Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktI’ve been banging this drum for a while, but today Peter Wallison has an excellent op-ed in the WSJ about how the housing market collapse caused the financial panic in 2008, and the sources of that housing collapse.
Read the whole thing, but key take-aways are:
1) Starting in 1992, the government required Fannie Mae and Freddie Mac to direct mortgage financing towards people below the median income level. The original quota was set at 30%, but that grew to 55% by 2007, necessitating a drop in lending standards.
2) By 2008, over 70% of the 27 million existing sub-prime mortgages were held by Fannie or Freddie.
3) While the housing bubble created by this policy attracted private investors towards the higher yields and low default rates to be achieved from sub-prime borrowers in this environment, by 2008 the private MBS market acconted for less than one third of total sub-prime borrowing.
4) The popping of the housing bubble in 2007 created the conditions that led to the financial panic of 2008, and the subsequent downturn in the economy.
Again, read the whole thing, but Wallison concludes:
The narrative that came out of these events—largely propagated by government officials and accepted by a credulous media—was that the private sector’s greed and risk-taking caused the financial crisis and the government’s policies were not responsible. This narrative stimulated the punitive Dodd-Frank Act—fittingly named after Congress’s two key supporters of the government’s destructive housing policies. It also gave us the occupiers of Wall Street.
Filed under: Uncategorized |
All Things in Moderation 
What's the responsibility of the banks, collectively, if any? Because I can certainly see why it would be hard for an outside lay-person observer to conclude that lenders had no role to play in the tissue of lies that was the real estate bubble.There's a video somewhere of Andrew Cuomo talking about the push for affordable lending, and basically said that a lot of the loans would probably be crap and there would be more foreclosures with the program, but it was important to get people into houses. I don't think they predicted how many foreclosures there would be. But, it's a case of government agencies providing incentives for the bad behavior . . . as my dad frequently noted, back when he was in banking, they wouldn't have made loans like that. It was simply unheard of.
LikeLike
One area I've always had trouble understanding is the interplay between Fannie and Freddie and private lenders. I thought many, if not most, of the mortgages that have since gone bad were made by private lenders. Were they coerced into these loans (I'm skeptical of such a claim) or were they simply more comfortable with the loans because they were backed by F&F?
LikeLike
I'm finding it rather odd that he didn't mention the fact that Fannie/Freddie were not allowed, by their charter, to underwrite sub-prime loans but they were allowed to purchase tranches of loans created by MBS with a AAA rating. Oh, and believe me, we do blame the government.
LikeLike
Yeah, I think the narrative that everyone bought into the false narrative that Wall Street is entirely to blame is…well…a false narrative. I think the anger at Wall Street is far more complicated than posited in that editorial. A few additional questions from the comment section to that editorial. First home ownership went from 65% to 69%, so is that 4% to blame for the collapse or was that 4% just all bad loans on top of whatever % of bad loans that already existed? If it was known that F&F lowered their standards why were those bundled mortgages treated like the standards hadn't been lowered? In other words why were they still rated AAA? Was it a secret that they lowered their standards?
LikeLike
In 2000, Franklin Raines unveiled the American Dream Commitment which was a $2 trillion commitment to originate mortgages to underserved demographics. Here is one of Fannie Mae's press releases on it from 2001: http://findarticles.com/p/articles/mi_m0EIN/is_2001_March_14/ai_71707186/Here is an update from 2003: http://www.businesswire.com/news/home/20030318005307/en/Fannie-Mae-Passes-Halfway-Point-2-TrillionNote that these are company press releases, not Fox News talking points, Heritage Foundation papers, etc. They are Fannie Mae's own words. And $2 trillion dollars is a lot of money, even by Washington standards.This was an interesting cocktail of social policy and corporate greed. Fannie Mae was only allowed to securitize conforming loans which had pretty strict underwriting guidelines. So they were pretty much shut out of the lucrative subprime market. But they figured out a way around it. As part of their market stabilization charter, Fannie Mae could buy loans for its own balance sheet. This was intended so that communities could still get mortgage financing if the local bank went under. Fannie drove a truck through this loophole and partnered with the who's who of subprime lending – Countrywide, Doral, BOA, Irwin, JP Morgan, and others. Fannie couldn't originate subprime paper itself, but it could step in the shoes of the lender by purchasing it for its own balance sheet. Not only that, but they enjoyed the implicit backing of the Federal government and virtually no leverage limits. By the time the bubble burst, Fannie Mae was the largest mortgage arbitrage hedge fund on the Street with 50:1 leverage. As long as they were fulfilling their social mission, their leverage, risk and potential taxpayer liabilities were ignored. And to be clear, both Clinton and Bush did it. Bad ideas can indeed be bipartisan. What I find amusing in this whole spectacle is that Franklin Raines presided over an accounting scandal that rivaled Enron and paid himself tens of millions based off of fraudulent accounting. Fannie hasn't been able to release audited financials since 2005 or so. But so far, there has been zero appetite for even indicting him. I guess it is because he is politically connected (he was Clinton's budget director) and because he will name names (Andrew Cuomo was Clinton's HUD director who started this) and perhaps Barney Frank. The Feds should have gone after Raines with the same vigor they went after Lay and Skilling. But since he didn't work for Goldman, the appetite isn't there.That alone tells you have politicized the examination of the financial crisis has been.So, you have the right and the WSJ claiming it was Fannie and Fred versus the Left / official government explanation that Wall Street greed was behind it, not (surprise, surprise) government policy. John and Jane Q Public get a pass for buying a 5000 square foot McMansion on an option-arm so they could afford a 70 inch flat screen TV because, well, they vote. And the biggest culprit, the Fed, gets to sit on the sidelines and munch cheetos as the left and right shoot spitballs at each other.sold2u
LikeLike
"In other words why were they still rated AAA?"Because the banks wanted to sell them, and the banks paid the ratings agencies, and AAA was the rating they wanted on all those bundled Double-F-Minus loans. 😉
LikeLike
"And to be clear, both Clinton and Bush did it. Bad ideas can indeed be bipartisan."Boy, does this need to be said, again and again. How can you tell if a politician is lying? Their lips are moving. And whether it's a (D) or an (R), the citizen is best to keep that particular truism in mind.
LikeLike
Has anyone ever claimed that greed is solely the prerogative of private industry? Isn't one of the problems in this country that our government is bought and paid for by moneyed interests? Sure, there were people (homeowners) who took advantage of the low underwriting standards, but they're probably not the ones participating in OWS and they were generally the first to fall. The rest of us, right and left, have been left holding the bag.
LikeLike
"In other words why were they still rated AAA?"A couple of reasons. First, the ratings agencies assumed that real estate prices would continue to keep rising. To be honest, we have never had a prolonged decline in real estate prices in this country since the Great Depression. Housing bear markets in the past were largely localized events, and declines on a nationwide scale were more or less a tail risk like the 1000 year flood that were deemed to be "acceptable, rare risks." As long as real estate prices keep rising, any troubled borrower could trade down easily. If worse came to worse, the bank could foreclose and move the merchandise quite easily.Last, there is this misperception that entire pools of subprime mortgages were rated AAA. That is false. People don't understand that certain senior tranches of a pool of crappy loans can indeed be AAA. If you take a billion dollars of subprime loans and slice it into tranches of $100MM individual bond issues, the most senior bonds will get all of the cash flows from the underlying pool until they are paid off. Then the next-most senior bonds get all of the cash flows from the entire pool until they are paid off. And so on. Generally speaking, all mortgages don't default right away, and those bonds that are at the top of the capital structure are "money good" and indeed deserving of a AAA rating. The lower tranches are not AAA paper and were never rated AAA. The ratings problems were more with the mezz tranches and would have been AAA if real estate prices kept rising.
LikeLike
"but it was important to get people into houses"There's your problem right there. This misguided effort to artificially boost home ownership rates is the biggest problem and I think that mentality remains.
LikeLike
"If it was known that F&F lowered their standards why were those bundled mortgages treated like the standards hadn't been lowered? In other words why were they still rated AAA? Was it a secret that they lowered their standards? "Because F&F were "government sponsored" entities, and the market assumed the government would backstop losses on Fan and Fred issues the way they backstop losses on Ginnie Mae issues. During the financial crisis, the government made this backstop explicit.
LikeLike
Brent-Thanks for answering the questions. I sort of thought that was how it worked with respect to F&F sort of doing a run around to get the subrime mortgages. Otherwise I don't see how they could have ended up with so much money tied up in those. I do question your post about companies assuming the government would backstop losses given that you say in the post above that that everyone simply assumed that home prices would keep rising and any foreclosures coudl be easily sold. If they believed that, which I think most people did, they wouldn't really need to think about the government bailing them out.
LikeLike
NoVA:There's your problem right there.But how can that be? How can such good intentions be blamed for bad things happening? It had to be, could only have been, greed. 😉
LikeLike
It wasn't F/F that lowered the lending standards in the early 2000's, although they sure wanted in on the game, it was financial innovation that led the way. Investors across the world, with money to spend, wanted in on the housing boom, lol.
LikeLike
Offering a potential home buyer an interest only or ARM with a balloon payment and $0 down, no verification of income, and only a good credit score to get you in the door wasn't a government innovation. Lack of government oversight and lower leveraging requirements as well as F/F jumping on the boom bandwagon leads us to the conclusion there's more than enough blame to go around. And sure it's greed, but not just by bankers, greed knows no bounds.
LikeLike
ashot:With Fannie and Fred, you have to separate the two business lines. There was the securitization arm of Fannie and there was the hedge fund arm of Fannie. The securitization line handled conforming loans, which are by definition, not subprime. These are quality loans with creditworthy buyers and have pretty strict underwriting standards. These loans were bundled into agency paper and distributed to the market. Because Fannie was prohibited from originating non-conforming loans (which would be subprime, or jumbo), they couldn't get involved in this area. However they used their "market stabilization" mandate and with a wink and a nod from Washington, set about buying subprime for their own balance sheet (the hedge fund Fannie). Hedge Fund Fannie was buying subprime and Alt-A mortgages from its business partners and financing it by borrowing in the market at government-level interest rates. It was the Hedge Fund Fannie that was bailed out. The securitization Fannie was never an issue and continues today (with GNMA and FRE) as virtually the sole source of mortgage financing in the US today. Since the financial crisis there has been virtually no jumbo mortgage market, unless the borrower can put up 50% and has a FICO score of 800+
LikeLike
Great column and comments.Our media has been criminally delinquent and malfeasant (if there could be such a thing) in misreporting this and allowing demogogues from Barney Frank to Maxine Waters and Barack Obama perpetuate a narrative that exonerates government policy and and themselves and their cronies (calling Frank Raines) and blames "Wall Street" for creating the entire mess. Or better yet still, they blame "the Bush tax cuts" or partial repeal of Glass-Steagall, neither of which had anyting to do with it. That Frank Raines just walked away from the mess with millions in pay and bonuses tells you pretty much everything you need to know.Now we have crowds of over-schooled, undereducated, entitlement-minded slackers demanding more free lunches in the streets. I'm sure that characterization will draw some ire, and, sure, not everyone having hard times fits it, but many including those out front do. The "Wall Street did this to us" narrative has been so cultivated and internalized that it is now intractable, despite the fact that not one in 1000 of the protesters could give any remotely accurate or coherent description of what happened and why. They are angry at the world at large, because life is hard and unfair. Yes, it is those things. Welcome to the world of reality. But now we have a community organizer President whose qualification was inciting discontent and demands on society at large, and that mentality has unsurprisingly been on the rise. The grown-ups (no, Obama is not the grown up here) cannot stop telling the truth. There isn't a free lunch. You aren't poor because someone else isn't. Your own government created this mess through misguided progressive policy — into which the nonconservative George W. Bush fully bought — and is now using it to incite more class warfare and retributionist policy that will only make things worse.Rant over.
LikeLike
@ lms,"Securitization" Fannie did not lower lending standards in the early 2000s. But "Hedge Fund" Fannie absolutely did.
LikeLike
Brent, that was a clear exposition. Thanks.It should always be pointed out that even one million bad mortgages do not begin to account for the huge float of packaged debt.Some of us do not deny that governmental "progressive" policies substantially contributed, but we can point, and have so pointed, to other factors, as well.For examples: partial repeal of Glass-Steagall, coupled, however, with the partial repeal of the Bank Holding Act [both in Gramm-Leach], made deadly by the Commodity Futures Modernization Act of 2000 and the subsequent vacuum into which fell Enron's “off the books” activities, the burgeoning of unregulated credit default swaps backed by zero insurance reserve, and the exploding unregulated “securities”. Brent – now I quote myself in an earlier post:One result was government insurance of deposits in commercial banks that could then be leveraged in very risky and unregulated transactions. “What does seem impractical, however, are the current arrangements. Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.” Mervyn King, Bank of England, October 2009. http://www.nytimes.com/2009/10/26/business/economy/26big.htmlThere are other historical elements. When we gave Citibank the variance – the “temporary” approval – to merge with Travelers Insurance years earlier in contravention of the existing Bank Holding Act we were playing with this fire. When we began the incredible bipartisan push for 100% mortgages to barely qualified borrowers we were creating tinder to be fed into the unregulated CDOs that were in heavy demand because of a tidal wave of cash looking for a home. When FanFred participated in the Goldman-Sachs model of wealth creation we further implicated the future governmental response.I recognize some compelling arguments for looking elsewhere. Seehttp://www.washingtonpost.com/wp-dyn/content/article/2008/10/05/AR2008100501253.htmlAgain, consider the banks in western countries that were NOT shaken to their roots, that were not crying for bailouts. “Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk.” The dreaded Krugman, 2-1-10http://www.nytimes.com/2010/02/01/opinion/01krugman.html?adxnnl=1&adxnnlx=1316259161-/0vC0BBFVvhQ1Mkvh/r94QI concede that is an argument for regulating risk taking, not for regulating the wall between “commercial” and “investment” banking, per se. However, the contribution from tearing down that wall is that investment banking runs a far chancier, and more global, set of risks than is required for good lending practices. The set of risk averse regulations historically applicable to lending institutions would stifle an investment banker. Even now we see the industry fighting against maintaining mere ten per cent in reserves. I remember when 18% was typical for a local bank.I pose that separation would be a net good and reduce future risk in the way suggested by Mervyn King.
LikeLike
Brent, I'm no fan of Hedge Fund Fannie, or the Dec. 2009 largely unnoticed bailout. All I'm saying is the CRA didn't authorize the kind of liar and sub-prime loans that Hedge Fund Fannie, Countrywide, and Wa-Mu created. There's plenty of blame to go around, government and corporate.qb, you're right your characterization of the protesters is off base. Can't you understand that a lot of people who neither participated in nor benefited from the housing boom/bust might just be mad that they're not recovering? Most of us had no role to play in any of this madness that is government/corporate collusion and yet we're paying the price, as are you.
LikeLike
QB- "Now we have crowds of over-schooled, undereducated, entitlement-minded slackers demanding more free lunches in the streets."I must have missed that sign. ;)It seems like you are reading too much into the location of the protests than you should. Like lmsinca, I think the protestors aren't giving the government the free pass you think they are.
LikeLike
lms, I understand fine. I've read and heard what many of these protesters have to say. Some I've heard have no idea why they are there; they are just college kids experiencing their rite of passage of shaking their fist at the world. Some were just given the opportunity to get on a bus to go protest something, somewhere. Many are entitlement-minded or outright socialist slackers; sorry but they are. Their words are pretty clear about it. But all of this is somewhat beside the point that their ire is almost entirely misdirected and misguided. The mess they think they are protesting in their vague and incoherent way was caused more by government than by "Wall Street," so they are demanding more of what caused the mess in the first place.I asked a rhetorical question last week about the occupiers. Would anyone actually hire the typical protester, or the ones you've seen and heard? I sure as heck wouldn't. I can't fathom how most of them even can simultaneously maintain that corporations are evil but claim an entitlement to a job with one. Anger at the world doesn't justify itself or the ridiculous claims and demands they make.I recognize that I'm a bit sore-headed about this right now. I've just had enough right now of watching 22-year-old green/socialist ignoramuses demanding that my taxes be raised and they get free education, jobs for which it would be foolish to hire them, and a basic overturning of our constitutional order.
LikeLike
ashot,No, they might not be giving the government a free pass, but their complaints about the government are entirely wrongheaded in corollary fashion to their complaints about Wall street and society at large. They want a bigger welfare state, more programs, more free benies. They want socialism, soft or hard. Sure, it is a motley and random collection of the aggrieved who have different points of view, but this is the broad theme, is it not? Regulate banks and corporations, give us benefits and entitlements?
LikeLike
qb, sorry but I think you're seeing what you want to see. Sure, some of them are just kids looking for a reason to get out there and shake their fist at an unfair world, and maybe like Kevin said some are just hoping to get laid. There was a lot of that in the 60's, lol, free love and all that. But others have legitimate gripes and concerns and we should probably be paying attention before things get worse. They're being joined by older and wiser and better educated people every day.
LikeLike
qb: "Our media has been criminally delinquent and malfeasant"Fox News and pundits on AM radio have been pretty pointed about it, and their overall market share is larger than most of the rest of the media put together. And even folks on CNN and CSPAN have touched on it. It's not that media hasn't stuck with a single, liberal narrative, it's that the they move on to more interesting things rather quickly, and the government always has a bias towards pardoning Nixon. Frank Raines gets away with what certainly looks like intentional deception, where as Ken Lay was almost certainly non-complicit in much of Enron's shenanigans–just a very bad, and very inattentive manager (while the company was collapsing, he wasn't busy trying to shore it up—he was picking out fabric swatches for the new corporate jet).
LikeLike
lm: "They're being joined by older and wiser and better educated people every day."The left-wing version of the Koch bros. are moving in. The co-option begins. I tend to agree, based on experience, that "protest" and "party" both start with "p". While I don't doubt they feel aggrieved, or that someone should be doing something to improve the quality of their lives, and that there's something they are entitled to that somebody else has a whole lot of and perhaps should not . . . I think a great deal of OWS is recreational. That doesn't mean a few stupid cops can't make it transformative (pepper spray? really?) by whipping out the rubber bullets. The recreational aspect of these (and most, at least in the 1st world) protests aside, who can blame them? Things certainly do seem to suck, and, if you're young or a perpetual student, the future doesn't look all that great. And I don't know how you guys were when you were young, but I felt I was a delicate and beautiful flower, bursting with creativity and intelligence that was going to be wasted in a meaningless, subsistence existence because society and government and whoever simply didn't do enough to ensure that unique snowflakes such as myself had every opportunity to shine, without the crushing burden of debt, responsibility, obligations, or answerability to other people. At the right point in time, I certainly would have protested that. I wouldn't expect these protests to lead to much, except perhaps superficial gestures, and the occasional gaffe-tastic "let them eat cake" type statement from a Herman Cain or a Sean Hannity. I suspect that's going to be the final contribution of OWS. qb: "Regulate banks and corporations, give us benefits and entitlements?"Some form of regulation on banks, in regards to how reckless they get to be, and how leveraged they can be, doesn't sound like such a bad idea. And who wouldn't like additional benefits, from the never-ending money tree? I'm all for that. ;)Final note: I watched John Stewart the other day, where he had a couple of clips of very coherent protestors making their case rationally, contrasting that to media folks (Fox, CNN, I think even MSNBC was in there but it might have been CNBC) poo-pooing them all as silly and irrational and foolish (which, of course, some of them are; you don't have to submit an application to participate in a protest). But there is a narrative (there is always a narrative) being adhered to by the media, and it's not a particularly liberal narrative. Which just goes back to my argument that, whatever bias you see in the media (or don't), the media is a very limited snapshot of a very limited amount of data that can, potentially, be highly distorted. Take it for what it is—one single datapoint in a sea of information.
LikeLike
Didm't FNMA's purchases of subprimes – the hedging – begin in 2005, after Raines was gone? Under Mudd?I thought the scandal with Raines was that he too was a friend of Angelo's.The pilot subprime loans Raines initiated never had a huge default rate, b/c FNMA was more careful than Countrywide, etc.
LikeLike
@Mark:"It should always be pointed out that even one million bad mortgages do not begin to account for the huge float of packaged debt."Actually, the shadow inventory estimate is 4.5MM units, and if you include 2nd liens, that number is way higher.IMO, Glass Steagall is the conventional explanation for the financial crisis, but I am not sure I buy it completely. Here is why:1) Nobody else (Europe, the UK, Japan) separates commercial and investment banking, or for that matter, even draws a distinction between the two.2) Firms that had nothing to do with OTC derivatives were still affected simply because they did business with firms that did.3) Whether you hold a mortgage directly or through a MBS you still are exposed to falling real estate prices. The reason why Glass Steagall was repealed in the first place was because it wasn't enforced equally (J.P Morgan and Bankers Trust were commercial / investment hybrids) and (more importantly) because US investment banks couldn't compete with foreign investment banks because they had to fund their balance sheets at LIBOR while their foreign competitors had captive depositor rates. We made the decision politically to keep Wall Street as Goldman and Morgan as opposed to UBS / Deutsche Bank / Nomura. The separation of insurance and commercial banking wasn't really relevant in the financial crisis (with Citi and Travelers). The rationale for separating insurance and banking stemmed from the Great Depression, when banks used insurance companies as a "back book" to stuff losing trades. If the bank couldn't sell an issue to the market, they would sell it to the insurance company. Like I said before, the official examination of the financial crisis has focused almost solely on "bankster greed" and Fannie / CRA. They didn't cause the housing bubble. They were aggravating factors to the crisis, but the housing bubble was caused by the Fed and by plain old human psychology, which is as old as the hills. We (IMO) really, really need to rethink the dual mandate, because the risks of getting it wrong on interest rates are asymmetric.Last, a big, big issue that is completely unexamined (mainly because you can't really do anything about it) is that conventional risk management formulas like VaR (value at risk) are at best a security blanket and are inherently, fatally flawed.
LikeLike
"Didm't FNMA's purchases of subprimes – the hedging – begin in 2005, after Raines was gone? Under Mudd?I thought the scandal with Raines was that he too was a friend of Angelo's.The pilot subprime loans Raines initiated never had a huge default rate, b/c FNMA was more careful than Countrywide, etc."Nope. Read the press releases I posted above. The American Dream Commitment started in the Spring of 2000.
LikeLike
John Stewart: the gag where JS quote Sean Hannity on the Tea Partiers, without clueing in the audience that he was talking about the Tea Party, and not OWS. John Stewart presented it straight (I'm assuming the audience wasn't prepped), that Hannity had this to say about the protestors. Once the Hannity clip was done, the audience cheered. And what he said certainly could have been said about OWS. But then, Hannity goes on to characterize OWS as anti-American (but the Tea Partiers weren't . . . because of the flags?) and then there was Ann Coulter going Godwin and introducing comparison of OWS to Nazi Germany . . . ). I mean, I understand the incoherent, recreational nature of protests such as OWS, but Nazis? Anti-American?Any reason the same things said about the Tea Partiers couldn't be said about OWS, and vice-versa? Aren't they essentially folks concerned about the direction of their country coming together and making a statement about what's going on? Given the bank bailouts and the stimulus and what they were promised versus what was delivered, is what they are doing outrageous? Any particular reason why free association is good for OWS but not Tea Partiers, or vice-versa?
LikeLike
"The pilot subprime loans Raines initiated never had a huge default rate, b/c FNMA was more careful than Countrywide, etc."Fannie Mae and Countrywide were partners in the American Dream Commitment. They issued joint press releases. Fannie told Countrywide "if you originate it, I will buy it"There was no separating Fannie and Countrywide – they were joined at the hip.
LikeLike
I saw a chart this morning that showed the average income of the top 1% vs the average income of the bottom 90% over the past couple of decades. Most of us here probably fall in the other 9% somewhere. But the top yellow line was a steady growth over the years, quite steep with a few valleys, while the red line was at the very bottom of the income scale steady and straight with no up and no down peaks and valleys. That's our middle/working class. With unemployment high for over two years now it's pretty tough to think anyone gives a damn, and I think what the protests are about.
LikeLike
Brent, I was not aware that UK, especially, permitted dual banking, thought the entities were separate. I do think that we were cornered on "too big to fail" because we had FDIC insured the commercial banking arms. Aren't the Canadian and Australian commercial bank experiences relevant here?Was part of the politics of repeal in the 90s that we did not want to lose NYC as a world financial capital?
LikeLike
Brent: "IMO, Glass Steagall is the conventional explanation for the financial crisis, but I am not sure I buy it completely"BTW, I've pointed to Glass Steagall in the past, and even argued for bringing to back shortly after the crisis began. I'll post that from the wayback machine in a minute. Though I agree that it's hardly the entire reason (a Great Recession, I think, requires something like a perfect storm of events, of which the repeal of Glass Steagall would only be a component). What do you think about the previous repeal of Glass-Steagall's Regulation Q in 1980? And what about the Depository Institutions Deregulation and Monetary Control Act generally?
LikeLike
lms .. got link to that chart?
LikeLike
Mark:If the repeal of Glass-Steagall represents the problem you say it is, why is it that the most notorious institutional failures during the the financial crisis were institutions that were either commercial banks/lending originators with no investment arm (eg WaMu, Countrywide) or non-deposit taking investment banks/insurance companies (eg Bear Stearns, Lehman, AIG, Merrill Lynch)?Glass Steagall would not have prevented any of these failures. What it would have prevented, however, was one of the solutions to the crisis, which was to have stronger institutions (Chase/BoA) take over the failing ones.Not to beat a dead horse, but the problems of 2008 were caused by a real estate bubble. The repeal of Glass-Steagall did not cause the bubble, did not fuel the bubble, and did not exacerbate the economic consequences of the bubble bursting. The prospects for the economy upon letting Bear/Lehman/Merrill/Goldman/Morgan all fail would have been no less severe even if all FDIC deposits were legally protected from from their "risky" activities. Not to mention the fact that the most risky activity of all in 2006 was to lend money to someone to buy a house. And there was nothing in Glass-Steagall that would have prevented FDIC insured deposits from taking on that risk.
LikeLike
"That's our middle/working class. With unemployment high for over two years now it's pretty tough to think anyone gives a damn, and I think what the protests are about."Well, it's the excuse, like finding out your best friend parents are out of town for the weekend . . . and he's got a hot tub!But, yeah, when you feel like your suffering and somebody else is doing great and keeps doing great, and your life (by your assessment) is sucking . . . you get pissed off.But the rich will always get richer. Anything that claims to ameliorate that will, in due time, end up allowing the rich to keep getting richer, while you (the bottom 99%) end up footing the bill. Again. Only more so. Now, how did that happen? I'm with Greg Easterbrook (from The Progress Paradox). "The same social engine that in the United States and Western Europe is producing spoiled and insufferable billionaires is also producing steady, significant gains for the middle and for the poor". That doesn't mean we don't have practical concerns that we should find a way to address, and that government isn't a great mechanism for addressing many of those concerns. But I've always felt focusing on the gap between rich and poor, especially when the poor or, on the whole, much better off than they used to be, and will probably be much better off in 30 years than they are now, while the rich will be much, much, much, much, much more better off . . . it's the wrong thing to look at. That's not even like trying to cure the disease by treating the symptoms, it's like amputating a foot when you were supposed to do an appendectomy. But, it's a stat that tends to make anybody not super-rich angry and irritated. Which is something around which protests can certainly coalesce.
LikeLike
"What it would have prevented, however, was one of the solutions to the crisis, which was to have stronger institutions (Chase/BoA) take over the failing ones."And doesn't that lead directly to "Too Big To Fail"? Not that you want the failing banks to disappear, necessarily, but I'm not sure growing existing behemoth banks even larger is the best answer.
LikeLike
NoVA, I'll try to find it again by retracing my steps before sunrise, yikes.
LikeLike
Scott, I think the real estate bubble bursting was the signal event. But I lived through a major bubble and bust – the S&L crisis of the late 80s – that in pure real estate and mortgage terms was as big as this one. But in financial terms it was a piker compared to this one.There was, this time, a flood of investment money in instruments that were tied to the American real estate market. There were fewer bust real estate markets than in 1989, but these new instruments included ones that could be bought and sold by persons who had no actual ownership of real estate debt – bets on the performance of the debt. Then persons could buy insurance on these bets. I liken it to selling naked options.Before Gramm-Leach and abrogation of Shad-Johnson these instruments would have been regulated. Whether AIG would have been constrained not to issue naked credit default swaps is problematic, in any event.Bair testified she could handle a bunch of WaMus, but not Citi. Citi, pre G-L-B, could have been reorganized. BOA, too.Pre G-L-B the RTC handled the S&L bust, which was, at the pure real estate level, the same damned thing. But we cannot handle it now, and I think that it is the result of G-L-B and the regulatory vacuum that still exists.
LikeLike
HereHere you go NoVA, it's the third chart but the first two were interesting also.
LikeLike
"Brent, I was not aware that UK, especially, permitted dual banking, thought the entities were separate."The UK has banks and building societies, which are similar to our S&Ls. But in terms of personal banking (checking accouts, etc) HSBC is huge, as is Natwest (which is owned by RBS)."I do think that we were cornered on "too big to fail" because we had FDIC insured the commercial banking arms." It was part of it, no doubt. But cascading counterparty risk from OTC derivatives was the real catalyst. That meant that simply by virtue of doing business with an infected bank, you were infected. Dealing with that issue must be job #1 of Dodd / Frank. IMO, they don't go far enough. "Aren't the Canadian and Australian commercial bank experiences relevant here?" Probably, but remember those economies are commodity-based and commodities are flying high at the moment. Let's see how Canada fares when oil drops to $10 a barrel."Was part of the politics of repeal in the 90s that we did not want to lose NYC as a world financial capital?"No question. The US banks like GS and MS couldn't compete with the Japanese (who could borrow at 0%) or the European banks who had captive depositor bases and implicit government guarantees.
LikeLike
"Let's see how Canada fares when oil drops to $10 a barrel."There doesn't really seem to be much risk of this, do you think?
LikeLike
Brent, thanks again. Brent and Scott – Brent put the total of subprime mortgages at @4M and I assumed @1M defaults. Even assuming 4M defaults, the TARP was big enough to guarantee the performance every single subprime loan. That points up how this was not merely a classic real estate bubble and bust, and how the speculative frenzy in tertiary beanie babies had a life of its own.
LikeLike
thanks!
LikeLike
"I've always felt focusing on the gap between rich and poor, especially when the poor or, on the whole, much better off than they used to be, and will probably be much better off in 30 years than they are now"Uh Kevin, maybe you should take a look at the chart above. Not true with 90% of Americans and I'm pretty sure it's a problem. How we address it is controversial and open for debate, but we can't just keep pretending that the bottom 90% are better off than they were 30 years ago. Trickle down didn't work. I don't know the answers, but huge income and wealth discrepancies don't usually serve a country well. Should I also go dredge up some charts on the increase in numbers of families living at or below poverty level. Last time I checked it was 1 in 6.I don't think even qb can claim all or even most of those 90%ers are lazy and looking for a new government handout. I know a lot of these people and they work just as hard as the next guy and quite a few are well educated to boot. We have college grads working at Starbucks and Target so something's wrong.
LikeLike
"What do you think about the previous repeal of Glass-Steagall's Regulation Q in 1980? And what about the Depository Institutions Deregulation and Monetary Control Act generally? "Both were in response to the disintermediation problem faced in the 1970s. The Depression-era banking rules fell apart in the high interest rate 1970s. Under the depression era rules, banks had a deposit ceiling, which capped the rate they could offer depositors. This was basically a way to prevent competition. Old timers might remember that banks would offer you a free toaster if you opened a passbook account. That was how they competed, since they all paid the same rate of interest. In the 1970s, Treasuries paid way higher rates than savings accounts. Since Treasuries typically have a face value of $1 million, most people couldn't invest in them unless they were very rich. Merrill Lynch came up with the brilliant idea of buying Treasuries and stripping them into principal and interest components and selling these securities to savers. These securities sold like hotcakes, and soon people began pulling their savings out of the banks and putting them in these vehicles which paid a higher rate. Which leaves the banks in a terrible spot. Because they can't pay a market rate to borrow, they were shut out of the market. It was almost a bank run in slow motion. Eliminating Regulation Q allowed banks to start paying interest on checking accounts in order to prevent depositors from pulling their money out. DIDEMCA removed the deposit caps and allowed them to invest in riskier assets to cover their higher cost of borrowing. (A big problem at the time was that banks had scads of mortgages originated in the 1960s which paid 3% – they had to invest in riskier assets to offset the drag from these mortgages, especially when it cost them high single-digit interest rates to borrow money)Basically the Depression era banking laws worked fine until the high interest rate 1970s. Carter deregulated the banks not out of free-market ideology, but because the regulations became untenable.
LikeLike
wait — that chart omits the 90-99%.
LikeLike
"Let's see how Canada fares when oil drops to $10 a barrel."There doesn't really seem to be much risk of this, do you think?"I think oil is headed to single digits. The electric car is only going to get better and cheaper. We are just starting the inflection point of the "S" curve there. Tell a consumer they can fill up their "gas tank" for $2 worth of electricity, vs gas, what do you think they'll choose?Second, all of the technological innovations we have been using in nat gas (fracking, horizontal drilling) are applicable to oil as well. Between all of the new oil sands production out of Canada, and the new deposits here (along with a price of nat gas that is only going to collapse further) oil is only going to get cheaper.IMO the US will be a net energy exporter in 5 – 10 years.
LikeLike
http://motherjones.com/politics/2011/10/new-hampshire-libertarian-movementnow this is fun.
LikeLike
"IMO the US will be a net energy exporter in 5 – 10 years."It's pretty obvious the oil companies think so as well. Chevron is moving 600 new hires into Midland, TX and the place is booming. They and other companies are throwing money at recent and new oil/engineering grads like there's no tomorrow so I don't think they're too worried right now about a total collapse in the price of oil either, although they could be wrong. It's typically a boom and bust industry. Our daughter saw fracking up close and personal this summer and said it's fascinating. Personally I hope they work out the ground water issues before they get too crazy excited about it though.
LikeLike
NoVA, re that chart, I did say it was the top 1% vs the bottom 90%. Don't you find it disturbing though that 90% of the population is sitting there on the bottom like that?
LikeLike
"Not true with 90% of Americans and I'm pretty sure it's a problem."Real (non-government-assistance) income has remained stagnant for the bottom 90% for the past 30 years, and if we could find a way to grow our way past that, that would be good. It's not clear to me if the numbers include part time workers, recent immigrants, etc., but there are demographic issues that prevent a comparison of income over time from being an apples-to-applese comparison, necessarily.It's good to keep things in perspective. As of 2007, we had the 2nd highest median income in the world, 2nd only to Luxembourg. Median Income PPPCheck out this chart on Real Median Household Income by Race from 1967 to 2010.Collectively, everybody is better off–just not nearly as better off as the very wealthy. Median income for most folks are 5% or 10% higher than they were in 1967, while the extremely wealthy are often 1000% or more better off. That's a big gap. But the fact that we are better off, and growing at a very subdued yet consistent rate, decade over decade, suggests to me that a very robust economy, over time, that helps the majority of people, also produced increasingly higher concentrations of wealth at the very upper brackets. Efforts to subvert this (and I don't mean a modest increase in the taxes very wealthy people pay) will likely end up with the folks on the bottom having less money, not more. But also, the fact that we have the 2nd highest median income in the world (although that may be 3rd highest, now) suggests that American tax policy and American wealth disparity is not a singular cause of a lack of real wealth growth among the bottom 90%. "Should I also go dredge up some charts on the increase in numbers of families living at or below poverty level. Last time I checked it was 1 in 6."My understanding is those numbers don't take into account government aid, which, in my opinion, kind of does our government assistance programs a disservice. But the more people we can get out of poverty, the better. While I think things are better than they were, and certainly better than they could be (I'd rather be below the poverty line in America than in Zimbabwe), poverty is still a problem, and one that we do address. One always hopes we can do more, however. I don't want anybody to be poor. Being poor sucks.
LikeLike
"I think oil is headed to single digits."In what sort of time frame? I have a hard time seeing that happening inside the next decade. I guess I shouldn't speculate after that. But . . . maybe so! I'd love to see it. I mean, when I fill up my tank.
LikeLike
right — but it thought it was weird that it's been "the 99%". "Don't you find it disturbing though that 90% of the population is sitting there on the bottom like that?"Depends on what/where the bottom is. I'm more concerned with absolute poverty vs. relative poverty.
LikeLike
BTW, thanks for the response to my Glass-Steagall question. That was informative.
LikeLike
@lms,the oil companies can't control the price of oil – they can only react to it. If the price is falling, you better sell more. They'll still make money. BTW, economically, this will be a game changer. Which is why I am not buying the "we are going into a decade-long depression argument" If Europe blows up, we could be in for a tough year or two, but once housing bottoms, I think things are looking up. Low oil prices are an elixir for consumers, and will pretty much allow us to downsize our military to protecting our shores. It will go a long way towards fixing our trade and budget deficits.
LikeLike
Brent:Yay, optimism! I really hope you are right.
LikeLike
Thanks everybody, this is one of the most informative threads I've read on the current situation.
LikeLike
"the oil companies can't control the price of oil – they can only react to it. If the price is falling, you better sell more. They'll still make money."That's true. And I hope you're right regarding the economy and the future. I was thinking in terms of a 5 to 10 year window specifically because of housing, but hopefully I'm wrong. Low oil prices is a boon to business investment as well. We do some importing and the difference between ocean freight this year between two orders was $500 which was about 10% of the entire cost of the order both of which were nearly identical.Thanks for all your comments today, very informative.
LikeLike
"Not true with 90% of Americans and I'm pretty sure it's a problem."I find all these supposed analyses finding that the bottom 90 or whatever have made no gains to be completely incredible. You and I are old enough to remember the 70s. You can measure incomes however you want, but people in all income ranges are better off materially than were people in the same strata then; certainly the middle and working classes are. Bigger houses, better cars, big TVs, cell phones, vacations, $5 coffees. When someone shows me an analysis that claims otherwise, I know that whatever they are measuring isn't the relevant metric."I don't think even qb can claim all or even most of those 90%ers are lazy and looking for a new government handout."That is one large straw man. But all you have to do is read the OWS tumblr or listen to these slackers be interviewed to see that many of them are just that — slackers looking for a handout. They truly think the world owes them everything, and they aren't about to work hard at being productive and contributing themselves. It doesn't even occur to some of them. I was listening to Rush while on the treadmill (getting my talking points, you know). He played a street interview of one of these kids who is demanding that his tuition and loans be paid … by someone, anyone but him. The interviewer was great. He was persistent but friendly in simply asking for an explanation of why this kid thought he was owed free college to be paid for by someone else. He had no explanation at all; he obviously had never even thought about it. All he could say was, because it's what I want. The interviewers said, yes, but why? Because it's what I want, and why shouldn't I say it. Everyone can say what they want. That was his whole explanation. So he apparently has a view of society that we all just march in the streets to demand what we want to be given. He said billionaires are exploiting us, but had no idea how. I submit that this incoherent, spoiled brat is typical of many of the protesters. He can go dig ditches for minimum wage for all I care. It would give him some quality time to consider his sense of entitlement and why he isn't getting anywhere by carrying around a sign demanding money instead of taking some responsibility for himself. If a kid like this were saying, we need the government to straighten out what it is doing wrong and get the economy going, and help us find productive work, I would feel a little differently about someone like him. But he's just into blaming and demanding what he's never earned."We have college grads working at Starbucks and Target so something's wrong."Perhaps, but what is wrong? I know college grads working at Starbucks who have economically worthless degrees and who aren't capable of much more anyway, and they tend to think that working for a company is just being exploited and being a sucker anyway. I'm perfectly content to let that sort of college grad serve $5 coffee. We probably all know some young people who fall somewhere in between — those dreamy-eyed kids on a long-term college plan who are studying art or dance or something else that turns them on, without more than a vague idea of how someday they are going to evolve it into a living. They generally find it incomprehensible how people like most of us work hard, sacrifice pursuit of some of our more fanciful dreams, and pay for a house and car. Our society and government have miseducate them.
LikeLike
second Troll and lms re the great, informative comments, too.Brent/sold2u refreshed me on some of what I learned in my financial institutions class years ago but would never have remembered. Awesome stuff.
LikeLike
Thanks for the kind words, everyone.
LikeLike
This thread demonstrates why everyone is here and why I've been mostly unproductive at work today. Informative and no personal insults.
LikeLike
"dreamy-eyed kids on a long-term college plan who are studying art or dance or something else that turns them on, without more than a vague idea of how someday they are going to evolve it into a living"This hits really close to home. Really close. My sister-in-law, love her to death, is an art student. she's very talented and has a gift. The light clicked on for her when she joined my wife (another DC professional) and me on vacation. our treat. not an issue at all and I'm glad she came. but the disconnect between "why can't I afford this" while you can resulted in a very frank conversation about decisions, consequences and even more importantly, budgeting for "wants vs. needs."
LikeLike
qb, it's not a straw man when you keep making the same argument that I was attempting to counter by saying you are wrong. You're still typifying these kids, which they aren't all btw, as dreamy eyed slackers based upon a few interviews you've seen and heard. Who's making a straw man argument, you or me?I've already conceded, we all have, that some of them fit your description, I even called it a carnival last week, but you just will not back down that maybe there's a good reason for some of the anger and genuine grievance. If that's the way you want it, then I'll keep defending the ones that don't fit your pre-conceived notion. You know how stubborn I am, right?A friend of my daughters is participating in the LA protest. A very smart and accomplished young woman, a PhD in Sociology, not exactly Chemistry but not art or dance either, and posted a response she got to an application for a teaching job in the CSU system here. Due to the 526 applications we received (for one job) you can expect a response in about a week.
LikeLike
Here's a story about who is backing and organizing OWS.
LikeLike
"This hits really close to home. Really close. My sister-in-law, love her to death, is an art student. she's very talented and has a gift."I was an art student and I went to art school. There were a number of reasons for this course, and I don't regret it. In addition to being an artist and photographer, I'm also an occasional writer, musician, and all-around dilettante. But my job is doing databases. That being said, for 99%, I think money is always an issue. There is always *something* you can't afford. Everybody has to plan their finances to some extent, and everybody knows somebody who can afford something, at the moment, that you cannot. While, of course, we all want more money (most of us, anyway) it's always good to keep in mind that expenses rise to match income, and that more money doesn't actually solve as many problems as we think it does. Very poor people have, over time and sometimes quickly, gotten well off or even rich (it does happen), and have still ended up in bitter ugly divorces or with someone getting shot (and not just in the NBA, though, of course, there's a few examples there). We've gotten invited a few times to the birthday parties of a child of my brother-in-law, but we never go. They are not super-rich, but they are rich compared to us, and they do things like rent a circus for their child's birthday parties. They have a much larger house in a much fancier neighborhood, and that's just not the circle we live in. We're very modest folks, and though I do, of course, aspire to make more money, I like to keep our experiences consistent with our level of income. I already have to explain why we can't afford certain birthday parties and presents–I don't want to have to add explanations as to why I can't afford to rent a circus or hire a band to that. Digressing, though, so I'll stop.
LikeLike
Now, lms, don't make me come over there! You want a piece of me?! Huh, do ya!? ; )I've also agreed that not everyone is the same. Of course they aren't. But if we are supposed to be able to discuss the "movement" in a rational way, how are we supposed to view it/them? It just represents everyone in the country who is angry and frustrated, slackers and unfortunate hard workers as well? If that is what it is, then it is a little meaningless. The people on TV and in the papers and getting the attention are more on the slacker side as far as I can tell.I'm sorry for your friend's daughter's plight. But when I was in college I wanted to pursue a PhD, too. My profs were hearbroken that I didn't. They wanted to sponsor me for a Mellon and other fellowships, Now, perhaps it would have worked out. Two classmates in my department went on to earn PhDs from Michigan and are at universities now. I had better grades and scores than both of them, but I was just too concerned about getting a job and making a decent living. I had been in the harsh, real world already. One of them, however, regular blogs and posts on Facebook about the perils of pursuing graduate dedgrees in humanities and social sciences. He loves what he does — exactly the same thing in exactly the same subfield I would have pursued — but it is a poor living, and he is one of the lucky few who got a tenured job. People make decisions, and they have consequences. Something isn't "wrong" with the fact that your friend is an unemployed PhD other than that there are way too many PhDs in sociology for the teaching jobs available. That isn't the fault of Leham Brothers or the Koch Brothers.
LikeLike
"I like to keep our experiences consistent with our level of income"this is what I had to explain to her. perhaps this is a lesson that is needed regardless of what your study. what's striking to me — and i think QB — is that this needs to be a lesson at all. I don't recall ever being taught that. not explicitly anyway.
LikeLike
qb: "I submit that this incoherent, spoiled brat is typical of many of the protesters."Failure of parenting. But, like the guy cheering letting folks die in the street at an earlier GOP debate, these things are pretty much open invitation, and you get all kinds. ""We have college grads working at Starbucks and Target so something's wrong.""" I know college grads working at Starbucks who have economically worthless degrees and who aren't capable of much more anyway, and they tend to think that working for a company is just being exploited and being a sucker anyway. I'm perfectly content to let that sort of college grad serve $5 coffee."I tend to agree. I also think that many of these people have a good strategy for getting a worthwhile degree at the time they started, and it just didn't turn out. It wasn't a bad idea to get into graphic design and printing in 1990—now that business has all but evaporated. It's a fraction of the size it used to be. Things change. When I lost my design job, the next job I got was better than Starbucks, but it was paying half of what I had been making, and often included a lot of crappy warehouse work. But it was a good experience. I don't think there's anything wrong with college grads working at Starbucks or Target—I think at least a year or two is probably a very positive experience, especially if they hadn't done any fast food or retail work in high school. And I don't think it hurts to take a few years at bottom-end, customer-serving jobs into better positions in corporations, government, or academia. "They generally find it incomprehensible how people like most of us work hard, sacrifice pursuit of some of our more fanciful dreams, and pay for a house and car. Our society and government have miseducate them."The compulsion to find the easiest way from point A to point B does result in some parasitism, but is the same very human urge that spurs a great deal of innovation. How do we make it easier? How do I do less work? How we make this better? How do I make what someone else did better so I can maximize my profit off of it? How do I spin straw into gold? How do I get rich? How do I make my life easier? As with insufferable billionaires, I think entitled students who feel others need to step up to the plate and provide for them (or just feel big corporations should be better corporate citizens) are the opposite side of the success and innovation card. A robust free market that helps reward hard workers and makes a few folks uber-wealthy also supports and creates entitled protestors unhappy with their lot and hoping they can convince others to do something about it.And, in all fairness, some of the OWS folks are smart people with legitimate objections and ideas to share, looking for a platform. Just like many of the Tea Party folks, actually.
LikeLike
"That isn't the fault of Leham Brothers or the Koch Brothers."As far as I know she doesn't blame either of them. She blames the budget cuts that sent her out looking for a new job in the first place. She teaches at the same CC my daughter was teaching. Now they're both looking although she still has two classes, down from four. There are students wanting in and teachers wanting to work but no money for either.We should have room in our society for people to teach as long as we have students who want to learn. And we should also have room in our society for artists and dancers and musicians. Not everyone wants to be a doctor, a lawyer or a corporate executive. It feel like we're becoming a two tier society and it truly does frighten me.
LikeLike
thinking out loud here — maybe it's unfair (okay is) of me to point at a particular area of study and pull the "kids today" routine. it just seems like all her friends were/are the same way. to pick up on lms' point above, and her comment in the literary thread — "Not everyone wants to be …." maybe that's the issue. i think for some people, what we want to do is somewhat irrelevant … or maybe less of a priority.
LikeLike
" It just represents everyone in the country who is angry and frustrated, slackers and unfortunate hard workers as well? If that is what it is, then it is a little meaningless."Movements like this are big tents, and they're always going to attract less than ideal avatars for the cause. "That isn't the fault of Leham Brothers or the Koch Brothers."It could be. They are awfully evil, after all, so we shouldn't just close the door on that possibility.
LikeLike
Not everybody wants to . . . work for a living. Give me a trust-fund where I collect a sweet $5k or $6k a month, and I wouldn't be a doctor, lawyer, or database analyst, either. 😉 I think I'd probably be a combo travel-and-food-critic blogger. I spend a lot of time writing about Disney World. And cruises. All sorts of cruises.
LikeLike
lms:We should have room in our society for people to teach as long as we have students who want to learn.…and, I would add, someone able and willing to pay for it. And we should also have room in our society for artists and dancers and musicians. We do have room for such people.
LikeLike
Kevin:They are awfully evil…Wrong tense, at least with regard to Lehman. And who wouldn't prefer its evil to what has followed in the wake of its demise?
LikeLike
"We should have room in our society for people to teach as long as we have students who want to learn. And we should also have room in our society for artists and dancers and musicians."And we do, but in any functional society there's going to be competition for attractive jobs, and competition to attract people for less attractive jobs. It's certainly not going to be the case that every geographical region will be able to easily supply every teacher with a job and every student with a class all the time . . . folks often have to do stuff they don't like to make a living. They might have to switch careers (done that; don't mind it, turned out I hated my first career) or they may have to move, or change specialties . . . it's tough. And things do change. Not only are there not a lot of job for buggy whip makers, there aren't a lot of jobs for buggy whip making teachers, either. I loved my print making course, loved paper making, loved sculpture . . . but there is a finite need for sculpture teachers and there will occasionally be two few or too many for any given community. This leaves the inventive sculpture teacher to offer classes at the community center or from their house or get a job at Starbucks and take classes in something there's a larger market demand for, at the time. I remember about 5 years ago, hearing ad after ad, from the local community college, pimping their graphic design classes and the money to be made in DTP. This was past the death of that as an industry that employs much of anybody—churning out whole classes of graphic designs students seemed extremely ill-advised, to me. There'd be no jobs for them—not in that field of study. But . . . graphic design and desktop publishing teachers need jobs, too.
LikeLike
"Wrong tense, at least with regard to Lehman. And who wouldn't prefer its evil to what has followed in the wake of its demise?"Well, Lehman is a was. But really, the Koch brothers are a sort of omnipresent evil bent on world domination. I believe they both were eye patches, have a jagged scar running down their cheeks, and sit in big black chairs thoughtfully stroking white cats while they plot their next move.
LikeLike
"combo travel-and-food-critic blogger"isn't that what everyone wants to be? i'm going to travel, eat and write and cash by book advance.
LikeLike
scottObviously, education funding needs to be available. One of the fall outs from the crash is it also crashed state budgets and education in some states has been decimated. Our CC system here in CA gets the best bang for the buck in education dollars and yet they're turning students away, 140,000 last year and 200,000 this year. Of course the hardest hit are recent HS grads and veterans.I read a statistic last week that if just 2% more students in CA earned an AA and 1% more earned a BA, the economy would grow by $20B and a 117,000 jobs would be created. But when you have to balance your budget, somethings got to give no matter how short-sighted.I was reading comments at the plumline last week and just about everyone jumped on the bandwagon for a highly technical education in the sciences or a trade school as options for HS grads. And I thought, what about a liberal arts education? Art, music, theater, these are always the first to go in a budget crunch. The CC where my daughter was teaching art completely decimated the art program they'd been building for 20 years. I just find it unfortunate. Most artists don't make a living selling their art, they need some sort of formal training to excel in a particular commercial art form in order to earn a living.
LikeLike
81 Comments (this will probably be 82, but maybe 83) . . . this has been a very busy thread. We're some loquacious folks!
LikeLike
"I read a statistic last week that if just 2% more students in CA earned an AA and 1% more earned a BA, the economy would grow by $20B and a 117,000 jobs would be created. But when you have to balance your budget, somethings got to give no matter how short-sighted."It's why parsimonious politicians resisting expansive government are actually doing something to help support such programs, because once you've over extended yourself too far (like CA arguably has), it gets to the point where austerity is the only option. The commercial art job market has shrunk radically, and will continue to do so. It's an ancillary skill for web designers and video producers who also to multimedia and are familiar with Microsoft Office. The Plumline folks are right–art school is for people who already have an excellent marketable skill or a trust fund. I used to be a designer. My wife is a graphic designer. For most people, it's not a rewarding career, and neither of us miss doing it. My wife recently did a small design job and said she was glad–it reminded her about all she hated about doing it. But still, I knew all sorts of people in the business. They are either suffering or doing something else. All the printshops in town are closed, and if you're a designer doing a job for somebody, you're stuck with Office Max to run copies or you order it online. The down-the-strteet plate-and-ink printer has vanished. But, industrial and market shifts happen . . . not a lot of fun, but trade or technical education is 100% the way to go.
LikeLike
A few somewhat random thoughts:That's fine if not everyone wants to be a doctor, lawyer or whatever, but you can't have expectations of yearly trips to the Bahamas for you and your family of 6 if you are a dance or art major. On the other hand, you don't have to wear a suit, go to an office, work "regular hours" and any other number of advantages that people tend not to bring up in these discussions. Our government does a decent job of supporting the arts in my opinion. I have a brother getting his PhD in history and he had to find a teaching job at a community college after his department at Central Michigan lost a bunch of funding. I'm pretty sure that is quite widespread at the moment and a bit difficult to predict many years ago when he started down this road so I have some sympathy. I won't have much sympathy if 10 years from now he is complaining about his salary when compared to mine. The people demanding stuff are also going to be largely disappointed if they ever get those hand outs. Sure I would love for my student loans to be forgiven, but it wouldn't alter my income if they were. Ultimately my income will be decided by the career a chose, the specialty area of law I focus on, how hard I work, who I know and meet and a bit of luck.
LikeLike
lms: I read a statistic last week that if just 2% more students in CA earned an AA and 1% more earned a BA, the economy would grow by $20B and a 117,000 jobs would be created.That kind of claim stands in stark contrast to all the OWS people who apparently already have a degree and can't find a job, don't you think? It is not at all clear to me how churning out more people with a diploma will itself create demand to hire them.
LikeLike
"I like to keep our experiences consistent with our level of income"I prefer experiences well above my income whenever possible. In all seriousness, this pervasive desire (human nature) in an environment of government policy that made it possible for a while for many is a major part of the problem."We should have room in our society for people to teach as long as we have students who want to learn. And we should also have room in our society for artists and dancers and musicians. Not everyone wants to be a doctor, a lawyer or a corporate executive. It feel like we're becoming a two tier society and it truly does frighten me."Why do I feel like I am in an Ursula Le Guin novel? Really, we should have a society where the people who decide they have to be responsible and productive before following "their dreams" become the servants of a class who doesn't do likewise? I just don't get this. Your friend's daughter's desire to teach sociology is not my problem. It really isn't. I want to do a thousand other things, but I didn't and don't. I keep chopping wood, as they say, and so does everyone else on this blog. And yet this whole new class of dream-followers wants to ride on our backs. Not everyone wants to be a lawyer or other working stiff. But everyone wants our money. We all learned about this in 1st grade from the Little Red Hen.
LikeLike
What a boring society you paint though Kevin, I'm not just speaking about graphic design. The arts in general shrink during down turns. Art, music, dance, theater are all human expressions that need an outlet. What's next creative writing? Isn't there some value in pursuing or continuing to pursue education in these arts? Maybe I should just be more practical huh? Doesn't an art class change a person in some little way for the better even if they go on to become a doctor?
LikeLike
ashot:Our government does a decent job of supporting the arts in my opinion.But why should it?
LikeLike
I don't disagree, and I don't think we're going to be without art, music and dance–but the competition to make a living in those fields is intense, and there are never going to be enough positions with the New York Ballet Company to accommodate every ballerina. Most creative folks have to have a fall back position, or they aren't going to be able to feed themselves. That's why they call it "work" and not "fun", after all! 😉 "Doesn't an art class change a person in some little way for the better even if they go on to become a doctor?"Absolutely! But I would strongly advise people not go to art school thinking that they are going to make that a career. It's highly unlikely. Have a fall back, then knock yourself out. Many will enter, but few will win. Have a strategy to make a living if you don't become a highly sought-after screen writer. All I'm saying. And engineers and tech folks are awesome. Artists are, too, it's just easier to get a job as a tech guy. And even then, competition can be stiff.
LikeLike
I give up for today qb, I didn't say her problem was your problem. I just said she and other teachers are suffering because this recession has knocked the feet out from under education. Look, I raised five kids, two scientists, two artists and one entrepreneur, all with advanced degrees. I could no more change them than I could change the color of my eyes. Under normal circumstances we have jobs for sociologists and even artists. Maybe in the future we won't, so we better start with the retraining programs if we want to put people back to work and keep them off the dole.
LikeLike
"Most creative folks have to have a fall back position, or they aren't going to be able to feed themselves."It used to be teaching, but now it's Starbucks.
LikeLike
lms:Art, music, dance, theater are all human expressions that need an outlet. More than my "need" to express myself by blogging? Should I expect "society" to support this "need" of mine?
LikeLike
"I prefer experiences well above my income whenever possible."I used to, and everybody is different. There's a great deal to be satisfied and gratified by in even the middle-class American experience, and I don't particularly want to be distracted from that by the appealing opulence of people who are substantially better off than me. " Really, we should have a society where the people who decide they have to be responsible and productive before following "their dreams" become the servants of a class who doesn't do likewise?"Pretty sure I didn't see lmsinca say anybody should become servants of anybody else, especially not OWS frou-frous. 😉 "I want to do a thousand other things, but I didn't and don't."Prioritization is very important. I'd prefer to be on a cruise right now. I'd like to be drinking a Coke and smoking a Marlboro and looking out into the sunset. Not doing that. While it's unfair that I can't smoke-it-up to my heart's content and thus follow my muse, I consider the consequences to smoking, prioritize, and (regretfully) make the choice not to. I'd really like to own a DeLorean rebuilt to look and act like the time machine in Back to the Future. You can do this. Such vehicles have been sold for around $80,000. Alas, priorities. "And yet this whole new class of dream-followers wants to ride on our backs. "A lot of them will come around. Some of them never will. But folks who want somebody else to take the lead and make it all happen and solve their problems have been with us since the first tribe of beta's coalesced around an alpha. We'll solve a lot of those problems. And then, they'll make more. An advanced, highly technological, wealthy society will create more entitled hangers-ons and whiners, not less. 😉
LikeLike
Scott: "More than my "need" to express myself by blogging? Should I expect "society" to support this "need" of mine?"Good lord, Scott. Yes! Yes, a thousand times, yes!lmsinca, what do you know about grant writing?
LikeLike
scott and qb et alCollege grads are working, only slightly over 5% unemployment in that category, advanced degrees are even faring better. I think the problem is they're taking the jobs that could and should have gone to less educated people. It's anecdotal but a lot of them are working part time or working in lower wage jobs, at least the ones we know and with four kids between 30 and 40 and all their friends, that's what we're seeing. So they do have fall back positions, they just can't pay their loans off with them. Whatever, I'm tired of defending the arts and education and following dreams. :>)
LikeLike
"It used to be teaching, but now it's Starbucks."Not every frustrated sculptor can teach sculpture. There are too many of them. Not every frustrated musician can teach music. Again . . .Man, you're down on Starbucks. I know somebody who needs a tall white chocolate mocha. I think that might bring you around. 😉
LikeLike
ScottC- I suppose my response implied that I thought they should support the arts, but I didn't really mean to open that can of worms. I have no idea to what extent the government in fact supports the arts so I'm not even going to try and speak to the merits of doing or not doing so.
LikeLike
"I think the problem is they're taking the jobs that could and should have gone to less educated people."College grads probably make better baristas and better checkout people. If I can get a high school drop out or a college grad for any position that requires any technical skill whatsoever (and a baristas and checkout people are skilled position, and the smarter they are the better they are at those jobs). The real message is: get a degree. An advanced degree if possible, especially if it's a technical or medical degree. Even if the job market bottoms out, you'll get first dibs on the crappy jobs that are left. Once the job market recovers, you've got a robust skill set to carry you into a new career.
LikeLike
kevinNot a damn thing really, it's been too many years. My girls have both done a lot of that, more recently, why?
LikeLike
kevin, I've never had a Starbucks coffee, and I use that term loosely.
LikeLike
". Look, I raised five kids, two scientists, two artists and one entrepreneur, all with advanced degrees."Just raising 5 kids alone is a heckuva an accomplishment. To get two scientists, two artists, and one entrepreneur out of the brood . . . you rock!Thought someone should give you the kudos you deserve. I can't count on any of these other bozos to pick up the slack for me! 😛
LikeLike
"speak to the merits of doing or not doing so."i think we spend very little on the arts. but i don't like the government acting as a patron. Once you politicize the arts, you subject them to the veto of the most easily offended among us. "my tax dollars when to that! it offends me!" but some people like to support the arts privately. http://www.artsusa.org/pdf/get_involved/advocacy/research/2009/updated_private_giving09.pdf
LikeLike
"I used to, and everybody is different."I was just kidding, kw. Mostlly. Disney World is probably above my income level, at least the way I was raised and if I had more sense, yet Mickey has made a lot of money on me. My son and I even have a Mickey voice that we use to imagine his greedy delight in robbing us blind.
LikeLike
lmsinca: We're doing very important and productive work on this blog. Imagine what might be accomplished with a little underwriting. If this administration is serious about stimulus, there should be some grant money available for a balanced and bi-partisan blog such as this. I also know nothing about grant writing. Of all of us, you seem most likely to be capable of writing a compelling grant application. 😉 "kevin, I've never had a Starbucks coffee, and I use that term loosely."You're not a big sugar fan, are you? I like sweet stuff. White chocolate mocha rocks. But they have a lot of other stuff. Time for the pumpkin spice coffee.
LikeLike
I'll work on getting us dropped into an appropriations bill.
LikeLike
"Of all of us, you seem most likely to be capable of writing a compelling grant application."LOL, not hardly. I received my Masters in another lost art (psychology) in 1975 and the last grant I applied for was probably in '73 or '74 and I didn't get it. My youngest kicks ass in the grant department though. She hasn't paid for a class since her first BS, eight years ago and we paid for that.
LikeLike
At some point we have to acknowledge that in many cases it's a waste for people with 4 year degrees to work at Starbucks (just like it may be a waste for some to get a 4 year degree). It's an inefficient use of human capital and while it may be a great "lesson" for some hippie with a liberal arts degree to pass happy meals out of the drive through window, it probably isn't the best outcome for our economy. Regardless of how they got there, lmsinca raises a valid point about it being a far from ideal situation.
LikeLike
I knew having a lobbyist on site would be helpful. (You corporate whore you)♪♫♫♪♫
LikeLike
Disney is expensive, qb. But I love it so. Last trip down wasn't great . . . we have a fixed expense in our time-shares, so we exchanged for a great place close to the parks. It was basically a house. Five minutes away. That part was excellent, and certainly cheaper than staying at a hotel.But we went down there the same time as another family, and we were always trying to coordinate, and having every situation second guessed by 7 different people . . . kind of diminished the magic. Next time, it's just us. This will probably be in 2013, well after the Fantasy Land expansion is done. I plan to reserve seats at Belle's restaurant. And, of course, there will be the Snow White 7-Dwarves Mine Ride and a duplicate of DCA's Little Mermaid Ride. Youngest will be 8, oldest will be 15 . . . good ages to go, I think. We've started a practice for vacations where we start packing money away ahead of time, so we're budgeted when we go, and don't have to feel like every purchase is driving us further into debt. I do it with a can, and skipping lunches and snacks, and after a while there's real money to put down on the vacation. Ever been on a cruise, QB? Carnival cruises can be a heckuva a lot of fun. First one went to Catalina Islands and Ensenada, and was combined with two days at Disneyland in Anaheim. This was 1995. We had a great time. Going on our 3rd cruise next year. Disney Cruises look awesome, but Carnival is a little more affordable, and I can pretty much pay for the cruise with credit card miles. So it's like it was free (until we start paying for excursions, which seem to be where the cruise lines are trying to make their real money).
LikeLike
"I'll work on getting us dropped into an appropriations bill."Nova, as long as it won't be a conflict of interest for you. Your contributions are too value to sacrifice to mere money.I mean, unless we're talking a whole lot of money. 😉
LikeLike
We need to get some of the lefties in there slugging with lms so we don't wear her out with our maddeningly thick skulls and motor mouths.Anyway, I'm going my own list of demands. I'll start with student loans. I finally paid mine off, but if the gravy train is departing, I demand to be reimbursed for mine, too! I should never have had to pay them! Yay!
LikeLike
"At some point we have to acknowledge that in many cases it's a waste for people with 4 year degrees to work at Starbucks (just like it may be a waste for some to get a 4 year degree). It's an inefficient use of human capital and while it may be a great "lesson" for some hippie with a liberal arts degree to pass happy meals out of the drive through window, it probably isn't the best outcome for our economy. Regardless of how they got there, lmsinca raises a valid point about it being a far from ideal situation."While I'm on the side of the value of learning a few lessons in the school of hard knocks, or Starbucks service, I don't disagree with anything said there. Yes, it's less than ideal. Yes, we should look to improve. No, it's not the best outcome for the economy . . . but other than really mandating that people go through a course of business management and/or technical and science training, you're gonna have folks with indulgent parents who feel they missed out on the artistic side of life, having worked so far to make a living, who end up getting a four year degree in painting from an art college. It's an artifact of an open economy . . . and sometimes, some people just can't do anything else until they go through that process.
LikeLike
well, anything under, say $50 million, is pretty much budget dust. I could probably go to the committee room with crayon and write in $46 million for ATiM in the margins and nobody would even know.
LikeLike
"Anyway, I'm going my own list of demands. I'll start with student loans. I finally paid mine off, but if the gravy train is departing, I demand to be reimbursed for mine, too!"I never had a student loan, but it still cost money to send me to college. My father, who is not a wealthy man but spent about $20k on my college education, should get all that back with interest. What, from me, the guy he sent to college? That's crazy! The government needs to do something. What do we have a government for, after all? 😉 "We need to get some of the lefties in there slugging with lms so we don't wear her out with our maddeningly thick skulls and motor mouths."I hope lmsinca knows she is dearly beloved by us all.
LikeLike
And because I hate to be inaccurate, I said all five of my kids had advanced degrees, which isn't quite right. My niece had just started grad school at 30, because she was tired of working at the zoo, when she got sick and my youngest won't be finished for another year. I wasn't trying to exaggerate, I hate that.
LikeLike
"well, anything under, say $50 million, is pretty much budget dust. I could probably go to the committee room with crayon and write in $46 million for ATiM in the margins and nobody would even know."That I find that entirely credible doesn't say much for my opinion of the machinations of our federal government. 😉
LikeLike
117 Comments (possibly including this one). For ATiM, this thread is truly epic. Good job, ScottC, Starter of Epic Threads.
LikeLike
of course, it would help if we set up a PAC. i'm off. as FB says, BB
LikeLike
Now that I could do, set up a PAC that is. And, I've kept my husband out of prison the last ten years doing our books, so I might be able to keep us out also.Manana NoVA
LikeLike
"And because I hate to be inaccurate, I said all five of my kids had advanced degrees, which isn't quite right."I don't know how we can ever again believe anything you say."117 Comments (possibly including this one). For ATiM, this thread is truly epic. Good job, ScottC, Starter of Epic Threads."Dangit, he beat my religious liberty post. Will just have to try harder.
LikeLike
You should know by now qb that you can't trust a hippie as far as you can throw her, and I'll probably pick your pocket when you try.
LikeLike
"but other than really mandating that people go through a course of business management and/or technical and science training, you're gonna have folks with indulgent parents who feel they missed out on the artistic side of life, having worked so far to make a living, who end up getting a four year degree in painting from an art college. It's an artifact of an open economy"Right, but lmsinca isn't lamenting those kids working at starbucks or, more ideally, a locally owned coffee house. I think all those caricature's you've seen drawn during your numerous trips to Disney World are starting to mess with your world view. Although I am hesitant to defend lmsinca now that she's exposed herself to be a pathological liar. QB- I do think the demands of having student loans paid off expose the idealistic protestor to be even more divorced from reality. Ok, you have $60,000 less in debt, but still have no job and no marketable skills. Now what's your plan? And since we're giving props to moms, my mom took care of my terminally ill dad for 4 years better than any nurse could have, then raised 4 kids (oldes was 16) on her own all of whom have degrees, 2 of whom have advanced degrees, 1 has multiple bachelor degrees (nursing and psych) and 1 is pursuing his Masters degree. Sadly, she never was able to break me of my habit of writing really long sentences.
LikeLike
ashot, you better call your mom everyday for that.
LikeLike
Dang, I go away to do some work and I've got 100+ comments to read?!?!A quick shout to NoVA, if you're going to put some money in for ATiM, do you think you could spare $1-2M for my lab? The NIAID interim payline is at 8 percentile right now, so my grants have less than a snowball's chance, going up against the big boys.
LikeLike
"Right, but lmsinca isn't lamenting those kids working at starbucks or, more ideally, a locally owned coffee house. I think all those caricature's you've seen drawn during your numerous trips to Disney World are starting to mess with your world view."Nah, that would probably be my four years in art school. 😉
LikeLike
Kevin:117 Comments (possibly including this one). For ATiM, this thread is truly epic. Good job, ScottC, Starter of Epic Threads.Thanks. I noticed just before I left work that it was going to be 100+ comments, and was going to post something later about being the proud author of the post with the most comments, but you beat me to it. To be honest, the epic post should be the SS one….I put way more effort into that one. This one was a mere afterthought, having read Wallison's piece on the train this morning.
LikeLike
I'd like to add one more thing to what is probably the end of this post. While at the plumline the last year or so I spent a lot of comment time discussing my younger daughter's career choices as a scientist and encouraging parents reading to steer their kids into the sciences whenever possible. I appreciate the fact that science and tech are really the wave of the future and will afford the most opportunity. You know me though, someone needs to defend the artists of the world, there's great value in the finer things in life as well.
LikeLike
"Anyway, I'm going my own list of demands. I'll start with student loans. I finally paid mine off, but if the gravy train is departing, I demand to be reimbursed for mine, too! I should never have had to pay them! Yay! "I'll throw in a plug for bankruptcy reform/cramdown here. A lot of bad loan policy starts from non-dischargability of certain debt in bankruptcy. Much like mortgage loans, if student loans were dischargable in bankruptcy, there would be more thought going into extending the loans in the first place.
LikeLike
"Kevin:117 Comments (possibly including this one). For ATiM, this thread is truly epic. Good job, ScottC, Starter of Epic Threads.Thanks. I noticed just before I left work that it was going to be 100+ comments, and was going to post something later about being the proud author of the post with the most comments, but you beat me to it. To be honest, the epic post should be the SS one….I put way more effort into that one. This one was a mere afterthought, having read Wallison's piece on the train this morning. "As an amusing test, you may wish to make the same post at Plumline and compare the quality of the commentary.
LikeLike
jnc:That would indeed be amusing.
LikeLike
I'd be interested in that, for the sociological value. We'd have to agree to all participate in the comment thread, but keep our responses very generic. Like, "Indeed. It's food for thought" and so on. It should look suspicious, but nobody can figure out why we're all there.
LikeLike