Fed's Fisher: Business Owners Hurt by Congress

Rocketman1981 · Sep 19, 2012

SamFisher said: ↑

I disagree because in the absence of demand its irrelevant.

You are mistakenly assuming linear causation

It's not linear.

If you're not hiring due to lack of demand/other reasons- your feelings on PPCA are by definition irrelevant and have zero impact on hiring.
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Your surveys state that the combined regulation and healthcare bill account for almost 30% of Small Business owners biggest concern and half of them cite it as a reason they're not hiring by your own graph.

???

Major · Sep 19, 2012

Rocketman1981 said: ↑

The affordable care act will have adverse and potentially significant costs for large low wage employers like national restaurant chains and other retail type operations.
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Which is interesting and all, but those low-wage employers are currently the ones near the top of the list in terms of hiring. So the idea that health care regulation is what's stopping businesses from hiring again doesn't fit the data. Businesses completely unaffected by health care are not hiring. It's a demand problem. Health care is just a fun excuse, but the facts simply don't fit.

Northside Storm · Sep 19, 2012

Trader_Jorge said: ↑

No, actually it was because the Fed created a housing bubble (that Paul Krugman was openly advocating), the Democrats repealed Glass-Steagall, the Democrats passed the Community Reinvestment Act which forced banks to lend to unqualified borrowers, and Barney Frank single-handedly prevented the reform of Fannie Mae and Freddie Mac.

Banking was arguably THE MOST REGULATED INDUSTRY in 2008, and the regulators couldn't do a darn thing. Regulators are incompetent buffoons who if they were any good, would be working in private industry and making money. More regulators does not solve a thing.
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BAHAHAHA.

too funny.

It's handy I wrote this so long ago. It keeps on popping up again and again for people who want to waste time advancing the most flimsy interpretation of 2008 I have ever seen.

I just want to discredit that whole notion that the Community Reinvestment Act and GSEs like Fannie Mae and Freddie Mac were somehow significantly responsible for 2008. It seems to be a popular conservative talking point.

First of all, CRA was really principally targeted at race-based redlining, which had to be one of the most f**ked up scenarios this side of the Civil Rights Act.

Quote:
Redlining is the practice of denying, or increasing the cost of services such as banking, in certain, often racially determined areas.

During the heyday of redlining, the areas most frequently discriminated against were black inner city neighborhoods. For example, in Atlanta, through at least the 1980s, this practice meant that banks would often lend to lower-income whites but not to middle- or upper-income blacks.
Second of all, CRA-mandated loans were such a small part of the subprime mortgage pool. Most subprime mortgages were driven by pure profit by unregulated shadow banks. CRA has been shown to have no empirical relationship with 2008---

Quote:
Some economists, politicians and other commentators have charged that the CRA contributed in part to the 2008 financial crisis by encouraging banks to make unsafe loans. However, every empirical study that has looked at CRA loans has concluded that they were safer than subprime mortgages that were purely profit driven, and CRA loans accounted for a tiny fraction of total subprime mortgages.

Quote:
The Federal Reserve, having examined the evidence, holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis. At the FDIC, Chair Sheila Bair delivered remarks noting that the majority of subprime loans originated from lenders not regulated by the CRA, calling it a "scapegoat" and declaring it "NOT guilty."

Quote:
Nobel laureate Paul Krugman noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA. According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim. In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust", relying partly on evidence that the housing bust has been a largely exurban event.

Third of all, even if banks had been "forced to lend to poorer lenders" (Which the evidence clearly shows they weren't, with market-driven demand that was purely unassociated with CRA regulations being the driving force behind most subprime loans (Issuances of private-label mortgage-backed securities increased dramatically from 2001 to 2007), and the peak periods of explosive subprime growth being more correlated with Greenspan violating the Taylor rule in unspeakable ways, and cheap credit, than any change in CRA regulations), nothing excuses the fact that the banking system was filled with moral hazard and fraud as these crappy products were passed along. Nothing excuses the fact that banks were so deregulated in their handling of financial products and counter-party risk, that they almost sank the system on stupid bets. Nothing excuses the insane leverage ratios that allowed subprime to take such a dent out of the shadow banks in the first place.

Finally, as to the role of GSEs in 2008---

Quote:
"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors."

Quote:
Following their mission to meet federal Housing and Urban Development (HUD) housing goals, GSEs such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment... and the continuous availability of mortgage credit under a wide range of economic conditions." (HUD 2002 Annual Housing Activities Report) Then in 2003-2004, the subprime mortgage crisis began. The market shifted away from regulated GSEs and radically toward Mortgage Backed Securities (MBS) issued by unregulated private-label securitization conduits, typically operated by investment banks.

As mortgage originators began to distribute more and more of their loans through private label MBS, GSEs lost the ability to monitor and control mortgage originators. Competition between the GSEs and private securitizers for loans further undermined GSEs power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis.

I realize it is an incredibly popular position (especially among conservatives) to demonize and scapegoat the poor for every failure that occurs, but if you're still doing it for 2008, then it occurs to me that perhaps the fantasy world is yours---where the poor, unconstrained by asymmetric information, somehow once again caused the failure of America by causing unregulated shadow banks to take on more risk than they ever could. You seem to posit, as many of your thinking do, that by merely existing, the poor are incentives to madness, counter-party risk, 30:1 leverage ratios, and shoddy loans. I guess that fits well into your narrative of the poor as parasites, but you should be keenly aware that empirically speaking, that thread of thought is at best a misrepresentation of the facts, at worst a delusion that will make worse the problems revealed by 2008, rather than cure them.
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Northside Storm · Sep 19, 2012

There was too much regulation---the Democrats killed Glass-Stegall, and that's to blame!!!!!

ahahahaha. you can't even keep this s**t straight.

Gramm-Leach-Bliley (all three Republican co-sponsors) Vote

El_Conquistador · Sep 19, 2012

Northside Storm said: ↑

There was too much regulation---the Democrats killed Glass-Stegall, and that's to blame!!!!!
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Did Slick Willie himself, also known as Bill Clinton, sign the bill?

Why yes he did!

Northside Storm · Sep 19, 2012

Repo needs a backstop to avoid future crises

http://www.ft.com/cms/s/0/692d4184-c72d-11df-aeb1-00144feab49a.html#ixzz26wDfTURY

Perhaps this is unsurprising: after all, until 2008 the workings of the repo market – or the part of finance where banks raise short-term loans backed by collateral – seemed distinctly dull. But in many ways this silence is shocking. After all, the sector is huge: the total volume of so-called “tri-party repo contracts” – or those arranged via a third-party broker – in the US peaked at about $2,800bn in early 2008 and is now at about $1,700bn.

Moreover, the repo market was central to the dramas of 2008. One of the main reasons why entities such as Lehman Brothers collapsed, after all, was that investors fled from repo deals, because they became frightened about counterparty risk. They also feared that the collateral backing these deals was losing value, particularly in relation to mortgage bonds, which represented 37 per cent of collateral.

Is there a solution? Some observers, such as Viral Acharya, a New York-based economist, argue that what is needed is a type of neutral clearing house or resolution mechanism. This would, in effect, guarantee to complete deals in a crisis and thus avoid any damaging firesales of collateral. It would also avoid the need for the government to provide an implicit backstop for JPMorgan and BNY as the private sector clearing banks (which is what they are basically doing right now since they cannot afford for these to fail).

That sounds extremely sensible. But it seems most unlikely to happen anytime soon. Indeed this idea is not even properly discussed in those May reports. One reason is that JPMorgan and BNY have a vested interest in maintaining the status quo, since it gives them enormous informational power. The other problem is that there is little political appetite right now in the US or Europe for any more upfront, explicit state guarantees to the financial sphere. Unless a repo resolution mechanism is backstopped by, say, a central bank, it is unlikely to be credible. Little wonder, then, that silence rules. Right now it is easier for everyone to keep crossing their fingers – and pray that JPMorgan and BNY remain bulletproof for years to come.
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we don't need no reform

Northside Storm · Sep 19, 2012

Trader_Jorge said: ↑

Did Slick Willie himself, also known as Bill Clinton, sign the bill?

Why yes he did!

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Trader, be consistent.

It's the Democrats' fault for killing regulation through a Republican co-sponsored bill that passed mostly with Republican votes.

But there was TOO MUCH REGULATION in the first place!

Woah, do you mean to say that Glass-Steagall repeal---and the subsequent allowance of AIG trading in credit-default swaps---might have been a problem?

s**t, regulators need to go into private practice. there's no use for them, especially in cases where those smart private hands sell CDS like madmen and make it rain!

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Fed's Fisher: Business Owners Hurt by Congress

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