Let’s count the rings around my eyes
February 14, 2014 § Leave a comment
The Financial Times has a very interesting profile of former Bakersfield real estate guy Carl Cole, who’s about to start a long stint in prison for mortgage fraud during the bubble.
That time is well deserved, as the FT shows, but it’s yet another reminder of how the relatively small fry have gotten pinched after the crash, while everyone on Wall Street remains free.
At first, it looks like the paper will get into this critical angle, getting in a great line in the third paragraph about how “banks that cheat people pay fines, but people who cheat banks do time.”
But the FT never really gets there, ultimately letting Wall Street off the hook as if it were a victim of the mortgage-fraud frenzy.
Here’s the critical passage (emphasis mine):
It felt great because Crisp & Cole had become connected to a higher power – Wall Street. The firm sat at the local end of a global supply chain. Its scores of employees were creating hundreds of mortgages a year for banks, which were then packaging the home loans into securities sold to investors around the world – the ultimate source of most of the money used to fund US house purchases, then and now.
The conceit of the bankers involved in this trade was that the mortgages they were buying were a kind of commodity – like the crude coming out of a Bakersfield oil well. But the grist for the mortgage-backed securities mill was paper – and lots of it: income verification statements, appraisals and other documents prepared by human beings at firms such as Crisp & Cole.
This put local real estate people in a position to pull the wool over the eyes of Wall Street. read more
PHOTOGRAPH: Stanley Kubrick
I give this book one star because the drone landed on my cat
December 3, 2013 § Leave a comment
If the government is in surplus, it means that the government is taking in more cash than it’s spending, which is the opposite of stimulus.
It’s also well known that the US trade deficit exploded during the late 90s, which means that ‘X-M’ was also a huge drag on GDP during his years.
So the trade deficit was subtracting from GDP, and the government was sucking up more money from the private sector than it was pushing out.
There was only one “sector” of the economy left to compensate: Private consumption. And private consumption compensated for the drags from government and trade in two ways.
First, the household savings rate collapsed during the Clinton years.
And even more ominously, household debt began to surge.
So already you can see how the crisis started to germinate under Clinton.
As his trade and budget policies became a drag on the economy, households spent and went into debt like never before.
Economist Stephanie Kelton expounded further…
“Now, you might ask, “What’s the matter with a negative private sector balance?”. We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses “as far as the eye can see” (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn’t because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government…” read more
PHOTOGRAPH: Achille Volpe
my nerves are bad to-night 