TCS Daily

Avoiding National Suicide out of Schadenfreude

By James V. DeLong - September 22, 2008 12:00 AM

Let us stipulate that saving the financial system will indeed have the effect of saving many of the financial institutions and their operators. In the current mood of the nation and the press, this is regarded as a bad thing. Satisfaction will be attained only when every one of these people has been bankrupted, and 6,000 investment bankers crucified along I-95.

This reaction is a bit like protesting against patching the hole in an ocean liner because doing so will save those who made the crucial navigational errors. Watching the navigator sink beneath the waves might be fun, but one's pleasure will be short and gurgly. So let's get real. While some unjustified enrichment is possible, for the most part, if the financial institutions survive and prosper it will not be because they have been "bailed out" but because the system has been saved. So take a deep breath and say "This is good." In the Midwesternism of my youth, "Don't cut off your nose to spite your face."

Another reason for rational restraint is that there are fewer villains in this tale than the news and the political campaigns would lead one to believe. Three basically good things - the securitization of consumer credit, the extension of credit down the economic ladder, and the invention of derivatives - have combined, and the resulting mix turned out to be explosive. Well, live and learn, and do better next time. But first, ensure there is a next time.

For over a year, people have been wrong-footed in their assessments because the fundamental subprime mortgage problem is simply not that large. As of March 2008, S&P estimated writedowns in mortage backed securities of $285 billion, a respectable sum, but not terribly significant in the context of total home mortgages outstanding of $10.6 trillion against home real estate values of $19.7 trillion, the $16 trillion net worth of non-financial corporations, or the massive resources of the financial system. AIG alone, back in the palmy days of 2007, had a market cap of $190 billion and a book value of $95 billion. TIAA/CREF had $446 billion under management. (S&P upped its estimate by $100 billion the other day, indicating its fear of a downward spiral.)

So sensible people ignored the innumerate and panic-mongering press and waited for the professionals of Wall Street to sort it out, assuming that the financial institutions would eventually stop planting scare stories to pressure the Fed into inflating away their problems, eat their losses, and got back to business.

Over the past two weeks, though, as Lord Melbourne once said, "What all the wise men promised has not happened, and what all the damned fools predicted has come to pass." Instead of being contained, the mortgage problem spilled over into the derivatives world. And then, the risk foreseen six years ago by the wisest of all came home: "Derivatives also create a daisy-chain risk . . . . A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. . . . [But] history teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times." [Warren Buffet, Berkshire Hathaway Shareholders Letter. 2002 p. 14]

Three separate things at work, and, while most commentary blends them into one big bundle of confusion, it is worth separating them.

The first element in the crisis is the rise of the asset-backed securities industry. Basically, ASBs are instruments for reducing the risks from mortgages and other credit instruments. Defaults are usually the result of some individual misfortune, such as job loss or health crisis. These are individually uncertain, but statistically predictable. So if enough individual contracts are aggregated, the package becomes reasonably stable. Smoothing out the risks expanded the pool of capital available for home purchases, which is generally thought to be a good thing, if that is how people want to spend their money.

The industry also developed the concept of dividing the payments into tranches. To simplify, a bundle of mortgages can be divided into two sub-bundles, with the first 90% of the payments received going to sub-bundle #1 and the remaining 10% going to sub-bundle #2. Sub-bundle #1 is insulated until the loss reaches 10%, which was regarded as unlikely. (Note, by the way, that in this system the existence of sub-bundle #2 serves the same function as a down-payment in an ordinary mortgage system.) Sub-bundle #1 can then be sold to highly risk averse institutions, which are protected by the double layer of sub-bundle #2 plus ordinary down payments and other credit checks.

To say the purchasers of these instruments were recklessly assuming that housing prices would never decline is a bit disingenuous. Anyone looking at a trend line could see that the increases in prices would probably level off at some point. But a decline of the magnitude necessary to seriously jeopardize all the sub-bundles #1 was, and remains, improbable, barring economic meltdown.

The second element of the crisis was the extension of this system into the subprime market. The basic impulse behind this was not bad. If one accepts the national mania for home ownership (which is highly problematical, but that is another story), then trying to extend it down the economic ladder is a worthy goal. And the creators of the system really thought that by spreading the risks and decreasing the volatility they could indeed make it work.

The mistake was that no one was policing the system. To some degree, this is indeed a tale of greed, folly, and gambling. Politicians pushed for loans to the un-creditworthy, Freddy and Fannie built their empires, Wall Street saw a way to make money out of it, and principal-agent problems allowed originators and aggregators to gamble with OPM. The home buyers themselves realized that the system was giving them free Put options; if real estate prices rose, then the buyers kept the gain. If prices fell, then the loans were either non-recourse or uncollectible and the buyers walked away. By 2006, average down payments were about 3%.Eventually, the system did crack. The real estate bubble burst and the riskiest tranches incurred losses. Institutions that had over-leveraged saw their capital wiped out. It is a familiar story.

But this time it truly is different, because the bursting bubble and the subprime mess interacted with the development of the derivatives industry, which is the third component of the explosive mix.

The derivatives industry is new, one of the many children of the information processing revolution, since it would have been unthinkable before the computer. Because of the newness, there is no standardization and no centralized reporting. Buffett's description of it in 2002 was sobering, but mostly because of the opacity. He identified real questions, but there was no way of knowing whether he was describing outliers or the mainstream. If the government and the financial industry were able to analyze the existing contracts and their exposures, the fright factor might diminish markedly.

As with ABSs, derivatives were born primarily out of financiers' desire to limit risk, not to take it. McCain's comment that Wall Street became a casino is true, but not in the sense that he means it - most finance professionals want to be the House, not the player, collecting a steady 1% off a stream of money flowing through. High rollers have their place because they make markets, but they are not the center of the system.

In particular, the big clients are not gamblers. They are insurance companies and pension funds in need of predictable cash flows and the certainty that obligations can be met, and eager for instruments that squeeze out an extra percent or so. Also, different investors want to be at different places on the risk/reward trade-off, and derivatives offered a way to match these desires and, on the whole, make capital work more efficiently.

From these desires, which are laudatory rather than corrupt, developed a remarkable number of types of contracts, especially default insurance. These were applied to all sorts of obligations, such as good old corporate bonds, but they were also applied to ABSs and to the obligations of firms involved with them. An estimate of $62 trillion in notional value is thrown around, or maybe its $43 trillion - the uncertainty is high - which means that every real-world transaction was generating multiples of itself in derivatives.

By definition, and perhaps paradoxically, risk averse strategies require high leverage to be profitable. And, of course, the financiers basked in the security that this time their quant models really were accurate, so the level of leverage was not a risk.

When the ABS/subprime combination came together with the derivatives system, the subprime losses went multiplying through the system. Financial Times columnist Anatole Kaletsky wrote recently that the crisis has so far had little impact on the real economy because:

[B]efore the arrival of "hyper-finance", if a family wanted a £100,000 mortgage they would go to the Halifax and simply borrow £100,000. Now consider what would have happened in the new financial world. The family would have borrowed £100,000 from Northern Rock, which would sell £100,000 of bonds to hedge funds, which would buy these bonds with £100,000 borrowed from Bear Stearns, their prime broker, which would raise this money by selling £100,000 of commercial paper to Citibank, which would then borrow £100,000 through the inter-bank market from Halifax. The original borrower is still the same household and the ultimate lender is still Haliax, but now a £100,000 mortgage has created £500,000 of new debt.

In theory, this entire chain of transactions could be squeezed, like a concertina, back to the original £100,000 loan between the homeowner and Halifax and the total credit in the banking system could be reduced by 80 per cent, with very little effect on the real economy.

There is another side to this. In the simpler age, if the mortgage got written down 10%, then Halifax took the hit and that ended it, unless the bank failed and the FDIC stepped in, which ended it there. Now, each player in the chain takes a hit, and the loss is multiplied into a notional $50,000, and if any of the firms is weak or over-leveraged, it fails. And then, since each has many counterparties in many transactions, the whole structure topples.

So what should the government do, bearing in mind that most of the major players are by no means gamblers. They are risk-averse fiduciaries who use derivatives to smooth out risk, not take it, and they must get out of any weak institutions. One news story last week said that the whole money market system almost melted down last week.

One would prefer to let the losses from the ABS/subprime mess lie where they fall, but given the "daisy chain" effect on derivatives, that is not wise.

There are only three things to do, actually. No one knows if they will work, but they are what we've got.

The first is to reverse the Lehman decision and avoid its repetition. Knowledgeable derivatives experts regard it as insane to let Lehman go into uncontrolled bankruptcy ( It has a trillion dollars in derivatives contracts outstanding, and leaving the counterparties at the mercy of the bankruptcy processes, which were not made for systemic national crises, is folly. The feds should take it over and unwind it in orderly fashion.

Because of the opacity of the derivatives system, no one can be certain, but one possibility is that the financial system is seizing up because the buyers of default protection are mostly unleveraged hedge funds while the sellers are mostly leveraged financial institutions. Since the latter are also taking the hit on the subprime crisis, the basically sound corporate credit default insurance market is getting contaminated. So, by ensuring that the leveraged institutions do not go into free fall, the contamination can be contained.

One can see why the shareholders of the leveraged institutions need to be wiped out as a penalty, and one can even argue that the bondholders should have been more careful, but to impose on all derivatives counter-parties a duty to police financial soundness (beyond, perhaps, checking a rating) is libertarian theory run amok. The financial system runs on standardization and quick decisions; to kill this is to return to the souk.

Indeed, the feds may already have realized their mistake on Lehman, judging by the AIG decision. The risk posed by AIG was from its role in the derivatives market and the chaos that would result from the company's failure. The fiduciaries need to know that they can keep dealing with other investment banks and institutions without getting sued themselves, and as of last Wednesday the feds faced a possibility of a system-wide run on everything and had to act.

Yes, throw the navigators a life preserver! The government can always insist that they pay for it, in any case, so driving a hard bargain, as with AIG, is a reasonable risk of the taxpayers' money. The government will probably make a profit.

The second action is to freeze the losses where they are now. If people know that there will not be a death spiral, there will not be one. Some $300 or $400 billion in mortgage losses will still have to be allocated somehow, but that can be looked at a bit more carefully, and at least we can avoid turning it into some multiple of the basic writedowns as it flows through the system. If the real estate market declines further, the loss should fall where it belongs, on the owners.

In any event, the cost will not be $700 billion because the government will own the real estate, and can over time liquidate it back into the market.

The third action is to increase transparency. Suggestions are floating around for a clearinghouse for derivatives, which would standardize deals and net out cross transactions. This is a fine idea, but we do not have it now, and for the short-term the feds need to get a handle on what exists.

It should be possible to get an emergency reporting system in place pronto so that we can know what we are dealing with. John McCain's recent criticism of Chris Cox was unfair, since Cox has headed the SEC for only a year, but it was a fair comment on the SEC as an institution, which has made no move to address the opacity problem in the years since Buffett's warning. But it had plenty of help in its slumber from every other institution of government, including the Congress, and from Wall Street.

Will these three things be enough? Probably. There are a lot of devils in the details, but the economy is strong, basically. If the financial system goes down, it will be because we are so intent on punishing the guilty, even if we must invent them, that we cannot put in place the mechanisms of survival. Committing national suicide out of self-righteous Schadenfreude would be a bad way to go.



Show me the free market in any of this mess.
Every industry involved was heavily regulated by some government agency while all of this was going on.

Fools and their money are soon parted.

Senate bill S190
Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish: (1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and (2) the Federal Housing Enterprise Board. "

McCain: May 2006
"The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform."

"I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

And three REPUBLICAN co-sponsors.

Which was killed by Barney Frank and Chris Dodd
and Obama and Hillary were involved in that also. They were on the list of top recipients of the lobbying donations mentioned. Franklin Raines went on to become a 'housing policy' adviser to Obama's campaign, too.

Frank and Dodd are now INSISTING that homeowners be allowed to remain in their foreclosed homes as part of any 'reform' that their committees will enact.

This whole thing is about Democrats making money and pandering votes. That's all.

Avoiding National Suicide out of Schadenfreude
Mr. DeLong is right: We need to conceptually separate the financial system from the financial institutions. But the correct conclusion is to see that doing nothing would not be financial suicide, but rather rejuvenation.

The ingredients of a new (or evolved) credit system are readily available. Hundreds of millions of individuals still want to save; hundreds of millions still want borrow; and hundreds of thousands in the finance business still know how to broker deals between them, with obvious ingenuity.

Although some existing lenders (owners of mortgage-backed securities) might lose some money if the government did nothing, it is important not to overstate this problem. The losses would be commensurate with the lender's spot in the algorithm than defines the risk-payoff structure of the security. Lenders who chose more risk for more payoff would be the first to lose, while lenders who chose less risk and less payoff would be the last to lose. In addition, the buyers of these securities, especially the buyers of higher risk tranches, specifically bought them to chase yield--that is, they knowingly took more risk in exchange for more payoff. That they failed to take market and money-policy risk into account, focusing instead on prepayment or default risk, is their problem.

But why do risk averse strategies require high leverage?
I'm what you'd call an "educated layman" on these issues, and I really got a lot out of this article. Very clear.

There was only one point I really didn't understand. You write:

"By definition, and perhaps paradoxically, risk averse strategies require high leverage to be profitable."

Could you explain why that is?

Absolutely's been an absolute boon for any number of politicians, and most of those at the top of the list have been blue.

Though, in the interest of fairness, Raines was apparently not a formal advisor to the Obama campaign. Not that there's a dearth of such ties, anyway.

And More
>"This whole thing is about Democrats making money and pandering votes. That's all."

Also the chance for St. Obama (and the New York Times set) to inject Socialistic economics into the situation:

They're nigh gleeful about it all.

No, let's patch the hole, and then throw the navigators overboard.
I don't buy the notion that allowing Fannie, Freddie, AIG, etc to go bankrupt will cause "chaos". A bankruptcy does not cause the destruction of wealth. It simply acknowledges that losses have already occurred and stops addiional losses.

And note that a bankruptcy does not destroy any money. The total number of dollar bills in existence will not be changed a whit by these bankruptcies. All that will change is the those dollar bills will be spent by different people on different things.

This mess is directly attributable to government intervention in the economy -- it is a failure of statism, not capitalism, and we must not let capitalism take the blame.

Fannie & Freddie: Neither Alpha nor Omega
This crisis didn't start with Fannie & Freddie, nor will it end with them. To fixate on those two GSEs misses the entire source & scope of the financial crisis.

Similarly, the bill you cite would have made Fannie & Freddie more like commercial banks. Several of the commercial banks failed before Fannie & Freddie -- and more are expected. Two of the nations five investment banks (that do not make any mortgage lending) have failed. Hence the bailout proposal.

If you want to fix blame, try looking at Gramm-Leach-Bliley instead, which broke down the fianacial firewall between banks, insurance, brokers, etc. And look at Maestro Greenspan's cheap (1%) money policy 2001-2004.

Accountability & responsibility are not schadenfreude
They're big boys and girls on Wall Street. They weighed the risk, made their decisions, and lost. Now it's time for them to suffer the consequences of their bad choices. (Just like any of us, especially now under the Bankruptcy Bill of 2005.)

To the contrary, bailing them out would incur 'moral hazard,' and thereby only encourage more risks and more bad decisions, because next time they'll expect a new & bigger bailout.

Depositors are already insured by FDIC, FSLIC & SIPC. Let the banks fail. We'll be OK & we won't have an extra trillion heaped on top of the GOP borrow & spend national debt.

Once the dust settles, the Bank of Dubai will be happy to fill any gap in the US banking system. Good thing Muslims don't believe in usury.

Bush Bailout = Commie Sellout
Caveat Emptor. As I read the apologia for Wall Street it's impossible not to come away with the impression that all of this is way more complicated than it needs to be. You simply have to remember that when you are dealing with Wall Street or financial institutions, you are dealing with people who want to separate you from your money in such a clever way that you keep coming back and you keep thinking they are trying to help you. The man at the card table with the three walnut shells is your friend until you tell him you have no more money. He then disappears. This collapse was engineered by the government with both political parties' full cooperation and that of their co-conspirators on Wall Street for the express purpose of enriching the slick greedy Wall Streeters, Congress, and the political elite class , at taxpayer's expense. The elites are grabbing everything they can as quickly as they can because they know the end is coming. Oil is running out, economic, social, and political collapse is imminent. Our political elite class is so corrupt and so self-serving that they have purposely wrecked our economic base for their own profit.

The ultimate blame, voters who what 'protection'.
The blame lies within those who want the government to protect them from the cold, cruel world (FEMA for example).
Fraud must be pursued and eliminated, but using the force of government to prevent fraud with 'regulations' only invites lawyers to write or find loopholes.

One other thing
Let's not forget the concerted years-long effort by government, developers, builders, financial institutions and countless others to convince every US citizen that home ownership is the essence of the American Dream. And that financing for that home was essentially a right. For documentation of this assertion one might begin at the HUD website.

Are we now surprised that the common wisdom (as once repeated by my own father) is to 'own the most house you can?' Well, millions took that advice over the last 3 or 4 years and have come to regret it. Some of these folks invested and lost nearly everything, or in fact more than everything as they watched the value of their holdings drop well below the principal of their mortgage.

Given the socialized push, the government backing, and the innovative financial asistance given on the front end to now-distresed homeowners, is it really so farfetched for them to expect assistance now, particularly with the billions flying about in the District? I think not.

Everyone still has the choice to ignore bad advice.

"everything to do with capitalism is immoral and corrupt"
That's the big lie the government wants to spread and so do too many businesses.

If they can restrict competition using government coercion by bribing a few politicians, it is cheaper and easier than trying to compete in a free market.

No Subject
Of course! Sometimes that requires a crystal ball...

Sorry, but none of those...
...would have stopped government strong-arming of lenders to provide mortgages to people who should never have had them in the first place. That went on separately and was the 'stick' part of it.

Or making a few mistakes.
If people won't learn from the examples of others, they must learn for themselves.

Why do people keep rebuilding in flood planes and hurricane zones? Because the government keeps enabling their stupidity.

Cry me a river guys; come on Joanie and Escrowe - it is the peeps fault
You are both right on a great many things, but don't leave all the blame on the companies and the government. This stuff is not new. The government did it to farmers in the 30s and the 70s, the lenders have found ways to gouge the public in every decade. Bailouts by the government are also nothing new. So why do they keep doing it?

Because the collective we ask for it!

The American public should be outraged three times over. First we should be upset at the government intrusion that led to this, then we should be really p!ssed that the regulators did not regulate and did not even sound an alarm, finally we should be finding a way to get rid of the bums (both in Washington and Wall Street) no matter what it takes over the mess and the bailout.

But the collective we will cheer the pimps in Washington and the whores on Wall Street and consider the people in government who "fixed" it heroes.

Some of us will scream and pull our hair out at both the situation and the collective we, but to no avail.

The fact is that an American is very smart, but Americans are sheeple. As long as we continue on our present path, the implosion will come. I used to expect it fairly soon, but I now realize it probably will not happen in my lifetime. Still, 40-50-80 years from now it will happen.

There is always the chance for a repreive though; that is what I keep hoping for in my lifetime. A collective epithany that pulls the U.S. away from the crumbling lip of the abyss.

I keep hoping, but I don't expect it!

That is exactly right joanie
But, again, we the people must yell loud enough to be heard in Washington. I have one Representative and one Senator who aren't buying into the bailout just yet (one is a Republican and the other a Democrat). I hope neither caves.

It helps when there is a link on Real Clear Politics.

Were Ameriquest and Countrywide strong-armed by the government into providing loans? How about mortgage brokers who didn't stoop to their level -- were they likewise strong-armed?

Similarly, was Bear Stearns strong-armed into buying MBSs and CDOs? Let's see some evidence. TIA

Excellent points, but how to address public outrage?
The system will never be fixed until the public believes those in charge of the financial industry will act as faithful fiduciaries. We need full investigations of all the troubled institutions, especially Fannie Mae and Freddie Mac. And the public deserves a comprehensive account of how all these entities managed their "political risk."

You trust the government to investigate?
Surly there are a few accountant agencies that can be trusted somewhere in the world.

The free market has set the example with Underwriters Laboratory and many other, private, independent companies that can provide independent review.

"FBI investigating companies at heart of meltdown"

What took them so long and can they be trusted?

I remember how the FBI treated Randy Weaver.

I will just try to keep on my guys
And try to get others to do the same. As long and Rehberg and Tester continue to push for a better idea and no flat bailout I have done my part by encouraging them to resist the $700 Billion boondoggle. If everyone did the same, there would be no bailout.

Lenders were threatened by Democrats...
...if they didn't make mortgages to unqualified folks. This started with the Carter Administration' anti-redlining BS and then picked up again with the Clinton Administration. Janet Reno's Justice Department notified 'wayward' lenders that they could kiss goodbye whatever approvals they needed for expansions/mergers they had in the pipeline if they didn't play along with such obvious 'democratic fascism'. (You are aware that fascism has an economic philosophy, right? Described as: Private ownership of the means of production but the government tells the owners how to manage it. Germany practiced 'totalitarian fascism' and, starting with FDR, we've been practicing 'democratic fascism'. It is more efficient than outright government ownership of the means of production as practiced by socialism.)

That was the 'stick' part of it. I do believe I referenced the 'stick' in context with what I stated originally as I am doing now. Did you READ that?

As for your rant -- there was obviously a 'carrot' part of it too. I never denied that, did I? And by mentioning 'stick' I obviously implied the existence of the 'carrot'.

Enter the two GSA's run by such luminaries as Franklin Raines and Jim Johnson cooking the books so they can buy more garbage mortgages from Countrywide and the rest. The more 'assets' the GSAs could claim on their books, the more crap they could buy up, rename them as 'assets' and repeat said process up until certain limits imposed on them kicked in. Hell, those aren't 'carrots' but 'honey with beluga caviar sprinkled on top'. People were making so much money that the 'sticks' were no longer necessary, that is for sure.

But the 'sticks' were what got us started down this fine mess, hands down. And both 'carrots' and 'sticks' were justified by the (primarily) Dem mantra "all Americans deserve affordable housing and homeownership." Even now the Dems are screaming about 'protecting' said 'ownership' (debt-enslavement so Dems running the GSAs and Countrywides can continue to get more rich) to be a part of any 'bailout deal'. Translation: "Paulson will not be allowed to **** in our money-pot!"

Never once did they ever explain how state-supported 0% down, interest-only usurious loan-sharking was ever good for the 'little guy' even when the housing mania was in bloom. How they justify it now with anyone with half a brain who has done a little independent following of the money trail is beyond me.

But then again, most Dems I run into aren't that big into any 'independent following' of any money trail and/or don't even have half a brain to accomplish such a fact-finding mission. However, I digress. Sorry.

Meanwhile, Countrywide was giving unbelievably attractive mortgages to certain people who's last names were 'Dodd' and 'Obama' along with huge campaign contributions to said same last names. Obama's buddies Raines & Johnson made sure that Obama and others (including Hillary) got some nice campaign buckazoids too. Raines later got caught cooking the books so he could jack up his multi-million $$ bonuses for buying more 'assets' from the Countrywides of the world. Federal regulators tried to step in but Dodd, Barney Frank, Chuck Schumer, Obama and others interceded. Eventually even Raines got caught and he got the sack, some big fines were paid and now where is Raines? Advisor to Obama on 'housing policy' (despite Obama's lying to the contrary when confronted). Jim Johnson's story is only slightly 'worse'.

Notice the revolving doors going on here?

And, notice how the Dems aren't screaming for a 'comprehensive investigation' like they normally do? After all, this was all 'Bush's fault and Rove's fault and the fault of 'greedy' Republicans who 'delight in throwing working class homeowners out on the street', isn't it? This was 'crony capitalism' (yeah, just not much for Republican cronies) and fraud and all that! You'd think they'd be screaming for a full on investigation in order to expose such charges in all its lurid detail! But they aren't. And, now that the FBI is investigating, a lot of Dems are rather silent. Hmmmm...

Meanwhile, the best the Dems can cook up in trying to actually pin this to any Republican so far was a bogus story in the NY Times falsely reporting that McCain's campaign manager, Rick Davis, was on the payroll as a lobbyist for Freddie Mac up until last month. In reality, Davis (a) never lobbied for Freddie Mac and (b) hasn't been a registered lobbyist since 2005 and (c) hasn't been involved since 2006 with his previous firm that had done dealings with Freddie. So much for being on Freddie's payroll as a lobbyist until last month, eh?

They are much better off demonizing Rove and hoping like hell that any damning FBI investigation details found don't leak out before Election Day, if you ask me.

As for 'evidence', this is all out there and I am not your Google 'b-tch'. Here are some basics, though:

The WSJ and other non-Democrat mouthpieces have covered this quite extensively as well.

Yeah, noticed that too
...articles from main-line commentators, links again on realclearpolitics/realclearmarkets, no spam wars with Roy or Bob Jones, and new 'fresh ones' for D-block.

Things are looking up!

Good luck with that
...but don't count on it. There will be a bailout and this isn't the last one.

You think THIS is a huge bailout, folks? Just wait.

What huge demographic bubble in the generational cycle is coming up after the Boomers to buy up all their houses when they retire -- starting in earnest, 2010-12 or so -- at the prices said Boomers EXPECT to sell them at? Funny, the answer I get is "there isn't any." How about you all?

Americans put too much 'investment' in to real estate instead of actually productive, job & wealth producing assets and the number of them getting burned is 'too big to let fail'. Everyone concentrates on the companies declared to be 'too big to let fail' instead. But they are not the target. The Spoiled Rotten Peeps who will vote out any politician who dares to tell them that they screwed up are the 'target'.

There are more atheists found in foxholes during a mortar attack than there are libertarians found in society during a financial meltdown, folks.

So, you can scream all you want. It won't make much difference. Rationally, I'd recommend saving your voice for screaming when the actual penetrations start happening. Bring your own K-Y jelly for that as well, btw.

It's going to happen and the only thing that will stop it will be when the hyperinflation completely devalues the currency as a result, like in Zimbabwe or Weimar Germany or many a South American country. SOMEBODY always pays the debts. SOMEBODY.

As long as the details get leaked BEFORE the election...
...I'm all for it!

The Dems must be REALLY worried. They don't have any control over the FBI agents assigned to this investigation like they did with their patsies at the HUD Office of Federal Housing Enterprise Oversight.

It did happen
But my guys voted against it, even the version that passed. Now we will see if that was the right thing. For the sake of those (especially democrats) who voted for it, it better be a resounding success!!

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