Friday, September 26, 2008

Musings: Dog Eat Dog

I went walking on the bike path this morning because a friend wanted to, although I wasn’t thrilled, as it meant excluding Koko. We took the stretch north of Kealia, and for some reason this section of the path remains closed, although the locked gates didn’t deter us; we simply went around.

The old cane haul road has been repaved, with landscaping installed alongside, and a couple of little pavilions, and at the crumbling old landing, a look out has been constructed with pineapples in the wrought iron railing, like something you’d see on the grounds of a resort, which I guess is fitting considering that it’s within the pricey Kealia Kai environs.

While it was a lovely morning, and nothing could change that, I couldn’t help but feel that some of east Kauai’s charm had been lost with all these so-called improvements that turned a relatively wild coastline into a backyard for fancy spec houses and a well-groomed recreational area. As we walked, I recalled a comment about the path left on an earlier post that stated, in part:

just got back from kealia, and saw a small handful of people using the rather pathetic little 5 foot strip of concrete, seemingly without the need for taser-armed cops measuring dog leashes and policing their every move. The need for such microscopic regulation of the path is proof that for all of our talk of "aloha" on this island, we really hate each other and don't get along. Its dog eat dog, in the final analysis on Kauai.

I recalled thinking at the time that the writer was right on. Kauai folks love to talk about “the community” as if it’s some cohesive thing instead of countless little factions that have formed along the lines of race and wealth and length of time on the island and rarely interact and don’t get along and generally have nothing but disdain for one another, as quickly became apparent in the polarizing disputes over the path.

And that made me think of a conversation I recently had with my friend Ed, a kahuna. Ed told me that he and other Hawaiians of his generation (he’s 60) were raised with no prejudice toward the haole, who was viewed as the “kalohe (rascal) younger brother” in need of guidance and instruction. But now, he said, the Hawaiians are tired of teaching people who don’t want to learn and that peaceful co-existence has been replaced with overt antagonism.

Perhaps this "us against them" theme is so heavily on my mind because I’ve been reading Voltaire’s “Candide,” and stopped last night to ponder one passage in particular:

“You will find that the weak always detest the strong and cringe before them, and that the strong treat them like so many sheep to be sold for their meat and wool.”

And here we are, with that exact scenario playing out on Wall Street, which obviously is not completely melting down and must have some available investment capital because the sharks are feasting on the smaller fish, as evidenced by JPMorgan’s acquisition of Washington Mutual’s banking assets:

It vaults JPMorgan past Bank of America Corp to become the nation's second-largest bank, with $2.04 trillion of assets, just behind Citigroup Inc. Bank of America will go to No. 1 once it completes its planned purchase of Merrill Lynch & Co.

"[JPMorgan CEO] Jamie Dimon is clearly feeling that he has an opportunity to grab market share, and get it at fire-sale prices," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "He's becoming an acquisition machine."

So why, exactly, are we considering this $700 billion panic-driven rush job bailout? Even my conservative friends — yes, I do have a few — are appalled at the prospect of government getting so involved in the private financial sector, and worried about the prospects of runaway inflation. I mean, it’s not like the government actually has an extra $700 billion lying around.

This video clip seems to sum it up pretty well.

Meanwhile, the people are making themselves heard today in demonstrations against the bail out on Wall Street and elsewhere. This Democracy Now! report offers some interesting perspectives:

[The Indypendant editor]ARUN GUPTA: They may give it some window dressing about limiting executive compensation, but the real goal is to transfer huge funds to the investment banks, to the hedge funds, to central banks that created this mess in the first place.

WALL STREET INVESTOR: OK, it seems like a lot of money at the time, but it’s all going to get paid back in eighteen months. So they’re coming together. All these companies are going to be—have to refinance. It’s not as if the US government isn’t going to see this money again. And in terms of the economy in the long run, a company like AIG, if that goes down, those knock-on effects is going to go right down to the consumer.

Yes, it does seem like a lot of money, because it is. As to whether it all get paid back in 18 months, well, that sounds an awful lot like the kind of optimistic thinking that caused this mess.

So what is the likelihood of any real change, bail out or no? Not too great, according to this Democracy Now! interview, which shows that certain key players still hold sway and likely will continue:

AMY GOODMAN: Ralph Nader, who is [Treasury Secretary] Henry Paulson? I mean, we know he worked for Nixon, was the aide to John Ehrlichman, the ex-con, the man who went to jail; then went off to Goldman Sachs; he and Alan Greenspan still being considered the economic wise men, even though this all happened under their watch.

RALPH NADER: That’s when you know the system is decayed and corrupt, that the people who brought us this disaster—Robert Rubin, with Bill Clinton pushing through the financial deregulation monster in 1999, which we opposed, which opened the gates for this kind of wild speculation and this casino capitalism, is still an adviser. He’s an adviser to Barack Obama. He’s an adviser to members of Congress. Henry Paulson cashed out at Goldman Sachs in 2006 a half-a-billion dollars. And now he goes to Washington to bail out his buddies.

Yes, to paraphrase the comment that stated this post, it seems it’s dog eat dog in the final analysis on Wall Street, and the feds are preparing to throw this snarling pack a very juicy bone.


Anonymous said...

Things are working out as I thought they would.

Greedy wannabe homeowners signing on for bad loans they knew they couldn't pay. They gambled that their houses would appreciate and be sold before the balloon hit. They are greatly to blame and I have zero sympathy for any such losers. They should not be bailed out, but they will be to an extent.

Then there are the greedy lenders wanting their interest income and negligently writing bad loans.

Then there is the govn't oversight which did not make such things as NINJA loans (no income, no job or assets) illegal. You may as well hand $100K to a homeless person as give it in a NINJA loan.

They should go back to the "good old days" where credit ratings could not be falsified and you needed stable employment and could not get a loan with payments exceeding 25% of your gross income.

Home ownership is a priviledge, not a right.

But, the large institutions that were smart enough to stay out of the "bad loan" biz for the most part will buy up the other ones. The govn't will ease their pain somewhat and all those balloon loans, etc, will be converted to traditional loans over longer payout periods. The interest income will still flow.

This is the housing market generated bust similar to the dot-com stock bust of a while back.

All will return to a somewhat different definition of normal and, hopefully, people who shouldn't buy houses will be prevented from doing so in the future.

I'm optimistic...and very protected. Money can be made in this horror show. Buffett didn't throw $5B into Goldman-Sachs just to do his patriotic duty.

None of this has anything to do with who wins the election.

Anonymous said...

> Greedy wannabe homeowners signing on for bad loans they knew they couldn't pay. They gambled that their houses would appreciate and be sold before the balloon hit. They are greatly to blame and I have zero sympathy for any such losers. They should not be bailed out.... <

It's amazing how some people can ignore the growing evidence that greedy banks and mortgage lenders engaged in deception and fraud in conning home buyers; and instead blame the victims.

Amazing, too, how closely it parallels the attitude about rape, long held until relatively recently, that it must be the victim's fault.

Thankfully, the new FBI investigation of over two dozen such firms (with more to come), and the outpouring of rage from the American public to their legislators on the $700 billion bailout, suggest that "Blame the Victim" is fading into the cultural stone age.

Anonymous said...

You mean to tell me that the majority of potential homebuyers are too stupid to determine what their current payment schedule is and what it will be after the balloon???

You mean to tell me that they couldn't figure out that a NINJA loan hasn't a prayer of succeeding and that there were just gambling on a fast appreciation and sell-out???

True, the lending institutions were negligent, potentially criminally negligent, in offering those loans, but the buyers did sign disclosure statements.

Don't even try to compare that to blaming a rape victim because she wore a too-short dress.

Greed and possible stupidity drove the wannabe home buyers. Greed and averice, because they knew better, drove the institutions.

Leaving out the goven't oversight, I'd bleme the institutions/buyers 50/ more than 60/40.

But never cast the buyer as the victim of anything but his/her own greed and/or stupidity.

Anonymous said...

Stupidity doesn't deserve bailouts. If I decided to start a business and didn't have a peoper business plan and signed up for a big lease, inventory, payroll, etc. without counting the cost and knowing with reasonable certainty that income would accrue, and it didn't, I'd go under faster than the Titanic. And I would not expect the government to bail me out or expect any sympathy for being short-sighted and ignorant.

Anonymous said...

I agree with the first anon in wanting a return to the days of no loan without a credit rating at least in the 700's (ours is 792), a track record of stable employment and the loan payment required to be no more than 25% of gross earnings.

If this means that only 30% (I made that up...I don't really know) of people can own their own home/townhouse/condo, then so be it.

Let's learn to live within our means and a conservatively reasonable extension of collateralized credit.

Anonymous said...

What about people with traditional mortgages in foreclosure problems because of "legit" reasons, such as med bills or unforseen loss of job?

I do have sympathy for them since they didn't do this to themselves. They didn't speculate by getting a predatory mortgage. They weren't using their home as a gambling chip hoping for a fat return after 3-5 years.

Are such ones subject to this bailout, or just the "victims" (HA!) of predatory lending...which they voluntarily went in for...they made themselves victims.

Led by their own desires....

Anonymous said...

Being a loan shark is an illegal occupation, but people voluntarily going to loan sharks and then haveing trouble paying don't ask the govn't to bail them out.

The loan sharks foreclose on the debtors arms and legs!!!

Social Darwinism at its finest!

Anonymous said...

Boy, am I glad I live in Hawaii, a homeowner, absoutely no debt, and all my money in a number FDIC-protected accounts so as to keep under the protection max.

Those IDIOTS running the WaMu bank, not believing that their money would be safe under FDIC rules...lemmings.

It's a financial panic, the level-headed people with no exposure will make out very well. I'm glad I'm amongst those faithful.

It's a GREAT time to buy a vastly undervalued house or land, preferrably with cash.

Anonymous said...

The multi-millionaire Wall Street CEOs have gotta love you guys. Post after post slamming the home buyers who got conned by Countrywide, Lehman, Freddie, Fannie and dozens of other firms that are now under criminal investigation by the FBI, but hardly a peep in protest of the greedy con men who've grown rich on the scams. No wonder lobbyists, legislators and lenders are playing you for suckers -- you're practically begging for it!

Manawai said...

“It's amazing how some people can ignore the growing evidence that greedy banks and mortgage lenders engaged in deception and fraud in conning home buyers; and instead blame the victims.”

That’s not correct at all. Lenders don’t go out trolling for customers. The customers walk in the door under their own power. While lenders and realtors were all to eager and complicit in assisting unqualified home buyers to get over their heads in a risky obligation, it was common knowledge that one could make all sorts of money in real estate using other people’s money. One only has to look at the popular get rich quick real estate seminars that hood-wink so many naïve and entirely greedy buyers. The average Joe on the street thinks that the rich got that way by having an angle and making fast cash. These less than knowledgeable folks went out and started looking for ways to jump on the band wagon and into real estate ownership. So, it starts with the inherent greed in the consumer; the industry professionals were only there willing to help them achieve their goals to get rich and live the good life.

The big and disastrous change causing this problem came about when Freddie Mac and Fannie Mae changed their underwriting criteria. Some years ago when I was actively making mortgages, those two institutions only provided money to stringently qualified and verified borrowers. But in that past 7 years Freddie Mac and Fannie Mae came out with new loan programs that relied on buyers’ “stated” unverified income. You’d just write down how much money you make (subject to the penalties of perjury of course) and everyone would go, “OK!” These loans, called “Alt. A” loans, carried higher rates to warrant the higher risk in not verifying the borrowers’ employment stability and ability to pay. The reliance was entirely on the appreciating real estate values of the longest running economic expansion in history. These sorts of loans have been made for decades by high risk non-bank lenders. Commercial banks only funded them with investors’ money as opposed to their depositor’s funds. But back then Freddie Mac, Fannie Mae, and Ginnie Mae were conservative lenders. Your income had to gross monthly 3.5 times the amount of the mortgage payment and that income was verified. The difference today is one of magnitude. Once the Mac and Mae’s got into the “Alt. A” market, way too many loans were made so that when the market turned (as it always does) the losses were (are) too large for the investment community (where we’re all part of with our mutual funds and retirement plans) to handle.

Unbelievably, Washington Mutual, a “thrift” that became a “bank,” repeated some of the mistakes of the S&L crisis by keeping these loans in their own portfolio instead of selling them off to higher risk investors. Today they paid the price of that predictable error.

I totally agree that if we don’t do a bail out, the negative effects of these lending practices will impact our economy for a much longer time. But I think we have to bite the bullet and suffer it. The investment community should handle this problem on their own and suffer the consequences of their behavior. Getting the government (the worst business people imaginable) to get involved is going to set a negative precedent of unrivaled proportions and will cost us taxpayers a shitload of money.

Anonymous said...

I refuse to believe that homebuyers got "conned". If they can't read and understand a contract and figure out their payments before and after a balloon compared to their reasonable expectations of earnings, then they are too stupid to be homeowners.

Full disclosure laws, which applied to those mortgage contracts, requred that the homebuyer aggreed that they understood and agreed with the terms.

Let the buyer beware. Don't go crying "I've been conned" when you were just plain stupid and/or greedy.

Anonymous said...

Why bail out borrowers too stupid to figure out that they couldn't afford the overpriced property that they were buying or the lenders too stupid to figure out that the borrowers couldn't make the payments for the overpriced property?

Anonymous said...

> Lenders don’t go out trolling for customers. <

> I refuse to believe that homebuyers got "conned". <

What planet have you guys been on for the past ten years?! The predatory lending practices of this country's major financial institutions are notorious, well documented and currently the subject of criminal investigation!

Anonymous said...

Google on predatory mortgage FBI... you'll get 18,200 hits -- FBI investigations, congressional hearings, trials, the works.

Google on predatory credit FBI... you'll get 831,000.

Sure, there are stupid homeowners who got in over their heads of their own free will. But to claim that companies didn't con millions of innocent first-time home buyers with predatory loan scams is denying reality.

Anonymous said...

It's not just first time homebuyers. A lot of homeowners refinanced to squeeze the equity out of their homes. And what did they do with the money? I know some who took trips, bought new cars, flat screen TVs, etc. Like the first time home buyers who reached for the homes that they couldn't afford, these homeowners went after what they couldn't pay for with their salaries. Why are we supposed to bail out their okoles?

Anonymous said...

The $700 billion that Bush and his Wall Street cronies want is to bail out Wall Street, not help homeowners. It's the Corporate Party protecting the Corporate Party at the expense of the taxpayers.

Katy said...

Most people borrowed on their equity to close the gap between living expenses and the wages which have been virtually stagnant for decades. The same folks who froze our wages then let us borrow at interest. The good old company store.

Anonymous said...

Screw them all! Let them get a taste of what their greed and stupidity cost them.

Just do the minimal to protect credit sources for legit businesses and credit cards (!!).

But, the over-levereged, under-equitied masses who did this to themselves, let them go under.

Anonymous said...

> Today's meltdown began when unscrupulous mortgage lenders pushed naive borrowers to sign up for loans they couldn't afford to pay back. The original lenders didn't care: They pocketed the upfront fees and quickly sold the loans to others, who sold them to others still. With the government M.I.A., soon mortgage-backed securities were zipping around the globe. But by the time many ordinary people began to struggle to make their mortgage payments, the numerous "good" loans (held by borrowers able to pay) had gotten hopelessly mixed up with the bad loans. Investors and banks started to panic about being left with the hot potato -- securities backed mainly by worthless loans. And so began the downward spiral of a credit crunch, short-selling, stock sell-offs and bankruptcies. <
-- Rosa Brooks, L.A. Times
Sept. 25, 2008

full text at,0,5840924.column

Anonymous said...

The bailout is not for the homeowners who took out the loans. The bailout is for the companies that bought the bundled loans and the insurers that rated and insured the financial instruments. The Democrats are trying to include language that will bail out the Homeowners along with the companies. The original Paulson plan is for the buyers of the bundled mortgages, the banks, hedge funds, pension plans and various state entities bought. There are also some things that are not mortgage backed securities but are offshoots. We really don't know who we are bailing out, what we are bailing these companies out from and if this will work.

Pete Antonson said...

It is sad and pathetic to observe Ralph Nader, a hero of my youth, become what he has become. At the same time he is playing the blame game, El Rushbo is saying "You know who Henry Paulson is? He's a Democrat!" Perhaps they are the same person. Have you ever seen them together?
They both played an important role in bringing us the horrible 8 years of George W. One will claim credit; the other never will. That's the only difference.

Anonymous said...

The ignorance (and dishonesty of some here) is just amazing.

Manawai loves to play puppet for his Republican masters. The root of this disaster was NOT Alt-A loans though they are a contributing factor. But it's a convenient ploy designed to blame Freddie/Fannie so that the Republidiots can pretend the fault is "government" when the fault mostly lies with their precious "markets" after regulation was gutted by the Phil Gramms of the world (McCain's top financial adviser and asshole buddy for decades).

Freddie and Fannie were privately capitalized. The collapse of their share prices has not fallen to the US Government but rather to their stockholders. Their decisions were much like all the other corporate banks, just with the implied govt. backing which is bailing out the bond holders, not Freddie/Fannie stockholders. They were private firms run with the same greed and incompetence as WaMu, Wachovia or Citibank. Their failure is not one of government unless, of course, you are an blind ideologue.

And now that McCain's top adviser has been outed as a major lobbyist on their behalf, the noise re Freddie/Fannie is dying down fast. It was just political BS.

The root was the subprime loans which Fannie and Freddie had nothing to do with. These were the loans aggressively marketed and extended to obviously unqualified buyers at exorbitant rates. Greed isn't good. Once these buyers had their teaser rates re-set to reality, they began to fail in droves.

The first failures took the froth off the market and pricked the price bubble in places like CA, NV and FL. With prices falling, idiots that sucked all their fake equity out to cover "living expenses" (like fancy cars etc) were upside down too. Add to that job losses from a recession and we get to party like it's 1989 (the last time the real estate market puked). Once virtually every mortgage written in CA, NV and parts of FL from 2006-2008 were greater than the values of the homes, this death spiral couldn't be stopped easily. Easy come, easy go.

Just look at the order of failures. First came the riskiest lenders -- New Century Financial, American Home Mortgage and a host of mortgage brokering companies that didn't do their due diligence in making these iffy loans. Go did through the financial press. Roughly 50 of these sorts of first began dying in 2006 into 2007.

Next came price collapses in the big money center banks like Citi that held the CDO obligations of the sub-prime loan packages. Supposedly AAA based on insurance and rights to sell back to the originators if the failure rates went to high, these instruments became junk bonds with half their original value once the originators folded and the smart players realized the insurers like AIG could never pay off all the losses. Financial engineering my ass. The creators of this debt were fingerpainting the risk profiles and the rating agencies played along for the fees.

Then came the Freddie/Fannie crap outs when their own Alt-A loans got hit by the tsumami of borrowers failing due to resetting ARMs. Can't sell the house for anything like the loan means the lender eats in -- period. And now WaMu and probably Wachovia (sunk because they bought Golden West in 2006 with it's huge book of problem loans).

So don't let the Wingnuts blame Freddie/Fannie without laughing in their faces. It's a crock and if they had any honesty, they'd admit killing regulation is about as effective at keeping the economy running as trickle down economics at balancing budgets.

But you hard lefties are also missing the big picture. If no one can get a loan to buy a car, a house, fund college or even make day to day purchases with a credit card because lending seizes up entirely, we could easily have 10%+ unemployment. For Kauai, that means empty hotels and empty bellies all over. Don't make Hoover's mistake of just sitting by saying "tough shit. Not my money".

Time for some rock soup. The $700 billion is just a confidence booster so people will have the confidence not to draw into their shells. If you are waiting for some 300 million person kibbutz to suddenly form, you're smoking too much weed.

Katy said...

Or we could divide the 700 billion up evenly between all the people in the u.s. and then see how confident people
feel. Why is that any more preposterous than the bill of goods being sold right now?

This whole debacle is a completely rational outcome of capitalism , an economic system which rewards greed and punishes generosity.

Anonymous said...

"It's a paramount task for policy makers to understand why market economy and globalization are associated with severe income distribution issues in almost every country; and then they must create policy to address the problem."

Above is a quote from Robert Rubin from an article in January 2008. Republican or Democrat, Conservative or Liberal working americans will pay the lion share of taxes. The poor will get their services cut. There will be tax increases for the middle class. The new president will be hard pressed to implement new programs to address our problems. Republican or Democrat, conservative or liberal most of us work and pay taxes. Where is the outrage?