I am far from an expert on the world of finance (he said, wildly understating the case). So I'd be interested to hear what smarter folks think of the following wild speculation.
The root of the current financial crisis is housing. Lots of people were extended credit to buy houses they couldn't really afford, and those dodgy loans were repackaged and resold in funky ways on the assumption that housing values would continue to rise in perpetuity. That didn't pan out.
Now, most solutions have focused on the financial instruments and institutions that got us into this mess, attempting to meliorate the short-term crisis. But the long-term problem remains: too much loaned money on too little housing value.
So what about some attention paid to the housing itself? Seems to me we could do two things: raise the value of housing stock, and lower the monthly bills of homeowners, freeing some money up to pay mortgage costs.
You see where I'm going with this, right? There's a way we can do both those things at once: energy efficiency. The lower you are on the income scale, the higher a percentage of your income you spend on energy costs. A coordinated national program to boost the efficiency of our housing stock would benefit those most in need: struggling homeowners in danger of going under. (It would also, incidentally, reduce fossil fuel use and greenhouse gas emissions.)
What might such a program look like? Glad you asked. Lisa Margonelli at the New America Foundation just released a proposal for a Energy Security for American Families initiative, which gets into the details of this kind of effort. Here's a top-level summary:
The Energy Security for American Families initiative would provide vouchers, low-interest loans, and state-run incentives to households making less than $75,000 a year to invest in energy efficiency. The centerpiece of the initiative is a federal government guaranteed loan program that would enable qualified lenders to make low-interest loans to moderate-income families for the purchase of energy-efficient autos, appliances, and home renovations. In addition, a system of vouchers and state-based incentives would provide market-sensitive "nudges" to influence purchasing decisions. To create flexible transportation options beyond private cars, ESAF would reward those who leave their cars in the garage with a yearly voucher, while providing seed money to both the public and private sectors to develop creative alternative transit programs.
Margonelli says the program needs $45 billion a year for three years, paid for with a modest tax on imported oil.
That's a lot of money, but it's a hell of a lot less that what Paulson's asking for, and it's an investment dead certain to yield steady returns. Rather than simply staunching blood loss, it would make our economy more resilient over the long haul and help protect those least responsible for but most screwed by the credit crisis.
Margonelli's proposal is excellent on the merits, regardless of any connection to the current financial mess. But I'd be curious to hear if anyone else thinks there is a connection.
Making buildings more efficient: rationalizing retrofit markets
Making buildings more efficient: looking beyond price
Merkley wants Senate jobs bill to help finance building efficiency retrofits
Comments
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Russ Posted 7:36 pm
27 Sep 2008
(Well, that's the proximate cause, though any number of things could've precipitated the crisis, and I imagine as things work out and the historians get to work on it, lots of other things will be found or asserted to have played their part.)
As for using federal money for a Keynesian spending program on infrastructure (efficiency and renewables being the best such investment imaginable) instead of to boost the manic-depressive psychology of Wall Street, I fail to see how any sane, rational person wouldn't see the infinitely superior wisdom in that, even if it might entail some short-to-middle term pain and even fear.
Sanity? Reason? Of course, that rules it out from Washington considerations. That a Keynesian response is a non-starter is one area where there really is almost no light between Reps and Dems.
(Let's not forget the strange coincidence that one of the milestones in creating this disaster, the 1999 repeal of Glass-Steagal, was a coproduction of Phil Gramm and Robert Rubin, now top economic advisers to Mccain and Obama respectively.)
At a structural (and conceptual - since "psychology" is so important in all this) level, targeting the housing issue directly would be directly addressing the root problem, whereas applying an astronomically expensive balm to soothe Wall St's psyche is only trying to treat the symptoms far on down the chain.
Now, this chain is linked into a circle, and no part of it can be allowed to break completely.
But, if we're to be really serious about restoring the integrity of the entire chain, it would be best to put the main effort into strengthening the fundamental link, and housing is the fundamental involved here - economically, socially, and philosophically.
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MAD MAC Posted 8:59 pm
27 Sep 2008
When I was a kid my parents taught me to save my money for something, then I could buy it when I had enough. I have lived my whole life that way. I NEVER, EVER bought anything other than a car on credit (and I only did that once). Now, it's never been very realistic for a lot of people to buy a first home without a bank loan. Of course, most people took out loans after making a sizable down payment. When banks stop demanding this, and people stopped doing it, both made a big mistake that they are paying for now.
The bottom line is that people need to stop buying on credit. You either have the cash or you don't. Take your credit cards and burn 'em if you can't discipline yourself.
Bottom line: Americans as a people need to become more physically responsible. The government can't do this for them. They have to do this themselves.
What the government can (and had better) do is:
a. Increase oversight regulation to make sure that predatory mortgages are not happening.
b. That high risk mortgages are not happening (you would hope that the industry could figure this out for themselves, but since that's demonstrably not the case, the government is going to have to be involved).
c. That any bailout includes government ownership stake in the companies being bailed out. Nothing for nothing.
Victory in Pattani
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amazingdrx Posted 12:21 am
28 Sep 2008
Saving money on energy so you can make those huge mortgage payments based on your home being worth twice what it actually is worth? Well that might be difficult, but it would make a realistic mortgage payment possible.
I think a direct bailout would be more effective to cure the mortgage bubble hangover. Use the bailout money to reduce mortgages to what they are really worth.
That would bail out responsible homeowners and banks. As far as the energy efficiency idea, yes! But include ground source heating/cooling, battery storage off peak energy use systems, and solar cogeneration in the program. this all leads into the smart grid we need to make this energy revolution work.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Green Granny Posted 4:32 am
28 Sep 2008
He suggests that, instead of spending a trillion dollars or so to bail out Wall Street, we spend half that to invest in:
National health. Thereby making our older industries, burdened with health insurance commitments more competitive.
Protecting our coastlines. Thereby protecting ourselves against the huge losses from hurricanes like Katrina & Ike.
Investing in alternative energy, particularly wind and solar, and rebuilding the electrical grid to facilitate that. The work required to do that could not, for the most part, be outsourced. The jobs and the business would stay here.
Rebuilding our infrastructure generally. Good, efficient infrastructure makes business easier, quicker and cheaper.
Buying up individual problem mortgages.
Setting up a federal bank to make emergency loans to businesses and individuals who have come into harms way as a result of the crisis created by the Bushocrats and the Titans of Banking. When they're busy scaring us into this greatest of all heists in human history, they always talk about how it will affect "small business owners" who won't be able to make payroll, and the jobs and homes lost, to average folks on main street. If they need taking care of, let's do it directly, instead of through the rip-off artists who created the crisis.
The Big Big Bailout, as it is, will be crowning glory of Bushianity. One, gigantic theft of from real Americans to enrich the ruling class. It's a hell of trick. It's just like all the ones he's pulled before. If we fall for it, we are suckers and rubes, indeed.
"We must be the change we wish to see in the world." -- Mahatma Ghandi
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MAD MAC Posted 2:37 pm
28 Sep 2008
This should not be tied to the bailout. These needs to be its own special initiative, it needs to be carefully planned and thought out - that kind of time isn't available right now.
So while I agree that a comprehensive energy review needs to be done, I don't agree that it should be tied to this bill.
Lastly, inflation right now is a GLOBAL, not national, phenomenon. It is not happening because of political decisions, but rather rising energy costs. So while we definitely need to address that (as you allude to in your post), I think we have to take the time to do it smart.
Victory in Pattani
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saluki Posted 2:47 pm
28 Sep 2008
Is was Jimmy Carter that started the ball rolling on loans for people that couldn't afford them. It was Bill Clinton that expanded the program. When Republicans recognized the situation and suggested legislation and regulation to get it under control, it was Democrats like Dodd, Shummer and Frank that fought off those efforts. And it has been Democrats that have all along been in the pockets of Fannie Mae and Freddie Mac - defending them against scrutiny and reasonable regulation. It is Democrats that sued loan companies that would not loosen their loan policies and give loans to those that could not support them. It is Democats that defended the fraudulent heads of Fannie and Freddy while those CEOs were pocketing millions. It is Barrack Obama that has brought the heads of those failed organizations into his campaign. And Barrack Obama is the receipient of more campaign money from Fannie and Freddy than all but one other Democratic Senator.
http://www.youtube.com/watch?v=YGnZMGDG4k4&feature=re ...
http://www.youtube.com/watch?v=cVi_Jjxli1o
http://www.youtube.com/watch?v=3QBRIsCkGQ0
http://www.youtube.com/watch?v=ASvqtD6g8PU
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stevenearlsalmony Posted 11:08 pm
28 Sep 2008
A remarkable amount of mental energy has been exerted by many `experts' (and wealth distributed to them by their benefactors) over much of my lifetime in a concerted effort to widely share and consensually validate the specious idea that there is no such thing, of all things, as the most obvious of things......limits to growth in a finite world. Most recently, Schellnhuber in Germany, Rapley in England, Rees in Canada, Hansen in the USA, McMichael and Butler in Australia......the list goes on and on...... good scientists all, have been noting over and over again that the human species is approaching ecological limits evidently, obviously imposed by the biophysical reality of the planetary home we are blessed to inhabit. To put it another way, rampant overproduction, rapacious overconsumption and unregulated overpopulation activities by the human species now overspreading the surface of Earth will lead to an ecological "tipping point" of some, perhaps unimaginable sort.
The question seems to have been, Which biophysical limit will be exceeded first? Precisely what will it mean for the human species to overreach and by so doing "give rise to" or "produce" some sort of ecological tipping point? What will happen then? What kind of global wreckage might ensue? What will that moment in space-time look like? Many scientists seem to have been thinking that the unbridled overgrowth activities of the human species would literally and eventually overwhelm the Earth and its environs because the family of humanity has chosen to recklessly ignore the reality of human species limits and Earth's biophysical limitations. For example, recall the ruthless derision of the great work of the Club of Rome regarding ecological limitations to the growth of absolute global human population numbers.
Even so, despite all the attention, the warnings and the good scientific evidence, an ecological tipping point may not be the source of the greatest, most imminent challenge to human wellbeing in these early years of Century XXI. The most pressing, most forbidding threat to human wellbeing may not be ecological in its nature.
For a long time, I have been haunted by the words of Percy Bysshe Shelley (1792-1822) that are emblazoned in a sonnet about Ozymandias.
" I met a traveller from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter'd visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp'd on these lifeless things,
The hand that mock'd them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away. " --Schelley
What was the "colossal wreck" this "king of kings" observed and how had it happened? What caused the destruction of the world?
The calamity Ozymandias witnessed may not have been more or less than the incredible consequences of human greed having exceeded limits to its growth. That is to say, the adamant and relentless greediness of kings and self-proclaimed Masters of the Universe precipitated the gigantic, distinctly human-driven catastrophe to which The King of kings makes reference.
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilitysoutheast.org/index.php
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amazingdrx Posted 12:23 am
29 Sep 2008
They are offering a choice we CAN refuse. Either repeat the great depression or let the unregulated thievery continue as usual.
We know there is another way. Re-regulation, massive job infusion to the econonomy, and trickle up stimulation.
Stimulate the wealthy with a 300 billion dollar per year tax cut? That's what McCain proposes. He says it will trickle down on us all, from on high, eventually. More likely it will gush into offshore tax havens.
Or maybe it would work better to stimulate family income directly, as the Obama plan proposes? And create millions of green jobs with a path to oil independence. You decide.
Oh and this contractor "insurance" plan? Will it use 3 cents per dollar to "insure" banks, like WAMU had, or will it use 5 cents? Even if it uses 10 cents in government funds, where is the pay out coming from if a massive failure happens?
Nowhere. Insurance to nowhere, for a financial bridge to bankruptcy? With huge profits for Phil Gramm's best clients? You bet!
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 12:38 am
29 Sep 2008
They take the insurance pay out offshore. Leaving US to rebuild the house, which they still own.
And even the insurers, the same bankers/traders, made money. How? They never paid, they just let their compnies go bankrupt. Bailing on their golden parachutes. Retaining ownership of the insured property of course.
Government needs to step in here and let new owners rebuild the property. Competent, honest owners. Put the wall street/k-street gangsters in jail, confiscate their assets, then the real capitalists can get the rebuilding on track.
We need financial and business leaders just as badly as we need new political leadership. Workers want a really sharp company owner/leader who steers the products they depend on for their living into the marketplace successfully.
We respect that kind of success and see no problem that it is rewarded with wealth. But these duhh..duhh...duuuhbyaist types who go through life with a silver foot in their mouths, the bonnie princes of the divine right of capital, as Barack says, "ENOUGH!".
Lutz, Fiorino, Murdoch and their ilk, you're fired!
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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John former Marine Posted 1:22 am
29 Sep 2008
We as a country just have to make more reasonable, less egotistical, less greedy, less narcissistic decisions. We have to learn to want less and be happy. The country wouldn't be in debt right now if not for this rampant materialism.
Il faut cultiver notre jardin.
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JMG Posted 2:00 am
29 Sep 2008
In short, if there is "a" root to the multiplicity of crises we are just now becoming aware of, it is the belief that there is this one thing called "the economy," the size of which can grow without regard to the underlying energy and material flows that were once measured by the amount of wampum that moved around.
Speaking of frames, remember that when you buy into the frame of "the economy," you've already bought into the idea that there is this one thing, measured by the usual metrics (GDP, GNP, etc.) that presents the same aspect to everyone, and that we all participate in. This is nonsense, however.
The triumph of finance capitalism is that it creates a panoply of economies, in which those who are wired into the game can profit handsomely despite the impoverishment and immiseration of millions (or, now, billions) of others. Textbooks suggest that this should not be possible, that a breakdown in the economic situation of many people should undermine the situation of the elites, sooner or later.
But finance capitalism breaks this connection and provides a soft playpen for the the masters of the universe to manufacture money and shower it upon themselves, all without the dreary bore and bother of producing anything useful to anyone. Thus, even as America is collapsing in real terms (infrastructure, literacy, lifespan, access to health care, inequality, etc.), the finance capitalists have done quite well, thank you.
The only reason that the housing crisis is a crisis for them is that it means the music stops and whoever is left holding all that toxic paper has to eat it -- but, wait, look over there! The taxpayers will ride to the rescue!!! Hooray! By selling the kids and grandkids of America into debt bondage, the salons in DC can both ensure a steady flow of campaign contributions in perpetuity AND a chance for themselves to join the elites inside the glossy bubble of finance capitalism.
In terms of the environment, the crisis is this: once you overdrive the planet's resources long enough, cracks and crevices begin to appear in the biological web that cannot heal on anything less than a geological time span. If you continue to overdrive the thing -- to consume much faster than the regeneration rate, to exhaust in days the energy stores built up over eons, to saturate pollution sinks in hours that need centuries to process the wastes -- you eventually wind up with your phony measurement systems (beans, wampum, currency) losing all connection to physical reality.
[If our money supply was shrinking at the rate our resource base was (as it should, if we actually wanted anything like a sustainable economy), then you'd REALLY see a crisis, because it would be first and foremost a crisis for those whose primary activity is the manipulation of these phony currencies that we've come to rely on.]
The 5% Project
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MAD MAC Posted 3:03 am
29 Sep 2008
Victory in Pattani
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Pangolin Posted 6:53 pm
03 Oct 2008
Is was Jimmy Carter that started the ball rolling on loans for people that couldn't afford them. Is Klanspeak for: "Jimmy Carter forced the banks to stop redlining, selling discriminatory loans to blacks, asians and hispanics or refusing them loans entirely."
Well digging around for more information I came up with a perfect rejoinder which, alas, I did not write. I quote from the Washington Monthly's Steve Benen:
September 22, 2008
THE NEW TALKING POINTS.... For about a week now, Republicans have been looking for a way to blame the crisis on Wall Street on Democrats. The search hasn't gone well -- at one point, John McCain said Barack Obama was partially responsible, because he'd been "gaming the system." The comment didn't make a lick of sense, no one bought it, and McCain hasn't repeated it since.
But conservatives kept on trying. In fact, the right seems to have finally come up with a new line: Democrats forced banks to give mortgages to low-income minorities, those low-income minorities couldn't keep up with their mortgage payments, and the banks struggled as a result. Voila! Blame the Dems!
Fox News' Neil Cavuto helped get the ball rolling. Media Matters reported that Cavuto conflated giving home mortgages to minorities with risky lending practices, suggesting that there should have been "a clarion call that said, 'Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.' "
The National Review is on board with a similar line of thinking, blaming the Community Reinvestment Act for much of the crisis: "The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama's fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands -- which are political demands -- have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime."
All of this seems rather silly on its face, but thankfully, Matt Yglesias went to the trouble of setting the record straight.
For one thing, the timeline is ludicrous. The Community Reinvestment Act was passed in 1977. Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-"redlining" enforcement come into play, perhaps a result of Dubya's legendarily close relationship with ACORN? Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later? It doesn't even come close to making sense.
Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.
Sorry, conservatives, you'll have to keep looking for a way to blame Democrats for this mess. Good luck with that.
Never mind that each of these transactions were supervised by real estate agents who are supposed to earn their pay making sure that deals are legit on all sides and that their clients are represented. Never mind that mortgage brokers, appraisers and banks are all under investigation by the FBI for writing bad loans on bogus appraisals. Never mind that the banks then sold the loans as 'tranches' which violated the Glass-Steagall act until it was repealed thanks to Republican, Phil Grahm.
It was the coloreds that caused this you say?
Isn't there a hole you can crawl into somewhere? Preferably in Idaho where your own kind congregate.
Put the Carbon Back
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saluki Posted 3:21 am
04 Oct 2008
Only a birdbrain like Pangolin would believe that restricting loans to people who will pay them back is racist. But of course we know that Pangolin is too stupid to come up with a real argument, so she has no choice but to play the race card.
Of course Yglesias is a left wing idiot who will always find a way to spin the facts. The fact that Carter's Community Reivestment Act happened in 1977 is irrelevant. Loans last for 30 years. 1977 was simply the beginning of the issuance of such loans. As the years have gone by, a higher and higher percentage of such loans have been a part of the total. The Community Reinvestment Act was simply the first floor of the house of cards built by the Democrats.
From Wiki:
"In 1995, Fannie Mae began receiving affordable housing credit for buying subprime securities. In 1999, the Clinton administration and Fannie Mae shareholders encouraged the lender to increase the number of mortgage loans offered to those of low and moderate income, both to improve rates of home ownership among those groups and to increase profits."
So after the Carter contribution, the next part of the puzzle was to have Fannie and Freddy buy subprime loans from the nations lenders. The quality of the loans which Fannie and Freddy accepted was very low, at the prompting of the Clinton administration. Of course the lenders made loans according to the quality of what Fannie and Freddy were willing to buy from them. Since they were anxious to buy garbage, the lenders were willing to make loans that were garbage.
In 2003 president Bush raised the alarm about the danger to our finacial system that was caused by these high risk loans. People like Barney Frank fought him off, claiming that everything with Fannie and Freddy was just fine. There was no risk, he claimed.
In 2005 McCain produced a new bill in committee to regulate and oversee Fannie and Freddy. The Republicans on the committe voted for the oversight. All of the Democrats voted against it. Because of the unanimous opposition by the Democrats, McCain never brought the bill to the floor for a vote.
"Never mind that the banks then sold the loans as 'tranches' which violated the Glass-Steagall act until it was repealed thanks to Republican, Phil Grahm."
You are talking about the Gramm-Leach-Bliley act. This said that Finacial Service Companies could own Banks and Banks could own Financial Service Companies. So what? Let's see who supported the bill.
"Let me welcome you all here today for the signing of this historic legislation. With this bill, the American financial system takes a major step forward towards the 21st century, one that will benefit American consumers, business, and the national economy for many years to come." -- Larry Summers, Then-Clinton Treasury Secretary And Current Obama Adviser, On Gramm-Leach-Bliley (1999)
Clinton's man Robert Ruben also lobbied for the bill. And of course Clinton signed the bill.
Probably more relevant to the discussion is the Commodity Furtures Moderniztion Act of 2000. This bill was sponsored by Gramm. But it was also co-sponsored by 2 Democrats. It contains provisions for credit default swaps that are mostly unregulated by the government. Once the house of cards that had been built by Carter, Clinton, and other Democrats began to fall, these derivatives made it fall that much faster. But this act was hardly a product of Republicans.
The vote was 180 Democrats for 2 against - 195 Republicans for 2 against. And Bill Clinton signed it.
http://www.govtrack.us/congress/vote.xpd?vote=h2000-540
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