The Dim-Post

October 27, 2009

Icetralia!

Filed under: economics — danylmc @ 9:19 am

Bloomberg reports Iceland’s economy is so comprehensively doomed that McDonalds is closing all it’s stores there:

McDonald’s in Iceland, which imports most of the ingredients it uses in its meals, will shut after costs doubled over the past year, Lyst said in an e-mailed statement today. The franchise holder said it doesn’t expect the situation to change in the short term.

“We would have to raise our prices by 20 percent to get the margin needed on our products,” Magnus Ogmundsson, Lyst chief executive officer, said in a phone interview. “That would have sent a Big Mac to 780 kronur” ($6.36), compared with the 650 kronur it costs today, he said.

The island’s currency collapsed last year following the failure of Iceland’s biggest banks. Offshore, the krona slumped as much as 80 percent against the euro, while capital restrictions this year have failed to prevent an 8.1 percent decline, making the krona the second-worst performer of the 26 emerging-market currencies tracked by Bloomberg.

Noted partly for interests sake, but partly because whenever people like Don Brash, Sir Roger Douglas or John Whitehead talk about their plans for catching up with Australia their proposals are generally to introduce monetary and fiscal policies totally unlike Australia’s but weirdly identical to pre-bankruptcy Iceland. Do they want us to be McDonaldsless? Maybe I’ve underestimated the Greens and Sue Kedgely is secretly pulling the Treasury Secretary’s strings? We’re through the looking glass here.

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60 Comments »

  1. Quite similar to pre-crash Ireland, too. Which government, my brother tells me, have partially tried to solve their (huge) deficit and pay for their (huge) bank bail outs while also maintaining their promise not to raise taxes by… dropping govt contributions to the compulsory super scheme by 7%, and raising compulsory personal contributions by 7%. Its a (compulsory) super increase for no extra super coverage. Not a stealth tax hike, surely.

    Comment by Eddie Clark — October 27, 2009 @ 10:08 am

  2. Mwahahaha! You’ve cracked our cunning plot. No seriously, us environmentalists are all about sustainable economic growth, quality of life not quantity, we can have better lives while protecting the environment yadayadayada

    You keep on saying that Treasury is advocating we do the opposite of Australia. I don’t doubt you but can you give some specific examples.

    Comment by LucyJH — October 27, 2009 @ 10:19 am

  3. Lucy – off the top of my head:

    Aussie has a large number of tiers to its income taxation system, and the top rate is higher than NZ’s. The Nats are moving to flatter taxation, and treasury has recommended investigating an out and out flat tax, from what I recall. Opposite of Australia.

    Australia has a much higher level of economic regulation that NZ. Treasury/ACT/Nats looking at reducing it here.

    Australia has strong unions and collective bargaining, and an award system. John Howard tried to do away with all that, Rudd put it back. Meanwhile, the Nats are looking at reducing protections for employees, and making the labour market more ‘flexible’.

    Comment by Eddie Clark — October 27, 2009 @ 10:26 am

  4. What policies EXACLTY Danyl?

    Don’t sweep that broad brush, that’s your usual strawman attck. May I also remind you that Iceland is completely green for its energy supply etc etc. so must be paradise right?

    Comment by Berend de Boer — October 27, 2009 @ 10:51 am

  5. Shot Berend, another zinger.

    Comment by StephenR — October 27, 2009 @ 11:07 am

  6. Iceland’s economic policies were excellent. Nothing went wrong.

    We know this, because after our budget, Key and English kindly explained to us that the most important thing is to keep the credit rating agencies happy, and the media dutifully reported that this had been achieved, and therefore it was All Good. Let these agencies keep writing the budget, and we’ll be fine.

    Here are some actual headlines (courtesy of the Central Bank of Iceland):

    Moody’s says that Iceland’s solvency and liquidity are not at risk – 04.04.2006

    Standard & Poor’s affirms Iceland’s sovereign rating and unchanged outlook – 16.03.2006

    Standard & Poor’s affirms Iceland’s AA-/A-1+ foreign currency sovereign rating on healthy public finances; outlook stable – 31.10.2005

    Fitch affirms Iceland at AA-/AAA; outlook stable – 04.08.2005

    Moody’s Reports: Iceland’s low government debt and flexibility support Aaa rating – 19.07.2005

    Fitch Ratings affirms the Republic of Iceland’s credit ratings – outlook remains stable – 19.05.2004

    Standard & Poor’s affirms its ratings on Iceland and revises outlook from stable to positive – 16.12.2003

    etc, etc.

    Comment by sammy — October 27, 2009 @ 11:14 am

  7. Iceland is completely green for its energy supply etc etc. so must be paradise right?

    They also have the highest population/Miss World winner ratio.

    Comment by danylmc — October 27, 2009 @ 11:25 am

  8. how anyone with a functioning brain cell could think ANY right wing financial policy will make NZ a better place is dreaming…..same old policies followed by the same old failures implemented by the same OLD men!

    Comment by kerry — October 27, 2009 @ 11:28 am

  9. I’m unclear why you capitalised OLD for the old men part Kerry. Is this because OLD men are particularly bad at economic policies? Or are OLD men all right wing?

    Comment by david c — October 27, 2009 @ 12:10 pm

  10. Old is bad if they’re Right, but good if they’re right?

    Comment by StephenR — October 27, 2009 @ 12:12 pm

  11. Kerry says “how anyone with a functioning brain cell could think ANY right wing financial policy will make NZ a better place is dreaming”

    Well, deregulation of mortgages meant I no longer have to get a bit of my home loan here, the rest over there. Do you remember solicitors contribributory mprtgages? Secocnd-mortgages? Etc? That one little piece of deregulation meant an increase in freedom for home buyers, and much cheaper mortgages.

    And opening our skys to competition has meant much cheaper fares for me and all the Green politicians who fly around the country.

    The list is almost endless!

    Imagine what lowering the costs of workplace accident cover would mean. :^)

    Comment by Clunking Fist — October 27, 2009 @ 12:13 pm

  12. I wonder what lessons should be drawn from Iceland’s rise and fall. Perhaps any small nation with its own currency could be totally undermined by the speculative endeavours of a few. I mean what would be the implication of Fonterra doing something really, really stupid and bankrupting itself? I imagine we would be screwed no matter what tax system we had in place.

    Comment by Adam — October 27, 2009 @ 12:38 pm

  13. Well I guess that mining our national parks and deregulating everything is the only way to “catch up with Australia” :P They are a “lucky country” with a lot more mineral wealth than Godzone.

    Clunking Fist, deregulation has brought us many wonderful benefits, like billion-dollar tax fraud, leaky houses, expensive corporatised public utilities, insider trading, Blue Chip/Countrywide/Chase Corp/Fay Richwhite/Equiticorp (and that’s only in NZ!) and oh yes, isn’t the “deregulated” US economy doing well?

    There are better measures of quality of life than the coarse, banker-oriented GDP. GDP is symptomatic of a syndrome known as autistic economics. Focused only on inane mathematical models, mainstream economics has forgotten its rich heritage as a social science. The Auckland Regional Council has recently issued a report based on GPI, the “Genuine Progress Indicator”.

    Comment by ropata — October 27, 2009 @ 12:58 pm

  14. @ Eddie

    They’re also lining up to join the EU.

    I guess that’s not an option here, so if everything did go tits-up then the alternative would be to join Australia.

    Comment by poochiedontsurf — October 27, 2009 @ 1:04 pm

  15. I wonder what lessons should be drawn from Iceland’s rise and fall. Perhaps any small nation with its own currency could be totally undermined by the speculative endeavours of a few.

    The old adage ‘a little bit of knowledge is a dangerous thing’ is appropriate here. Thankfully most New Zealanders (like Kerry?) know nothing of finance, so we’re unlikely to have our costal fisherman and office cleaners trading Put Options using Black-Scholes pricing models on their Blackberries.

    There are better measures of quality of life than the coarse, banker-oriented GDP.
    True, but one of the greatest values of GDP is in its association with Balance of Payment Statistics, Prices, and Monetary aggregates. Put them all together and you get a very rich suite of data for understanding the financial position of a country/economy.

    Or to put it another way; We’re going to get told to f*ck off rather unceremoniously if we try to pay our creditors with ‘fresh air’ and ‘improved access to the internet’.

    Comment by Phil — October 27, 2009 @ 1:54 pm

  16. deregulation has brought us many wonderful benefits, like … leaky houses,

    Nationalisation gave the world ‘British Leyland’.
    Hooray for central planning :|

    Comment by Phil — October 27, 2009 @ 2:01 pm

  17. phil

    Nationalisation gave the world ‘British Leyland’.
    Hooray for central planning

    That argument would be quite astute had it not been for the fact that BL’s predecessor was privately owned and run almost into the ground.

    Comment by chris c — October 27, 2009 @ 2:57 pm

  18. If we are going to chase Aussie, then we have a mindset to change..

    Take minerals.. their stuff is worth nothing.. zero, same as here, but its worth a lot when you dig it up. Its going to take quite a change in thinking for Kiwis to understand that one.

    Second.. left or right politics hardly matters in Aussie economics, both main parties are adamant that Oz has to progress.. and they follow the same general directions to get there; they tend to work with the structures they’ve got and make them better in various ways that fulfill left or right ambitions. They make antediluvian things work.

    Third.. they have similar attitudes to a range of difficult subjects.. both left and right tell Muslims that if they don’t like the way Aussie works.. they can fuck off.

    Fourth.. they have five times our population and a handful of states, we have 18 or so provinces.
    In reality we should only have North, Central and Canterbury.
    You can see this at regional meetings.. Auckland talk to themselves, Central talk among themselves about sheep and everyone hates Canterbury.. we should rationalise around this reality.

    Our challenges revolve around mindset and the need to actually do stuff as opposed to either talk about it or legislate.

    JC

    Comment by JC — October 27, 2009 @ 4:05 pm

  19. BL’s predecessor was privately owned and run almost into the ground.

    Leyland’s predecessors we’re a collection of manufacturers that were hamstrung at every turn by a workforce of communists who’s millitancy was on an entirely different level to anything else seen at the time, or probably since.

    Comment by Phil — October 27, 2009 @ 4:26 pm

  20. [...] Icetralia! « The Dim-Post The island’s currency collapsed last year following the failure of Iceland’s biggest banks . See the original post here:  Icetralia! « The Dim-Post [...]

    Pingback by Icetralia! « The Dim-Post « Offshore loans, banks, money — October 27, 2009 @ 4:54 pm

  21. @ JC: “… both left and right tell Muslims that if they don’t like the way Aussie works.. they can fuck off.”
    It sounds like you don’t like the way New Zealand works.

    Comment by Adhominem — October 27, 2009 @ 5:08 pm

  22. What has the casino crap table economy of iceland got to do with new zealand? nothing as far as i can tell unless your on a ‘right is bad’ crusade for the sake of it whilst conveniently forgetting that nz is in the debt position it finds itself due to the forward planning executed by the labour-green hegemony.

    Comment by expat — October 27, 2009 @ 5:28 pm

  23. Ropata @ 13. “There are better measures of quality of life than…GDP”
    I couldn’t agree more, after all, an aggressor’s GDP figures can look mighty good in the middle of a war. It reminds me of the old adage: “Money isn’t everything, but it sure is way ahead of whatever is in second place”. GDP has a place. To Phil’s list I would add: unemployment rate, crime statistics, life expectancy.

    “deregulation has brought us many wonderful benefits, like … leaky houses” Erm, can you explain how the REGULATION known as the Building Act and the approval of materials and processes by BRANZ, a gummint body, is “deregulation”? How mandatory inspections by local councils are “deregulation”?

    I assume your “Billion dollar tax fraud is the situation where IRD approved some transactions, then at some point later, changed the rules?

    “expensive corporatised public utilities” sounds like to are referring to the state-owned power companies. Is a government mandated moratorium on the building of cheap power stations your idea of deregulation? Is subjecting every consent for a new clean hydro power station to the RMA “deregulation”?

    “and oh yes, isn’t the “deregulated” US economy doing well?” If the state says you can’t ask prospective borrowers how much they earn or whether they have any assets, you consider this “deregulation”? Search NINJA loans.
    If the state says you can’t chase the borrowers if the mortgagee sale leaves you short, you consider this deregulation? Search NON-RECOURSE loans and “jingle-mail”.
    If the state engages in massive borrowing to fund an illegal war, you consider this deregulation?
    If the state prints money to save its “sorry ass”, you consider this deregulation? Search, effect of inflation on savers and the retired.
    If the state central banker is warned time and time again that a housing bubble is forming and yet take no action to raise interest rates, you consider this deregulation?

    Comment by Clunking Fist — October 27, 2009 @ 5:29 pm

  24. Notwithstanding, getting rid of McDonalds is a very good idea.We could replace it with a home grown ‘success’ story like Georgie Pie.

    Comment by expat — October 27, 2009 @ 5:46 pm

  25. @ Clunker:
    In post #11 you say NZ “deregulation (of mortgages) meant an increase in freedom for home buyers, and much cheaper mortgages”
    And in post #23 you say that the US “state central banker is warned time and time again that a housing bubble is forming and yet take no action to raise interest rates, you consider this deregulation”
    Firstly do you think the cheaper mortgages in NZ since deregulation were influenced by overseas trends?
    Secondly, why don’t banks in the US raise interest rates by themselves if it is such a good idea?

    Comment by Adhominem — October 27, 2009 @ 6:30 pm

  26. if i may
    1. clearly that is part of the picture
    2. the fed & state reserve banks set rates for the most part

    Comment by expat — October 27, 2009 @ 6:37 pm

  27. @ expat: So the fed & state reserve banks set house mortgage rates for the most part

    Comment by Adhominem — October 27, 2009 @ 6:49 pm

  28. Awesome example of Observational Selection* there from Phil:

    1. The private enterprise predecessors to British Leyland failed because of their communist workforce.

    2. British Leyland, with the exact same communist workforce, failed because nationalisation is bad.

    *Observational Selection = cherry-picking the facts that suit your case.

    Comment by Psycho Milt — October 27, 2009 @ 7:12 pm

  29. phil

    Leyland’s predecessors we’re a collection of manufacturers that were hamstrung at every turn by a workforce of communists who’s millitancy was on an entirely different level to anything else seen at the time, or probably since.

    Overly simplistic and ideologically focused. Besides, did you never hear of a little thing called the Miner’s Strike?

    British Leyland had a single immediate predecessor, BLMC, made up of two different companies. Its collapse came at the same time as competing marques consolidated into the same company began to affect each other’s bottom line, together with the attendant crises of the energy crisis and the three day week, sheer organisational managerial incompetence and the recession of the 1970s that culimated in Britain going cap-in-hand to the IMF. But unions were present in large contingencies throughout British manufacturing industries post-war and until Thatcher’s gradual removal of their powers through deregulation and force. To hold them solely responsible for collapse is to ignore everything else that was going on at the time.

    The marques and models that were BL’s most stark failures – the Morris Marina, Austin Princess and Austin Allegro – were pre-nationalisation designs. BL’s legacies still exist today in Jaguar, Land Rover and MG because these profitable and high quality marques were sold off one after the other.

    Nice to see you moved from the problem being nationalisation to unionisation though. Does this mean nationalisation is okay then?

    Comment by chris c — October 27, 2009 @ 7:28 pm

  30. If it were purely nationalisation that caused the collapse of British Leyland, then why didn’t Renault collapse? they were owned by the French government for 50 years.

    Comment by kahikatea — October 27, 2009 @ 8:41 pm

  31. Adhominem — October 27, 2009 @ 6:49 pm re: Expat – So the fed & state reserve banks set “house mortgage” rates for the most part

    >> You never asked that question, you asked about “rates”.

    Comment by expat — October 27, 2009 @ 10:13 pm

  32. Comment by ropata — October 28, 2009 @ 12:19 am

  33. Usury Shylock bastards – is that what you mean?

    Comment by expat — October 28, 2009 @ 8:31 am

  34. Hey cool!

    Comment by expatexpat — October 28, 2009 @ 8:57 am

  35. Fourth.. [Australia] have five times our population and a handful of states, we have 18 or so provinces.
    In reality we should only have North, Central and Canterbury.

    Except that our provinces are meaningless in terms of self-government, whereas each of those states and territories has its own parliament with state and territory MPs, and states are responsible for health and education. Teh states in Australia’s federal system are in no way analogous to provinces in New Zealand.

    Comment by Deborah — October 28, 2009 @ 9:19 am

  36. We should have Nth and Sth States with those in the Sth having to speak pidgin French and eat horse steaks whilst those in the Nth luxuriate in noodle houses and Paul Holmes replays

    Comment by dontknowthat — October 28, 2009 @ 9:27 am

  37. Cool, so it’s the south island for me then!

    Comment by Adhominem
    “Firstly do you think the cheaper mortgages in NZ since deregulation were influenced by overseas trends?”
    Well, at times they were cheaper, at times they were more expensive than before (when we had a very tight fiscal & monetary policy with 1984 Labour govt). But either way, they were mostly easier to get.

    “Secondly, why don’t banks in the US raise interest rates by themselves if it is such a good idea?”
    Good idea, and farmers should just increase the sale price of their produce by themselves.

    Comment by Clunking Fist — October 28, 2009 @ 9:43 am

  38. @ Expat: Re “Usury Shylock bastards”
    You seem to imply that criticising the banking industry is anti-semetic. Loan sharking occurs in a number of cultures.

    Re my question about Fed setting rates:
    Clunker said “If the state central banker is warned time and time again that a housing bubble is forming and yet take no action to raise interest rates, you consider this deregulation?”
    And I queried “Why don’t banks in the US raise interest rates by themselves if it is such a good idea?”

    I should have been clearer.
    The Fist is saying that the Fed should have raised Fed fund rates to stop the housing bubble. That seems like a very blunt instrument for such a specific task.
    Greenspan was a great believer that participants in a “free market” would work it out for themselves. If he had raised Fed fund rates he would have been criticised for it, because he would have stopped growth in other sectors (i.e “regulation”).
    Lenders set the long term interest rates for mortgages.
    Why didn’t they respond responsibly to the housing bubble?

    Comment by Adhominem — October 28, 2009 @ 9:50 am

  39. I just knew someone very anal would make some tar n feather anti semite link when OBVIOUSLY its a tongue in cheek reference to the Bards Merchant of Venice. Darling.

    The US govt shouldnt have legislated to allow Fannie and Freddie to spunk billions to lo doc hill billies – that may have jsut prevented a housing bubble. Do you think?

    Comment by dontknowthat — October 28, 2009 @ 9:58 am

  40. @ dontknowthat
    You seem to be saying that the current economic crisis was not the Fed’s fault, but caused by Fannie and Freddie.
    Can you explain to me how this resulted in the near failure of AIG?

    Comment by Adhominem — October 28, 2009 @ 10:52 am

  41. “we have 18 or so provinces.”
    “In reality we should only have North, Central and Canterbury.”

    I’m wondering which province Dunedin would be part of. Maybe the ‘anything but Auckland’ bunch and the ‘anything but Christchurch’ bunch could agree to go with Central?

    Comment by kahikatea — October 28, 2009 @ 10:53 am

  42. God, the “poor people trying to buy a house caused the financial collapse” concept is such a shallow assessment, although Adhominem the argument (poor as it is) holds for AIG in the same way it holds for Fannie. Apparently the poor bankers and hedgies simply HAD to sell the risky debt derivatives built off poor mortgages and hide their true levels of toxicity.

    Comment by garethw — October 28, 2009 @ 11:36 am

  43. @ playing the man (again) ‘You seem to be saying that the current economic crisis was not the Fed’s fault, but caused by Fannie and Freddie.
    Can you explain to me how this resulted in the near failure of AIG?’

    AIG underwrote securitized loan default insurance / credit default swap insuarnce and traded them, these were ostensibly invented to allow freddie and fannie to offload all the shit lending they been making under the radar.

    xxx

    Comment by dontknowthat — October 29, 2009 @ 8:33 am

  44. @ dontknowthat: “AIG underwrote securitized loan default insurance / credit default swap insuarnce and traded them”
    AIG also had a large portfolio of them. This was all self-regulated.

    Comment by Adhominem — October 29, 2009 @ 9:27 am

  45. The sub-prime issue AIG got caught in wasn’t because of the risky loans in themselves – any decent market mechanism could deal with high-risk loans. It was that the true nature of that risk was actively hidden by AIG (based on some of the discussion around Capello it looks fraudulent) and they were technically insolvent as there was no way they could cover the payments they had insured. And whenever a regulator tried to point that out and demand proper disclosure they were stonewalled by the “Goldman Sachs club” that was running the show.

    High-risk loans aren’t bad. Hiding the risk of loans is.

    Comment by garethw — October 29, 2009 @ 10:10 am

  46. dontknowthat these were ostensibly invented to allow freddie and fannie to offload all the shit lending they been making under the radar

    What do you mean by this? Are you saying F&F were making the shit loans? That would be strange.

    Most of the sub prime shit was in the sector not backed by F&F. ie, the less regulated sector. If you wanted ForF backing you needed to have conforming loans. The macs were compelled to make a profit, and were losing market share to the sub prime, less regulated sector, so they started investing in the CDS’s and shit to make up for it. But they were buying them, not issuing them, (let alone the ninja loans they were built on).

    Comment by Pascal's Bookie — October 29, 2009 @ 10:21 am

  47. Good point Pascal, also note that Fannie and Freddie only moved into buying subprime when they realised how predatory the pricing was – all the existing subprime lenders were basically ripping poor people off and F&F moved to curb the margins.

    Comment by garethw — October 29, 2009 @ 10:29 am

  48. Oh, and I think it’s Cassano, not Capello. My bad.

    Comment by garethw — October 29, 2009 @ 10:31 am

  49. kahikatea says: “I’m wondering which province Dunedin would be part of. Maybe the ‘anything but Auckland’ bunch and the ‘anything but Christchurch’ bunch could agree to go with Central?”
    I’m sure there’s an “anything but Wellington group”, too, so that would rule out central for Dunedin. Although as I go about my business in the capital, I stumble across a lot of ex-Otago folk who seem quite happy here.

    Comment by Adhominem “Lenders set the long term interest rates for mortgages. Why didn’t they respond responsibly to the housing bubble?”
    Well, they could collude to push up the rates together. Or they could grow some balls and just stay away from dodgy borrowing practices and no-hoper borrowers.

    http://article.nationalreview.com/?q=YzlmM2JiOGViYzBiY2EyZjM3N2U4NWE4ZDI2YjMxMDI=

    Comment by Clunking Fist — October 29, 2009 @ 1:07 pm

  50. @ Clunker
    In that article you recommend, John Allison does not explain why his bank (BB&T) needed to borrow $3.1 billion of TARP funds.
    See BB&T News Releases.

    Comment by Adhominem — October 29, 2009 @ 1:36 pm

  51. Hi Adhominem. I read somewhere that they were “forced” to accept the money, but can’t find the reference. At least a couple of banks are said to have been “forced” to enter TARP. I have no idea what form the forcing took, or whether they truely had no choice in the matter. BB&T seem to have utilised the “capital purchase program” part of TARP, rather than having to sell “troubled assets” (i.e. shitty loans) to treasury, they issued capital to boost their ratios.
    It’s a bit like the way some NZ banks were unhappy about the govt guarantee, once one joind they all had to join or see deposits shift elsewhere.

    Comment by Clunking Fist — October 29, 2009 @ 6:25 pm

  52. @ Clunker: “I read somewhere that they were “forced” to accept the money, but can’t find the reference.”
    John Allison must have had a gun to his head, to betray his so highly self-professed Randian ethics like that.

    Comment by Adhominem — October 29, 2009 @ 6:57 pm

  53. @ dontknowthat: “AIG underwrote securitized loan default insurance / credit default swap insuarnce and traded them”
    AIG also had a large portfolio of them. This was all self-regulated.

    Comment by Adhominem — October 29, 2009 @ 9:27 am

    1) underwriting and trading normally implies some level of portfolio being held
    2) The point is, the Clinton administration put policy in place to create these liar loans for political reasons without considering or caring about the ramifications
    3) So yes this was self regulated, like smoking outdoors

    I was simply replying to your comments below where you suggested agree that AIG failed because the US government created a liquidity & property bubble that came to infect the global economy whilst not providing regulation of activities derived from Freddie and Fannies exuberance

    @ dontknowthat
    You seem to be saying that the current economic crisis was not the Fed’s fault, but caused by Fannie and Freddie.
    Can you explain to me how this resulted in the near failure of AIG?

    Comment by Adhominem — October 28, 2009 @ 10:52 am

    Comment by dontknowthat — October 30, 2009 @ 9:45 am

  54. @ dontknowthat
    Credit default swap insurance was used to hedge risk.
    Lenders would loan out mortgages, but then would securitise that loan. When borrowers defaulted on their mortgage, then the “insurer” should have paid out.
    But there was a failure. The “insurer” couldn’t pay out because their liquidity had evaporated (they were holding worthless CDS).
    The US government did not force those companies into that position.

    Comment by Adhominem — October 30, 2009 @ 10:29 am

  55. The US government kicked off and created and failed to put the brakes on a massive liquidity injection to high risk lo doc borrowers of ‘social need’ that ended in a massive asset bubble that came to infect the global financial system.

    Without a shadow of a doubt the US government under Clinton was the genesis of the current pile of shit. Freddie and Fannie just kept on spunking out the cash and just kept on justifying and feeding the monster that was, securitisation in the industry andAIG.

    Comment by dontknowthat — November 1, 2009 @ 10:12 am

  56. It was Clinton’s fault, this I know, the Heritage foundation tells me so.

    Comment by Pascal's bookie — November 1, 2009 @ 10:53 am

  57. @dontknowthat: “Freddie and Fannie just kept on spunking out the cash and just kept on justifying and feeding the monster that was, securitisation in the industry and AIG.”
    I agree that the monster was securitisation in the industry.
    It was unregulated.
    It allowed lenders to leverage money to a completely unrealistic level.
    It was driven solely by large short-term profits, with complete disregard for longer-term viability.

    Comment by Adhominem — November 1, 2009 @ 11:24 am

  58. Ad hom – Cause ( Clintons F&F social housing policy) and effect (securitisation and massive housing asset bubble).

    Pascal – v.v..v.thinly vieled ad hom.

    Is there an infestation of Standard hacks here?

    Comment by dontknowthat — November 2, 2009 @ 6:36 pm

  59. No ad hom from me dtt. That would be

    I’m just wondering when you are going to front with some evidence for your claims. The ‘it was all FandF’s fault’ routine has been pushed by the Heritage foundation, and others.

    Go and read my comment at 46. Yes there were changes such that lower income loans had to be made to get quasi backing from F and F. But no, this was not where the ninja, liar, no doc loans were invented, or where the vast bulk of them were made. It’s strange that the really dodgy shit didn’t start happening till well into GWB’s second term, if it was all Clinton’s fault.

    Comment by Pascal's bookie — November 2, 2009 @ 9:17 pm

  60. Check this out dtt:

    http://www.ritholtz.com/blog/2009/06/most-subprime-lenders-werent-covered-by-cra/

    The CRA brouhaha last year led the Orange County Register to run an analysis of “more than 12 million subprime mortgages worth nearly $2 trillion” in late 2008.

    What did their data based analysis discover?

    “Most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.”

    Among their research conclusions:

    Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.

    there’s plenty more stuff around similar to that, if you care to look.

    Like this:

    http://www.mcclatchydc.com/251/story/53802.html

    This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

    To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

    But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party’s standard bearer, President Bush, didn’t criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

    Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

    During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

    Comment by Pascal's bookie — November 2, 2009 @ 9:41 pm


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