David Frum: Wall Street didn't cause crash of '08
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Wall Street didn't cause crash of '08 By David Frum, CNN Contributor Washington (CNN) -- Financial reform? Not exactly. The bill before Congress does nothing to address the fundamental background causes of the crash of 2008. Wall Street may have been the instrument of the crash. But the crash was made elsewhere: in Washington's failed policies for middle-class families -- and in China's distorted rush for economic growth. The story is not a simple one. But I hope you will pay attention to the details. If you don't, you may find that the pocket that has been picked is your own. As you've heard, the crash begins with the huge excess load of debt built up in the last two decades by American households. Why did Americans borrow so much? Some like to tell a story of irresponsibility: We borrowed too much because we were self-involved yuppies who just could not deny ourselves the latest flat-screen doodad for our McMansions. Maybe that describes some people. But many millions of middle-class families plunged into debt for a very practical reason. Their incomes were not keeping pace with the cost of crucial items of the middle-class lifestyle: housing, medical care, college tuition. At the same time as housing, medical care and tuition were jumping in cost, the cost of borrowing was dropping to historic lows. Adjusted for inflation, the typical American family earned less in 2007 than that family had earned in 2000. Meanwhile, everyday necessities such as energy were becoming more expensive: By 2007, the typical American family paid more for energy than it did for clothes and entertainment combined. As everyday bills piled up, families borrowed to pay extraordinary bills. Mom needs nursing care? Junior got admitted to Chapel Hill? The roof needs refixing? No worries -- just cash out with a cheap refinance deal. In the 1950s, the total debt of all American households amounted to less than one-third the nation's gross domestic product. In 1980, household debt amounted to less than one-half. As recently as 1990, it was still under 60 percent. In 2000, it was under 70 percent. On the eve of the 2008 crash, total household debt had bulged to 96 percent of gross domestic product. All this borrowing might look like the road to ruin. And in fact it was the road to ruin. But that's not how it looked at the time. At the time, it looked like a bargain. Between 1980 and 2008, the household debt load doubled as a share of the economy. Yet the interest cost to carry that debt rose much more modestly. In 1980, the average American family devoted about 13 percent of its disposable income to debt service; by 2008, the average family was spending about 17 percent of its disposable income to service debt. Why was debt so cheap? This takes us to another fundamental cause of the crisis: the growth of China. Maybe you've heard that we bought a lot of goods from China and now we are deeply in debt to China. That's true obviously -- but the cause and effect are upside down. China lent us a lot of money so that we would keep buying Chinese goods. Export booms do not usually last very long. The exporting country accumulates more and more of the importing country's currency. Eventually the exporting country decides it wants to use some of that currency. It exchanges the importing country's currency for its domestic currency -- and that has the effect of making its exports more expensive. The boom bumps up against its own natural limits. That did not happen with China. Desperately eager to create more and more jobs to employ the tens of millions of peasants flowing into China's huge cities, China not only accumulated dollars by the hundreds of billions -- it held them. Then it went into the foreign currency market to buy still more billions of dollars, sometimes $1 billion a day. All that dollar buying prevented China's currency from going up in value, which would have increased the price of China's exports -- and that kept China's factories turning. What do you "buy" when you buy "dollars"? There are only so many Benjamins in the world, nowhere near enough. Buying "dollars" means buying dollar-denominated debt, and far and away the biggest source of U.S. dollar debt is U.S. mortgage debt. With China so eager to buy, U.S. bankers went to work to create mortgage paper to sell. It didn't have to be good-quality paper -- the Chinese didn't really care about that. Did you get a great deal on your refi in 2005? Thank the Central Bank of China. American homeowners borrowed because they could not earn enough. China loaned to keep its factories turning. Money flowed in a frenzied torrent across the Pacific. And somebody had to make it all happen: Wall Street. It created the debt instruments China wanted to buy and packaged the mortgages that Main Street felt pressured to sell. With trillions of dollars changing hands, even a small percentage fee could pay a lot of people a lot of billions in fees. No doubt some of those fee-takers did abusive things. But the whole dynamic was abusive and dangerous. And so-called financial reform is a petty distraction from that larger, more important, and more urgent dynamic: raising American incomes so Americans borrow less, and redirecting Chinese trade to the home market so that the Chinese lend less. Until we achieve those two things, any recovery will only invite the next disaster. The opinions expressed in this commentary are solely those of David Frum. |
| The New York Times April 27, 2010 Op-Ed Contributor Meet the Real Villain of the Financial Crisis By BETHANY McLEAN TODAY, we will have the pleasure of watching outraged members of the Senate Permanent Subcommittee on Investigations fire questions at a half-dozen executives from Goldman Sachs. The firm first attracted anger for its return to making billions, and paying its employees millions, right after the financial crisis. And since the Securities and Exchange Commission this month charged Goldman with fraud over an investment tied to subprime mortgages, politicians have turned the firm into the arch-villain of the economic collapse. But the transaction at the heart of the S.E.C.’s complaint is a microcosm of the entire credit crisis. That is, there are no good guys here. It’s dishonest and ultimately dangerous to pretend that Goldman is the only bad actor. And the worst actor of all is the one leading the charge against Goldman: our government. Each of the supposed victims here was, at best, a willing accomplice. Let’s start with those who bet that the investment in question, Abacus 2007-AC1, would be profitable for them: a bond insurer called ACA Capital Holdings and a German bank named IKB Deutsche Industriebank. These companies allegedly didn’t know that Goldman, in exchange for $15 million in fees, had allowed a client, the hedge fund manager John Paulson, to help design the investment in order to improve the odds that it would fail. But there was nothing hindering ACA’s ability to see that mortgages sold to people who probably couldn’t pay weren’t great investments. Meanwhile, the company’s insurance arm was covering as many subprime mortgages as it could to increase its own short-term profits. In some ways, the ACA story is the A.I.G. story: The company thought it had found free money — and basically bankrupted itself. Similarly, the German bank advertised itself as a sophisticated investor, but didn’t seem to have bothered to analyze the subprime-backed bonds it was buying. The bank just relied on the AAA rating and, not surprisingly, pretty much bankrupted itself, too. Which brings us to the rating agencies that stamped over 75 percent of Goldman’s Abacus securities with that AAA rating, meaning the securities were supposed to be as safe as United States Treasury bonds. They did the same to billions of dollars worth of equally appalling securities backed by subprime mortgages at other firms. Without the cravenness of the rating agencies, there would have been no Abacus, and no subprime mortgage crisis. None of this excuses Goldman. Whether the transaction was legal or not, there’s a difference between what’s legal and what’s right. Goldman, where I worked at a junior level from 1992 to 1995, has always held itself up as a firm that adheres to a higher standard. “Integrity and honesty are at the heart of our business” is one of Goldman’s 14 principles. There is no way to square this principle with the accusation that Goldman did not tell a customer who didn’t want to lose money — the very definition of a buyer of AAA-rated securities — that the investment it was selling had been rigged to amplify the chances that it would, yes, lose money. Transactions like this one open up a window into modern finance, and the view is downright ugly. This deal didn’t build a house, finance a world-changing invention or create any jobs. It was just a zero-sum game that transferred wealth from what Wall Street calls “dumb money” (often those who manage the public’s funds) to a hedge fund. It certainly belies what Lloyd Blankfein, the firm’s chief executive, told me last fall: “What’s good for Goldman Sachs is good for America.” Could the scary truth be that, at best, the success of one has nothing to do with the success of the other? Yet, in the end, it comes down to this: Goldman Sachs, ACA Capital, IKB Deutsche Industriebank and even the rating agencies never had any duty to protect us from their greed. There was one entity that did — our government. But it was the purported regulators, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision, that used their power not to protect, but rather to prevent predatory lending laws. The Federal Reserve, which could have cracked down on lending practices at any time, did next to nothing, thereby putting us at risk as both consumers and taxpayers. All of these regulators, along with the S.E.C., failed to look at the bad loans that were moving through the nation’s banking system, even though there were plentiful warnings about them. More important, it was Congress that sat by idly as consumer advocates warned that people were getting loans they’d never be able to pay back. It was Congress that refused to regulate derivatives, despite ample evidence dating back to 1994 of the dangers they posed. It was Congress that repealed the Glass-Steagall Act, which separated investment and commercial banking, yet failed to update the fraying regulatory system. It was Congress that spread the politically convenient gospel of home ownership, despite data and testimony showing that much of what was going on had little to do with putting people in homes. And it’s Congress that has been either unwilling or unable to put in place rules that have a shot at making things better. The financial crisis began almost three years ago and it’s still not clear if we’ll have meaningful new legislation. In fact, Senate Republicans on Monday voted to block floor debate on the latest attempt at a reform bill. Come to think about it, shouldn’t Congress have its turn on the hot seat as well? Seeing Goldman executives get their comeuppance may make us all feel better in the short term. But today’s spectacle shouldn’t provide our government with a convenient way to deflect the blame it so richly deserves. Bethany McLean, a contributing editor for Vanity Fair, is writing a book about the financial crisis with Joe Nocera of The Times. Copyright 2010 The New York Times Company |
| Пак в днешния НЙ Таймс, Дейвид Брукс: Between 1997 and 2006, consumers, lenders and builders created a housing bubble, and pretty much the entire establishment missed it. Fannie Mae and Freddie Mac and the people who regulate them missed it. The big commercial banks and the people who regulate them missed it. The Federal Reserve missed it, as did the ratings agencies, the Securities and Exchange Commission and the political class in general. |
| Днес ще е кулминацията на лова на вещици - в сената след малко ще пържат шефовете на Голдман Сакс. В същото време финансовата реформа зацикля сериозно. Чуват се все повече трезви гласове като горните. |
| Уважаемий Ч.Ф., сигурен ли си че пишеш у БГ-Форумa на в.Сега, или само така ти се струва? И по-точно - от к'ъф зор ше ми правиш закъснял "Преглед на Печата", барабар с The New York Times, April 27, 2010, след като Лора Крумова по НтВ го направи още в 08:00ч./ BgT!? Вземи се в ръце, и дай нещо по-ново.. Иначе изпадаш в безтегловност пред аудиторията.  |
| Да разбираме ли, че Манхатънската либерална интелигенция вече нещо недолюбва сегашната администрация? _______________________ Покажи неуважение към георги първанов (гоце), пиши името му с малка буква! Блогът на Манрико |
И преди вулканът да изригне по темата "когато бях аз обамист"  да напомним, че либерализъмът е дело трудное, но цоцеализъмът е вечен |
| Защо, поддържам Обама в много неща - за здравната реформа, а и за финансовата по принцип, но не одобрявам лова на вещици на Уол стрийт, който започна от 16-ти того и днес стигна връхта, но въпреки това ГС се качи с процент и половина до края на деня. Не одобрявам лова на вещици и по съображенията, изказани в първата статия по-горе, към които впрочем се придържа и самият Кругман, и по лични съображения - синът ми работи в ГС - в отдел, който не е засегнат от скандалите, но все пак се усеща напрежение; ние с жената пък инвестираме трудови спестявания в подобни фирми (не неговата, разбира се) и ловът на вещици (падането на курса без икономически причини) ни струва и пари. Не знам коя е г-жа Крумова и отварям тази тема, за да запозная колегите форумци с мнението си, което е различно от позицията на редакцията. Редактирано от - Чичо Фичо на 28/4/2010 г/ 02:29:53 |
Фичо, добре знаеш че това горе са глупости. Яли, пили и се веселили, и накрая мераци пак други да плащат. |
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Туй ша оправи палажението: Някой виждат нещата така:  А ето и дребните стотинки:   Редактирано от - Eisblock на 28/4/2010 г/ 12:10:26 |
..Не знам коя е г-жа Крумова.. Ясно! Присъединявам се към мнението на уважаемият Г-н Пеераскоуес..за "апценцата"! Жалко за което..  |
...поддържам Обама в много неща - за здравната реформа... Здравната реформа стана баш както я мислех: наливане на нови пари от джоба на данъкоплатеца в частни фондове с цел осигуряване на неосигурените. Т.е. който си е плащат досега, ще плаща вече и за неплащалите.  |
| Greece Offers a Frightening Glimpse of the Future . By John Lott - FOXNews.com . Greece is a warning sign that the market doesn't like what it sees. What is really spooking international markets is the glimpse of the future that other countries face. . Greece is a small share of the world market, and Athens is almost 5, 000 miles from New York City. Yet, the wild swings in the stock market on Thursday stem not from Greece’s size, but from what it tells people about the future for other countries. On American’s current path, Greece’s current woes will be our future. From slower economic growth to having less money for their retirements, Americans have a real stake in learning from Greece’s errors. Hopefully, the 347 point drop in the Dow Jones Industrial Average yesterday and the over 700 point drop since Tuesday will get Washington's attention. . The violent demonstrations in Greece are showing how incredibly hard it is to control government spending once programs are started. Even just cuts in the growth in spending are meeting stiff opposition. . The country has been offered what should be a very attractive deal. The European Union and the International Monetary Fund will give Greece below market interest rate loan of $141 billion in exchange for restraint on spending, but that is proving too much for many Greeks. . Greece is simply confirming investors worst fears. It was so easy for politicians to give benefits to voters and put them on credit so the tab could be put off for years. But when countries start having problems paying back their debt, they are a greater credit risk and the interest rates that they have to pay will rise. With that increase in rates, what were once difficult loans to pay back suddenly appear impossible. . The World Bank lists Greece's external debt at $582 billion, an amount equal to about 170 percent of their GDP. By contrast, the U.S.'s external debt is $13.8 trillion, but our GDP is much larger, so our debt equals about 96.5 percent of GDP. Our problem is that the Obama administration plans on increasing our federal government debt over just the next ten years by another $10 trillion. And this is likely to be an underestimate. For example, recent government estimates also indicate that President Obama's health care program will cost significantly more than what was estimated just a couple of months ago. Given current trends, we could be in Greece's league before much more than a decade goes by. . There are real costs to this debt burden. Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard showed in a study earlier this year that countries whose gross public debt exceeded about 90% of GDP grew about one percentage point slower each year than countries whose debt was below that level. They grew about two percentage points slower each year than countries whose debt was below 30 percent of GDP. . Greece is a warning sign that the market doesn't like what it sees. But what is really spooking international markets is the glimpse of the future that other countries face. . John R. Lott, Jr. is a FoxNews.com contributor. He is an economist and author of "More Guns, Less Crime" (University of Chicago Press, 2010) Натиснете тук |
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