Wednesday, July 30, 2014

Altshuler’s ‘zombies’

From page A5 | May 02, 2014 |


This is in response to Gene Altshuler’s “Zombies and other myths” column on April 16.

Regarding religious biggety: We know that our universe was created from a mass contained in a space smaller than an atom. Those who believe that it was a random event should explain where that mass, and the matter that formed all other universes came from. Perhaps a better use of our time would be to focus on what is rather than denigrating either political party or our religious beliefs.

Regarding “Wall Street”: Clearly bankers behaved like sharks consistent with Darwinian expectation. Throw money in the pool and they will have a feeding frenzy. But abdicating our sovereignty to the people that we elect to serve us will not tame innate behavior by either Wall Street or Pennsylvania Avenue. Neither neighborhood has a greater number of angel wings per capita. We need to manage both, but to manage a problem it is important to understand its genesis.

In 1994, the New York Times reported that the Clinton administration was leaning heavily on lenders to embrace people in low-income neighborhoods. In 1999, Fannie Mae started a program of extensive expansion of loans to people with poor to moderate credit. Clinton’s housing secretary, Andrew Cuomo, advised Fannie Mae and Freddie Mac that such loans must amount to 50 percent of their portfolio by 2001. Other government agencies joined the crusade. The Federal Reserve compelled banks to accept welfare checks and unemployment benefits as income sources and to advise marginal clients that “NINJA” (no income, no job and no assets) loans might be available. In 1994, the share of sub-prime mortgages to total origination was 5 percent ($35 billion). By 2006, it had grown to 20 percent ($600 billion) and continued to expand during the Bush administration. Accordingly, a small but rapidly growing group of people on Wall Street bet that default rates would increase. Investors were counting on the mismanagement of a very complex business by government, which is almost always a sure thing. The problem was multifaceted; the odds makers were incompetent, the bookies could not cover those bets, the referees left the field and the facilitators were “too big to fail.” But the “bottom line” is that if there was no substantial increase in credit defaults, there would be no opportunity to grow the market for credit default derivatives.

Perhaps we need to spend more time regulating the regulators. We are “one nation under God” and we have access to the greatest regulation ever written: The Constitution of the United States of America. Although it worked for about 230 years, recent leaders ignore it. Clearly the authors of the Constitution were guided by their belief that “Governments are instituted among Men, deriving their just Powers from the Consent of the Governed.” Are we sure that we should to continue to abrogate more and more of our sovereignty to the political bodies that we elect to serve us? We might get what we don’t pray for.

Pollock Pines



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