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28 October 2008



Wow. There is quite a lot here to take on. I'm going to have to do this in bite-size pieces.

1) Fannie & Freddie are solely responsible for and are the sole target of the $700 billion bailout? What of all 5 American broker-dealers (Bear Sterns, Lehman Bros, Merrill Lynch, Goldman Sachs, Morgan Stanley), AIG, Washington Mutual, etc. etc. etc. ????? Really? A bunch of deadbeat minority mortgage applicants brought down the entire global finance system? Who knew it was so easy...

2) The 1999 repeal of Glass-Steagall was signed by President Clinton. It was stuffed into a much larger, veto-proof spending bill. It was called the Gramm-Leach-Bliley Act and Dodd and Schumer were involved in reconciling it with Clinton's insistence that banks that failed CRA certification not be allowed to expand into insurance. The whole thing was bi-partisan with universal Republican support, not a solo Dodd enterprise.

3) The relaxation of the net capital rules governing leverage ratios occurred in 2004 at the behest of Bush. Exemptions were handed out to all of the big 5 broker-dealers with immediately disastrous consequences. Venerable 150 year old firms promptly leveraged themselves out of existence, finally free of the onerous regulations preventing them from having done so sooner.

Much like the Constitution, just because I have not explicitly enumerated a flaw in this post does not mean that it isn't there... More to come!


From the Times. The money line from Greenspan: 'Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”'

"Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said.

Despite his chagrin over the mortgage mess, the former Fed chairman proposed only one specific regulation: that companies selling mortgage-backed securities be required to hold a significant number themselves.

“Whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets,” he said. “Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.”


Wade, I agree with some of Alan's thoughts. Thanks for sharing. I do think the market is "regulating" now.

Because Wall St. "pressured" regulators... if a 4 year old "pressures" his mother into letting him eat candy for dinner who's to blame for the cavities?

Let's not leave Alan off the hook either. The "paper" was a byproduct of prolonged easy money under Alan's fed.


"Lenders," Mike, "lenders."

There's a pretty important difference there in how the monumental, near-universal, obscenely-leveraged exposure to mortgage-backed securities came to pass.

And, once again with feeling: The market in these debt instruments was not regulated in any fashion. This lack of regulation was in no small part A) the reason they were invented in the first place and B) why investment professionals / bankers considered them so desirable.

ateeq ahmad

Dr. Rebane,

You have to understand that I love you very much!!! I also want to gloat a bit. This "liberal mafia" that is taking over your world has me feeling rather good.

You see, there is no need for anyone to know Mr. Obama's tax plan per se. All we need to see is that he is making consensus building, liberal, and quite pleasing policy calls. The war-mongering has gone on too long for too many people. The economy is on the skids and a "mommy" party is needed in power today.

Again, love and respect as always!

George Rebane

At last, I hear from my friend and favorite Muslim. I am saddened by where I see our country heading. And I fear that we will look back on the Bush years longingly when the real bloodletting starts. Your Muslim brethren tell all that they have a horrendous, non-negotiable agenda. And when it comes to war, we must always remember that it takes only one to tango. Hugs to your family.


For the love of God someone please explain to me how (re)raising the top bracket from 35% to 39.5% is the harbinger of end times, communism, Marxism, terrorism, Nazi, fascist appeasement or whatever disjointed, hysterical narrative is getting gummed together by the sweaty palms brigade these days?

This is the nutshell version of the Obama tax plan. It is not a socialist mystery. Big government, supply side fundamentalism not only didn't work, it was a bit of a disaster. Face the music, guys. Or ask Sarah what her tax plan is...

o Ordinary Income: The top two income tax brackets would return to their 1990’s levels of 36% and 39.6%. All other tax brackets would remain as they are today. Obama would also restore the 1990’slevels for the personal exemption and itemized deduction phaseouts (known as PEP and Pease). Obama would work with the Treasury Department to adjust the thresholds of these rates slightly to ensure that no married couple making less than $250,000 (or single making less than $200,000) was affected by these changes.

o Capital Gains: Families with incomes below $250,000 will continue to pay the capital gains rates that they pay today. For those in the top two income tax brackets – likewise adjusted to affect only families over $250,000 – Obama will create a new top capital gains rate of 20 percent. Obama’s 20% rate is equal is the lowest rate that existed in the 1990s and the rate that President Bush proposed in 2001. It is almost a third lower than the rate that President Reagan signed into law in 1986.

o Dividends: The top dividends rate for people making over $250,000 would be set at 20 percent. Dividends will not return to being taxed at ordinary income tax rates. Obama’s 20 percent rate on dividends will be 39 percent lower than the rate President Bush proposed in 2001, and would be lower than all but 5 of the last 92 years we have been taxing dividends.

o Estate Tax: The estate tax would be effectively repealed for 99.7 percent of estates. For the remaining 0.3% of estates over $7 million per couple, Obama will retain a rate of 45%. This policy would cut the number of estates covered by the tax by 84 percent relative to 2000.

o Average Tax Rates Below the 1990s: Overall, the top 1 percent of households – people with an average income of $1.6 million per year – would see their average federal income and payroll tax rate increase from 21 percent today to 24 percent, less than the 25 percent these households would have paid under the tax laws of the late 1990s.

Dagny Taggert

Wade, I think the problem comes from "going after" the "rich" to GIVE more to the poor. Re-distribution of wealth occurs naturally in capitalism... it occurs at the end of a gun (in this case held by Obama) in socialism.

Also, BO said the capital gain rates/dividend rates would be 28% not 20%. George never brings up the other baggage (affiliations with multiple terrorists, affiliations with socialists, devilish stance on abortion, ZERO experience, unknown [never substanciated] place of birth... etc)

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