Extra Credit: The Economic Crisis

In the previous post, I gave my very simplistic view of how we got into our current economic crisis. For those of you seeking a more in-depth explanation, here are a few articles about the crisis.

Why the Bailout, New York Post

Why the Bailout is Necessary, About.com

Two Biggest Things Still to Do, Steve Forbes

In Times of Crisis, Trust Capitalism, Real Clear Politics

Rescue Might Actually Worsen Things, American Spectator

Why House Republicans Balked, Washington Post

Extra Credit: The Economic Crisis

http://politics4moms.blogspot.com/2008/09/in-previous-post-i-gave-my-very.html

How Did We Get Here?

There's so much to catch up on but I think we should start with the issue that's smacking us in the face right now, and that's the proposed $700 billion plan to bail out the nation's lending institutions.

I've told you before that economics isn't my strong point, so I've been trying to understand over the last week how we got to this point. For those of you who also need "Economics for Dummies," here's my simpleton explanation.

In an effort to provide more affordable housing for minorities and low-income families, a regulation was passed in the 90s that required lending institutions to overlook normal lending factors like credit ratings and income and to provide loans to low-income buyers, especially minorities. The wisdom was that as the homes appreciated in the booming market the owners would build equity and be able to sell the homes for a profit.

But what happened is that the housing market tanked over the last year, the economy went stagnant and these people weren't able to make their payments. Therefore, the banks are stuck holding all these bad mortgages and they have tied up all the capital for lending. The result is that lending has almost grinded to a halt and these lending institutions are heading for bankruptcy.

Is my assessment of the situation correct? What am I missing? Where am I wrong? I need all you armchair economists to help me flesh out the details.

How Did We Get Here?

http://politics4moms.blogspot.com/2008/09/how-did-get-here.html

Bailout Plan Appear to Not Have the Votes

Update: Dow Jones closed more than 700 points down today.

It looks like the House of Representatives failed to pass the $700 billion bailout plan. The Dow Jones has dropped as much as 700 points in reaction.

Bailout Plan Appear to Not Have the Votes

http://politics4moms.blogspot.com/2008/09/bailout-plan-appear-to-not-have-votes.html

Extra Credit: The Economy

How to Cure this Sick System, Forbes Magazine

Crisis Endgame, NYT

U.S. Drafts Sweeping Plan to Fight Crisis, Wall Street Journal

How to Save the Financial System, Wall Street Journal

Understanding the Panic of '08, Minyanville

Extra Credit: The Economy

http://politics4moms.blogspot.com/2008/09/extra-credit-economy.html

Two Takes on the Economy

The economy has certainly dominated the news and political landscape this week. With the demise of AIG, Fannie May, Freddie Mac and a host of other financial institutions in dire straits, all attention has been turned toward Washington for a soluntion. Or at least an explanation.

I have to admit that economics isn't my strong suit. Didn't do that well with it in college and now I'm even more confused as I try to sort fact from fiction from spin. But I stumbled across an article written by Neil Bortz, a former real estate lawyer and current talk show host, who did a good job of explaining the mess we're in today.

Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

As you can imagine, Democrats have a different take. PunditMom, who is a former SEC attorney, gives us a different view of the financial picture from her vantage point.

No matter who is running the show in the White House or on Capitol Hill, lobbyists and corporate interests have a huge voice in influencing how the rules and regulations of the SEC are crafted, as well as others like the NASD and banking regulators. Maybe not officially, but believe me, there's puh-LENTY of pressure to water down proposed rules that would give more government oversight and investor protection.

Sometimes they win.

Regardless of whether something would protect investors or make financial institutions more accountable for what they do, how they do it and how they account for it, lobbyists and special interests are always right there to whine -- It would be too much work to implement those regulations and safeguards! You can trust us, the market is a good regulator! We know what happened in the 1980s -- it will never happen again! We promise!

And on top of that, no matter how much regulators tried to get the budgets they really needed to have the staff necessary to do their jobs right, someone was always there to convince Congress that underfunded, understaffed agencies just didn't need any more help.What's happening today with our economy is a direct result of corporate money and interests trumping the meager resources of government regulators. When agency heads trudge up to Capitol Hill every year to make the case for increased funding so they can do their jobs as effectively as possible, I'm sure you can guess who is right on their heels to make sure that doesn't happen.

That's why we keep having scandal after scandal after scandal. It's not because investigators at the SEC aren't doing their jobs. They are. I know. They just don't have the time or resources to do it all in a world where the guys who want to keep making the big money have more power and influence than the ones trying to make sure small investors can keep their little money.

Obviously, SEC Chairman Christopher Cox bears a good amount of the responsibility -- he could have stood up to the Bush administration and pushed harder to have more SEC "cops" on the street. But he's not the main culprit, he's just the one who will be expected to fall on the sword for George Bush. They ones who are really at fault are the ones who have the enormous golden parachutes, no matter whether their financial firms fail or succeed.

The bottom line is there is no easy explanation or solution, but it's a subject that's worth pursuing for the truth.

Two Takes on the Economy

http://politics4moms.blogspot.com/2008/09/two-takes-on-economy.html

How Much Is Your Obama Tax Cut?

Guest Blogger: Jeff Porter, Obama Supporter

Here is a useful calculator for determining how much your tax cut would be under the Obama tax plan. All numbers are from the Tax Policy Center.

How Much Is Your Obama Tax Cut?

http://politics4moms.blogspot.com/2008/08/how-much-is-your-obama-tax-cut.html

It's the Economy, Stupid

There is no doubt that the lagging economy is on the forefront of every voter's mind. But what do the candidates have to say?

Obamanomics is a Recipe for Recession, Wall Street Journal

McCain, No New Taxes (Redux): The New York Times

It's the Economy, Stupid

http://politics4moms.blogspot.com/2008/07/its-economy-stupid.html

Why a Recession Might be the Best Thing for America

By Jane at What About Mom

After my husband got an MFA at Columbia, we moved from New York City to Cairo. We went from a scary neighborhood full of drug dealing and held-up bodegas to Ma'adi, a beautiful, green suburb of the world's dustiest city.

Tom taught at the American University. I took a few Arabic classes, but mostly I took care of our daughter and did the usual expat-wife activities: playgroups, church socials, and shopping trips to the bazaars.

One day my friend Suzy and I hired a cab to take us to Garbage City, a very different suburb of Cairo. There the Zabbaleen sort and recycle the city's trash that their school-aged children have collected on their donkey-cart routes.

Besides sorting and recycling, they also live on the garbage. The streets are muddy streams of rotting, stinking trash. The peels and rinds from my kitchen, the broken toys, the shreds of our family's daily life were the backdrop to thousands of Zabbaleen lives.

The United States Agency for International Development surveyed the Zabbaleen to find out which forms of aid would be most effective in helping them escape their bleak surroundings. But they found that the Zabbaleen have surprisingly little desire to leave Garbage City, because that is where their families are.

The Zabbaleen have carved a place for themselves, living where no one else wants to, doing something no one else wants to do. The lives they have carved, surrounded by family and friends, are incomprehensibly fulfilling.

In the United States I feel poor if we can't afford a second car or a vacation this summer. In Cairo I felt richer than Bill Gates because I had 45 dollars to pay a maid each month.

Of course I don't want a recession. I don't want to feel poor. I don't want my best friend from when I was thirteen to be facing a scary, high-risk pregnancy without health insurance.

And of course I wish the Zabbaleen had the opportunities and freedoms that I have enjoyed since birth.

I don't know enough about policy or economics or globalization to propose a way out of this recession mess, or even to enthusiastically support either of the presidential candidates.

I do know that I envy any person who values a life near family and friends over the material comforts that I sometimes think would make all the difference.

Why a Recession Might be the Best Thing for America

http://politics4moms.blogspot.com/2008/07/why-recession-might-be-best-thing-for.html

The Economy

It doesn't take many minutes of listening to the news to discover that there are quite a few viewpoints about what is happenening with the U.S. economy. Some experts are saying recession, some are saying not yet, some are saying we've yet to see the worst. I've been searching the net for a clear answer but have yet to find much clairty, so I'm going to give you several links that you can explore on your own.

The Cleansing Power of Recessions, Real Clear Politics

Two Views on the Financial Crisis, Washington Post

Recession Unlikely if US Gets through Next Two Months, Times Online

More than 50% Chance of U.S. Recession: Greenspan, Reuters

The Economy

http://politics4moms.blogspot.com/2008/04/economy.html

Deal Reached on Tax Rebates

The House of Representatives announced a new economic stimulus plan today that could have money back in your pocket by early summer. According to the proposed plan,

Individuals who pay income taxes would get up to $600, working couples $1,200 and those couples with children an additional $300 per child under the agreement. Workers who make at least $3,000 but don't pay taxes would get $300 rebates.

The plan also addresses tax cuts for businesses and raises the limits on Federal Housing Administration loans and home mortgages.

The Senate will consider the package next week with hopes to have a final bill on President Bush's desk by February 15.

via AOL News

Deal Reached on Tax Rebates

http://politics4moms.blogspot.com/2008/01/congress-announced-new-economic.html