 to 30% of the country are going to have to pony up. The party is over. Raise the taxes on these people to at least 45%. If you all have to sell that second or third home I just read about in the Home section of the NY Times so be it.

The middle classes don’t have the money, so I don’t know how they will be affected. The poor are just poor.

Corporations are going to have pay more in taxes as well.

This is the reality, all this talk about cutting taxes is absurd.

The other thing is the war in Iraq needs to have an end in site, some kind of exit plan please. Can anyone in government lead anymore?

Iraq now has billions in reserve in cash from the oil market. They need to step up and pay for there own reconstruction. We can’t afford it anymore.

Afghanistan is another problem, that ate least NATO is helping with.

Of course none of this will happen.

McCain and Republican party will keep playing the culture war card and the Democrats will play defense.

you’ll have people how are in weeks away from being homeless voting for McCain/Palin just because they are right to life and have some twisted moral value system based on a fantastical belief system.

When all this BS does hit the fan, they will say, “it’s all in Gods plan”…

“When all this BS does hit the fan, they will say, “it’s all in Gods plan”…”

No Jeff. I believe they will say that the market is falling because it is reacting to the threat that Democrats may come to power and start taxing and spending. I actually read this on some blogs.

The real issue to me is I don’t think we have time for partisan politics anymore.

Both parties are not offering any real solutions.

It’s clear Wall Street is incapable of self regulation and that something has to give.

I see the extremes of both parties becoming more splintered as things get worse.

We can then see a rise in the extremest elements of the left moving further towards the ideals of anarchy.

The extremest of the right will move towards fascism as it will offer the false comfort of control.

I hope this does not happen, but it seems we grow more intolerant with each passing year.

I am listening to the re-broadcast of the show here in Michigan, and seething at the guest who made the comment that the “conventional wisdom” is nothing more than “snake oil.”

I am in my early 30’s, and bought into the concept that you pay into your 403(b) as much as you can, you get a house and earn as much equity as you can, and you will be protected when the bottom drops out of Social Security. I thought I was doing the correct and responsible thing for my future.

With the financial meltdown, my mutual funds are sagging, and my house is dropping in value as fast as I pay down the debt. Fear of the future is causing financial paralysis, and at the same time I fear that the rules of the new financial markets will not be written in time for me to take advantage of them.

I am trapped in that perfect storm of too young to have benefited from the old conventional wisdom, possibly too old to take advantage of whatever the new wisdom will be. And there are millions of us.

“The real issue to me is I don’t think we have time for partisan politics anymore. Both parties are not offering any real solutions.”

So what are we to do? Seriously. What are the options for the voter? Elect Democrat this time, Republican the next and so on?

sorry for the typos it’s been a long day.

Scott we are all in the same boat.
The boomers are in worse shape.

In the words of Margo Channing, “Fasten your seat belts, it’s going to be a bumpy night.”

”
…
Wall Street knew that mixing good debt with bad debt doesn’t result in good debt, but they sold it anyway. Why? The fees, and thus the bonuses, were huge.

But selling something to clients that require investment grade securities that you know isn’t violates one of the most important legal and ethical standards of the industry: investment suitability. So it wasn’t just that they created excess liquidity in the market, they actually inflated the excess fraudulantly.
…
“

Michael, you’re confused. The thing you were purporting to explain was the bidding war in suburbia, remember? The insane runup in house prices?

Your explanation, above is of the current financial crisis. We already get that. You’re not telling us anything we don’t all know.

But the message you are responding to is why house prices were bid up so insanely and the reasson for that has nothing to do with Wall Street, and everything to do with a US culture of consumer excess.

With the financial meltdown, my mutual funds are sagging, and my house is dropping in value as fast as I pay down the debt. Fear of the future is causing financial paralysis, and at the same time I fear that the rules of the new financial markets will not be written in time for me to take advantage of them.

I think you’re panicking. My parents and my wife’s parents lived through the Depression so they taught us some financial verities that apply as much today as they ever did; it doesn’t matter how old you are.

1. Live within your means. And I mean WELL within them, so you have a surplus to save. Ignore the larger immediate-gratification culture. When your friends are buying new cars, coax an extra few years from your current cars; when your friends are going to Paris, go to Cape Cod.

2. Save aggressively. We save 1/3 of our income for retirement, and we’ve been doing this for 23 years. Invest most of your your money conservatively in well-run companies with strong balance sheets. If you’re worried about inflation, buy TIPS. If you’re an aggressive saver you don’t have to chase high returns; you just have to stay slightly ahead of inflation, after taxes.

WRT your house - the market value will never go to zero but eventually your mortgage will and you’ll own it free and clear. Prepay a few hundred dollars of principle a month and you’ll have it paid off in no time.

Don’t panic - just hunker down; be frugal, don’t get caught up in a culture that equates how much you spend with how good a life you’re having, and you’ll be fine.

I listened to the program this evening and felt it was very unbalanced. What was with badgering the guests to say Sarah Palin was unqualified and that she doesn’t have the experience? Just what experience does Obama have? He actually has less experience then her. I really wish someone pointed out the amount of money the Wall Street people give to BOTH Republicans and Democrats. The housing bubble got really going under Rubin and Greenspan during the Clinton years. Barney Frank and others stoked the fire. Wall Street firms tossed more wood on the fire. The bubble started to collapse two or three years ago and now you are seeing the current phase of the fallout. You can’t build an industry on loans that can never be repaid. Where were the “thoughtful” commentators a couple of years ago when housing prices were soaring? Markets go up and markets go down. You also can not be considered objective if you badger the guests who won’t agree to say what you want them to say. I tire of the constant, mindless babbling of sufferers of Bush Derangement Syndrome. Give it up Tom. Try to be objective, it won’t kill you.

To Mike M. - the Bush Derangement Syndrome results from the fact that he has been president for the last 7 years. That position comes with some responsibilities. I think he gets off rather easy considering that he provided no leadership whatsoever on the economy. Taking political credit for the ownership society was easy. Now all we hear is how presidents do not affect the economy so don’t blame it on Bush. It is a pretty nice set up for a chief executive.

Thank you Tom taking your “expert” guests on, especially the foolish Alan Sinai. “Snake Oil” is referring to Palin as a “Solid” vice presidential pick. No wonder the troubles we are in. Thank you Tom!!

Fannie Mae and Freddie Mac Invest in Lawmakers

When the federal government announced two months ago that it would prop up mortgage buyers Fannie Mae and Freddie Mac, CRP looked at how much money members of Congress had collected since 1989 from the companies.

These totals are based on data released electronically from the FEC on Sept. 2 and include contributions to lawmakers’ leadership PACs and candidate committees from the floundering companies’ PACs and employees. Current members of Congress have received a total of $4.8 million from Fannie Mae and Freddie Mac, with Democrats collecting 57 percent of that.

All Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008

Name Office State Party Grand Total Total from
PACs Total from
Individuals
Dodd, Christopher J S CT D $165,400 $48,500 $116,900
Obama, Barack S IL D $126,349 $6,000 $120,349
Kerry, John S MA D $111,000 $2,000 $109,000
Reed, Jack S RI D $78,250 $43,500 $34,750
Reid, Harry S NV D $77,000 $60,500 $16,500
Clinton, Hillary S NY D $76,050 $8,000 $68,050
Pelosi, Nancy H CA D $56,250 $47,000 $9,250
Rangel, Charles B H NY D $38,000 $14,750 $23,250
McCain, John S AZ R $21,550 $0 $21,550

Jamie Gorelick (Clinton administration) was Vice Chairman of Fannie Mae from 1997 to 2003 (Fannie’s fraudulent accounting scheme was made public in 2004).

Sen. Barack Obama is the No. 3 recipient of Fannie and Freddie campaign dollars, having collected $123,000 from the companies since he first ran for the Senate in 2004, according to the Federal Election Commission and the Center for Responsive Politics.

The former chief executive of Fannie Mae, James Johnson, was the original head of Obama’s vice presidential search team. Johnson resigned from Obama’s campaign amid controversy over discounted home loans he had received.

Sen. John McCain has received $19,000 from the two companies in the past ten years.

His campaign manager, Rick Davis, formerly led the Homeownership Alliance, an advocacy group for Fannie Mae and Freddie Mac’s mortgage businesses.

Cheers to you Mr. Ashbrook!!

I was so happy that you kept pressing your guests to explain and defend their positions that I nearly cried driving home tonight. So refreshing to have some human emotion expressed. These financial instututions have no shame. They use the money they fleece from us to brainwash us in believing their lies. Caveat Emptor. These institutions with holier than though names are just another business trying to make a buck. That is where Gov’t regulation comes in. How could we swallow the snake oil to the point of this collapse. It is despicable that it was not stopped. It is so pathetic that we allowed the mantra of smaller gov’t to convince us to gut important oversight mechanisms. Let’s be honest though most people don’t pay attention and our politicians by and large go along to get along. We must support politicians that are passionate and not afraid to challenge the status quo. Please keep it up Tom-on all the issues. You help educate the masses.
Mark O’

It’s scary to listen to McCain said the economy is “fundamentally strong”?????

Don’t give me wrong, I am not that crazy about Obama, but he is less scary.

McCain’s comment almost sounded like, ok, now we don’t have a roof to live in, next thing you know it’s the walls are gone, what’s next, go figure.

This is so absurd. We have laws and regulation on someone commits a crime, like drugs, stealing and murder. How can you not have better regulations to prevent greed? You get sentenced by stealing, but you can’t put some kind of punishment on those financial criminals taking away people’s life and life saving.

The free market without tighter regulation itself is a crime. Maybe in heaven it might work, not in this world full of human greed and flaws.

Does freedom mean free of taking responsibility for the damage you have caused on lots of people?

Tom, thanks for a great show. I’m new to your show, so I apologize if this topic has already been discussed.

Can you please discussion the crisis in Medicare and the Accountant General’s (Walker, head of the GAO) 2004 report on the coming looming fiscal crisis that everyone ignored and it’s current and future implications amidst the housing fallout and an irresponsible War.

I believe the Republican Party is now Big Govt.., fiscal conservatism has now gone by the wayside; a once great Republican institution. Let’s be clear the Republican Party now represents fiscal liberalism fronted by cultural conservatism. Change can only happen with a Democratic Executive Branch and a Democratic Congress, Otherwise we will continue to be in this current stagnation.

McCain failed to vote recently (even though he was physically present in D.C.) for the third time to extend the current tax credit to American companies (set to expire in Dec ‘08) currently developing alternative renewable technologies , even though the tax incentive would create immediate steel manufacturing jobs in his own home-state of Arizona (by way of wind technology infrastructure). McCain policy reeks of the putrid smell of carbon emissions and man made environmental catastrophes. “Drill baby drill” ???. Is this what the Republican party has come to? Greed.

Thank you

Tom… this topic really got you going. I didn’t know you had it in you. This was great.

Thank you, Tom, for responding energetically to your guests and to the way they dismissed so lightly things we had all been told were true. I can’t get over the way we are all being punished for the gambles and deceit of the big players.

Another opinion

Don’t give me wrong, I am not that crazy about Obama, but he is less scary.

He’s marginally less scary - he’s more willing to have the government exercise types of oversight and regulation that might have prevented this, but on the other hand he’s opposed to free trade, which has been one of the bright spots in the US economy. I work for a major technology company that exports about 60% of what we make - millions of US jobs, including mine, are made possible by free trade.

(Many Thanks to Mike M for his research on how lobbyists have their fingers in the campaigns!)

This is so absurd. We have laws and regulation on someone commits a crime, like drugs, stealing and murder. How can you not have better regulations to prevent greed? You get sentenced by stealing, but you can’t put some kind of punishment on those financial criminals taking away people’s life and life saving.

If they literally committed a crime then they can be sentenced. But bad business judgement is not, in itself, a crime.

Here’s an aspect of this which has not been addressed : retirement. The classic “third rail” of US politics, which neither party has been willing to touch, is Social Security. The GOP has long advocated privatizing it by letting people put their money into the stock market instead.

But today the Dow and S&P are both trading at about the same level they were 10 years ago, which means that people who invested their 401(K)’s in the stock market have made virtually nothing, nada, zilch, in 10 years. (and before someone mentions dividends, N.B. that the average S&P500 dividend yield is 2.13%, which is less than inflation.)

So OnPoint should take a fresh look at retirement and Social Security in light of the stock market.

Tom,

Way to keep forcing the economists to speak in plain English and to keep forcing them to discuss impact on Main Street. Fat cats are getting bailed out, not the millions of Americans in debt.

Keep up good work - one of you best shows,
Chris

“This is so absurd. We have laws and regulation on someone commits a crime, like drugs, stealing and murder. How can you not have better regulations to prevent greed?” –posted earlier

This is at the core of our problem. We get to an emotional response about this stuff, but cannot focus our thoughts down to a level where something can be done about it, or even discussed very well.

These markets are very complex, and very small differences in government oversight can mean enormous differences. The goal of making greed illegal may be a very crude way of expressing something that we need to do, but we need to be much better and much smarter about it.

To me, this is fairly simple. If a financial institution wants to be allowed to do something or sell something, it has to convince regulators of two things.

1. Risk is appropriately assigned and is not hidden to investors.

2. Recessions will not produce a bubble effect, where risk only surfaces during a financial downturn.