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For Old Times Sake

A: WaMu is down.
B: For the count?
A: The government seized it and sold parts of it off.
B: Wow.
B: the market is going to look terrifyingly low tomorrow morning, — with that and the bailout deal tripping up
A: Man, I hope this grandstanding shit blows up in McCain’s face.
A: I hope every Democrat goes on the air blaming him for fucking up a perfectly good bailout deal.
A: Paulson literally kneeled before Pelosi begging her to sign onto the deal even after the Republicans decided to ditch it.
A: Literally kneeled! ON HIS KNEES
B: Wow
B:  … just, wow
A: The Republican leader completely blindsided everyone by backing out.
A: And McCain, brave leader that he is, declined to take a position on the matter.
B: What’s Obama’s position?
B: was he publically supporting it?
A: Not clear — still reading
A: The deal that was fucked over didn’t include all the principles he’d laid out, though
B: Yeah. That’s why I was curious. Hadn’t heard anything though
B: Both candidates are probably smart to let this play out, since even voters don’t know what they think
A: But McCain just ramming himself in at random, contributing apparently nothing.
B: The media seem to have gotten away a little, for now, from the ‘horse race’ mentality, re: the campaigns
B: they are, in their own retarded way, focusing on the substance of each candidates’ economic perspectives
A: Maybe they’ll just stay in this mode.
A: The retardation is ultimately what makes it sustainable.
B: Not sure they can keep it up more than a couple of weeks
B: once the bailout is ratified, the media will brush its hands as if to say Mission Accomplished, and move on
A: No follow up on if it “worked”
B: Oh, of course not
B: until, of course, the next crisis
B: and they’ll strain to recall its etiology
B: but all the while, just be plain shocked
B: That’s what I disagreed with in CR’s post from a couple of weeks ago — saying we should take the financial situation seriously, and not be gleeful
A: No one is taking it seriously.
B: The people who have been taking it seriously all this time are due a little glee
A: It is literally one of those things where I can’t believe they didn’t see it would be a problem.
B: I know.  It’s something you really should laugh about
B: it is, when assessed from a distance, a comedic situation — a classic comedic setup
B: where the audience should’ve been in on the joke
A:  I think that partly why so few people in the general public understand it is that they can’t believe it.
A: “We gave out basically fraudulent loans like they were candy, but we didn’t give a fuck because we were repackaging them into opaque securities that we were selling to people like they were an absolute sure bet.”
B: Maybe because the caricacture of Wall Street tycoon actually proved true
B: Everybody always believed the Wall Street execs were corrupt. But didn’t really want to be faced w/ the fact that they are in fact as corrupt as they thought.
B: I think that’s why we’ve tolerated Bush’s crimes
A: In a way, their strategy was brilliant: be so over the top evil that no one would believe they were that evil.
A: Anyone telling the honest truth sounds like a crazy conspiracy theorist.
B: Right. And nobody ever wants to be called that
B: Even if there is, in fact, a conspiracy
B: “conspiracy theory” has turned “conspiracy” into something that can never actually happen
B: when, in fact, conspiracies happen all the fucking time!
B: The problem w/ the conspiracy theorists is that they go after the arcane and unprovable, w/out actually going after the feasible stuff .. which, as shown w/ Nixon, can bring down power
B: Clinton, even — stupid as it was, it COULD’VE brought down power
A: Yeah, that was just some petty shit that someone got a little overly curious about.
B: It’s always the little crime
A: The overreach
A: Like Al Capone’s tax evasion
B: I think we’re at a point in our history where we’ve lost all sense of curiosity
B: everything is “interesting” (in the sense that “It will be interesting to see what happens when / if __________________) … but we’re not actually curious about it
B: we’ve lost the capacity to say, “But, hey, wait, that doesn’t make sense ….”
A: Yeah, just purely observers.
A: It’s like the world is Family Guy, just one random thing after another. No one investigates the underlying logic of a Family Guy episode.
B: Exactly. How do you not suppress something like “apocalyptic glee” when everybody finally sees what you’ve been seeing for a while?
B: it’s like a game of charades
B: even after you lose, there is a release finally to say out loud what you’ve been trying to convey
A: Yes
A: One of the most galling things — for example, I read this news story that speculated about whether McCain could get some credit for whatever deal finally occurs.
A: No inkling that maybe if he falsely took credit, a reporter could investigate his role and then put the facts out there.
A: The journalist themselves are passive observers!
A: It’s like we’re all just watching TV, all the way down, and no one is actually creating the programming. We normal people turn on the TV to watch OTHER people watch TV
A: I really think it would be better if reporters were conscious of their roles.
A: At least we’d get some interesting writing out of it.
B: Some of the best instances of journalism I’ve seen is the off-camera stuff, when they don’t realize the camera is rolling
B: It’s a bit like my best blogging is basically IM conversations w/ you and C.
A: Me too, though normally it’s actually verbal converations.
A: Which is why my blogging sucks so much.

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September 26, 2008 - Posted by | economics, IMs, politics

8 Comments

  1. On the bright side, I’ve discovered while reading about WaMu’s collapse that the regulatory body that should have been preventing this sort of thing is called the Office of Thrift Supervision, which is pretty awesome. Does the federal government supervise other virtues, too?

    Comment by voyou | September 26, 2008

  2. Office of Trustworthiness Supervision
    Office of Loyalty Supervision
    Office of Helpfulness Supervision

    Comment by transportinburma | September 26, 2008

  3. Here’s my brief synopsis about what happened in this crisis.

    In the mid-1990s sub-prime mortgages begin their steady climb in market share.

    Around the same time payday and title loan lending begin to take over America’s corners not already claimed by Walgreens, CVS, and Starbucks.

    In 1998, there are a number of us (me as just a beginner in the movement) that are very loudly (or as loudly as we can) warning that this is problematic and needs to be re-evaluated. At this time, the real problem is that loans are being made with terms that are impossible or nearly impossible to repay. The borrowers are folks that should be able to get better terms. About 90% of the people affected negatively are not white so the problem is ignored.

    In the early 2000s, banks that are regulated by CRA are beginning to get in to the game more often. Chase and Citi and WaMU and others buy dedicated subprime lenders and designate them “another channel for mortgages” — the wholesale channel (because brokers, not loan officers, are the point of contact for the borrowers). That channel is the channel where people of color get worse terms than they could have gotten through the banks regular retail lending. The problem is still largely ignored.

    Wall Street begins its fury to buy these loans because they offer a higher return than traditional mortgages. Sub-prime loans often have egregious fees, penalties, interest rates, and adjustments that make them look on paper like a better ROI.

    In the mid 2000s, competition takes hold in a top down manner rather than a bottom up manner. This is where things really fall apart. Previously, the problem is more contained with a few banks and investment companies. Now, everyone wants some of that high return. To increase market share, the different investors start offering money with fewer strings attached (see This American Life’s “The Giant Pool of Money” for more detail). Now really poor judgments are being made and really poor loans are being made and sold into the secondary market.

    Fannie and Freddie start losing their market share dramatically and feel the need to keep up with Wall Street. They have to compete in order to remain relevant and stable. This leads to the eventual conservatorship.

    At a point near the beginning of 2006, the investors start to realize their mistakes. So, they accelerate and sophisticate the ways they hide their mistakes through multiple slicing and dicing of good and bad loans in their portfolios. The Urban Institute has a good description of just how incredible this all gets.

    The hope is that the increase in home values will continue without pause and save everyone from their poor mistakes simply through inflation. It does not change lending behavior. The brokers have nothing to lose since they’re in and out of the process in a matter of days. Banks think they have nothing to lose because they sell their loans to Fannie, Freddie, and Wall Street. Apparently, Wall Street feels invincible. It just continues to buy these bad loans despite the fact that anyone paying attention, with an iota of financial knowledge, can see this is about to crash hard.

    Around the same time, the problem is beginning to get attention because middle class white folks are now beginning to feel the effects as they begin to fail to pay their adjustable rate mortgages.

    House prices fail to increase at high rates, then begin to decline or stabilize. Fannie and Freddie can’t capitalize enough. The feds take them over. The reality is now unavoidable.

    We’re $700b short.

    Comment by Rob | September 26, 2008

  4. I love these IM posts. They’re a continuation of a classical tradition, yeah? Something satisfying about framing arguments in a conversational style.

    Comment by Jared Sinclair | September 26, 2008

  5. Rob,

    You should make campus tours. Or start a chataqua.

    Comment by Jared Sinclair | September 26, 2008

  6. I really liked the WaMu commercials – like the one where that lady in pink seems to be driving an ultra fast moving pink dildo through the desert.

    Comment by Craig | September 26, 2008

  7. JP Morgan Chase should run a series of commercials where the old-fashioned bankers point and laugh at the formerly cool, now disgraced WaMu guy.

    Comment by Adam Kotsko | September 26, 2008

  8. Thanks Jared!

    Comment by Rob B | September 26, 2008


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