Question for Aaron

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTPdzmIgzZ4U&refer=home

Well Aaron am I correct in concluding you were right about the oil stock speculators being the big reason for the run-up in price?

I don't claim to be too knowledgeable in this field but it looks to me like you were right.

Of course the general economic slowdown could be responsible for downward pressure on oil price too, right?

One question though. In these big markets where so many have mortgages which are more than the home value and the bank "marks them down", can the owner just refinance for the lower amount pr is that not permitted?

Seems like if the bank is going to take a hit anyway, it would be simpler and easier to work with the current owners if possible.

I doubt banks are marking down mortgages that are paid on time or are going to be changing mortgages as the money for which the homeowner is paying back has already been paid to the seller of the house.

Now if someone were behind on their loan and went to the bank asking to refinance at a new lower rate for which the home appraised at, that is an interesting question as to whether the bank would do it or not. I doubt they would as they would not want to set precedence for something that could take off like wild fire. I would imagine they would rather reposes the home and go from there.

But I'm certainly no expert on what banks would or would not do.

Thanks.

I am possibly less knowledgeable about economics than most of the posters.

I might even know less than McCain on that...(no offense to McCain or his supporters wink, nod...it was just a joke ok)

I'm by no means an expert S. I read a lot, from both sides and go with what my gut tells me.

And for the record, I don't think we've had a President that is an expert on our national economy. That's why they all have advisors.

Frankly, you know as much as anybody else. You insist on presenting this "aw shucks" facade. I've always thought you were full of prunes.

I think many would agree that we're all full of something.

LOL oc, I assure you I know nearly nothing about economics.

Now on politics I know a lot but just cant convince anyone of it.

So what did you think about the feds allowing Lehman brothers to file for bankruptcy OC.

It looks like they're picking and choosing. This explains it:

http://blogs.wsj.com/deals/2008/09/14/mean-street-if-lehman-liquidates-wall-street-gets-set-to-make-a-killing/?mod=fpa_blogs

Frankly, I'm still amazed at the role Goldman Sachs plays in all this. There's current and former Goldman Sachs folks all over the place and they stand to be the big winners in all this. First, they cautiously avoided this line of business and second, they're going to move in and buy the assets of their former competitors on the cheap. If Lehman didn't go into bankruptcy, not so much...

Financial giant AIG has refused a private capital infusion that would have forced AIG management to surrender control to the provider of capital. Instead, AIG is demanding a federally guaranteed bridge loan. It will be interesting to see if Paulson sticks to the "no more bailouts" pledge.

I think he should. Let them reap what they've sown from their lousy investments.

The tricky part is this one could directly affect millions of Americans more directly then the failures of Lehman or ML as many could stand to lose insurance coverage they've paid for.

If the government were to bail them out, then it should be done only if management is dismissed with only the personal items from their offices. No severance packages, no stock options and certainly no continuing to run a company they've ran in the ground.

I would love to have a million buck to invest in the market right now. This is the time when billionaires are made.

I saw Hillary on GMA this morning and she blamed all of this on "this adminstration" for failures in oversight.

Well Aaron if there was a failure of oversight then would it not be on the part of "this administration?"

Or are we still blaming Bill Clinton?

Or do you mean there was no failure of oversight?

During this administration Sarbanes-Oxley was passed. This is a great example of misguided oversight that encourages unproductive overhead and lots of work for lawyers and bookkeepers. It also fails to reward productivity and entrepreneurship. One man's "failure of oversight" is another man's senseless government meddling. There has to be an element of risk otherwise the rewards are too puny.

In my opinion, yes, there was a failure of oversight. Those failures started years ago with all of these sub prime loans, no interest loans and other questionable loans that is the root of all of our financial problems today.

So the question is, who is responsible for oversight in the banking community.

http://online.wsj.com/article/SB122156561931242905.html

"The U.S. government seized control of American International Group Inc. -- one of the world's biggest insurers -- in an $85 billion deal that signaled the intensity of its concerns about the danger a collapse could pose to the financial system."

So there we have it. Why is the collapse of AIG more of a danger to the financial system than the collapse of Lehman Brothers?

AIG had turned down offers of private assistance because they came with the demand of surrendering management control. AIG was asking for a federally guaranteed bridge loan. Instead, the Treasury Department has seized control, in effect nationalizing AIG, and required AIG managment to step down.

I think the answer to your question, "who is responsible for oversight in the banking community?" would have to be the Treasury Department.

Who were the largest recipients of Fanny Mae and Freddic Mac political contributions:

1. Dodd, Christopher J
S
D-CT
$133,900

2. Kerry, John
S
D-MA
$111,000

3. Obama, Barack
S
D-IL
$105,849

4. Clinton, Hillary
S
D-NY
$75,550

5. Kanjorski, Paul E
H
D-PA
$65,500

6. Bennett, Robert F
S
R-UT
$61,499

7. Johnson, Tim
S
D-SD
$61,000

8. Conrad, Kent
S
D-ND
$58,991

9. Davis, Tom
H
R-VA
$55,499

10. Bond, Christopher S 'Kit'
S
R-MO
$55,400

11. Bachus, Spencer
H
R-AL
$55,300

12. Shelby, Richard C
S
R-AL
$55,000

13. Emanuel, Rahm
H
D-IL
$51,750

14. Reed, Jack
S
D-RI
$50,750

15. Carper, Tom
S
D-DE
$44,389

16. Frank, Barney
H
D-MA
$40,100

17. Maloney, Carolyn B
H
D-NY
$38,750

18. Bean, Melissa
H
D-IL
$37,249

19. Blunt, Roy
H
R-MO
$36,500

20. Pryce, Deborah
H
R-OH
$34,750

21. Miller, Gary
H
R-CA
$33,000

22. Pelosi, Nancy
H
D-CA
$32,750

23. Reynolds, Tom
H
R-NY
$32,700

24. Hoyer, Steny H
H
D-MD
$30,500

25. Hooley, Darlene
H
D-OR
$28,750

So the chairman of the Banking committee is the biggest recipient of money from two companies he is supposed to oversee.

I’m not surprised.

Nor am I. I am surprised to see Obama with less than two years service under his belt at number 2. I'd think McCain would hammer him for that.

I'm sure someone from McCain's staff will at some point. At least one would think so.

Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America.

http://www.fanniemae.com/aboutfm/index.jhtml;jsessionid=OVM0SLHY2IF3JJ2FECHSFGI?p=About+Fannie+Mae

They did this by working in the secondary mortgage markets where mortgage loans like you or I might hold were bought and sold. The point of this market is to keep the pot stirred: if a bank loan department becomes over-leveraged it cannot loan more money. It can only loan up to a certain percentage of its depositors’ funds. So if there was no secondary market the primary market could not support all the mortgage loans demanded particularly when our friends and neighbors don’t save any money. By selling their mortgage loans they start all over again with regard to the loan ceiling and the ratio to depositors. In classic supply and demand logic this keeps mortgage rates low because it is an artificial creator of money. Yes?

So this is a good thing? Using government resources to help the mortgage loan markets? What is the down side?

I have mixed feelings about this. For the purposes of discussion let’s keep this factual. It is neither, therefore, good nor bad. It is simply the way it is.

In 1968 to get the billions of dollars which passed back-and-forth through Fannie Mae’s books off the Federal budget it was privatized. That is, it was incorporated as a private entity but still guaranteed by the Federal Treasury.

Fannie Mae, like any corporation (good or evil) sought to grow itself. For nearly forty years it, together with relative Freddie Mac, remained the largest single entity in the secondary loan market.

In 1977 Congress passed the Community Reinvestment Act to guarantee that minorities and those in less than desirable neighborhoods were not left out of the American Dream of home ownership. The motive was noble enough but the effect was toxic. Toxic in that the bad loans were bundled with more conventional loans and re-sold. The buyers were cautious but, hey, Fannie Mae was guaranteed by the Fed. Right? What could go wrong?

http://www.federalreserve.gov/newsevents/testimony/braunstein20080417a.htm

Following the ascent of Franklin Raines to the CEO position in 1998 he started mis-stating the earnings in an effort to drive up not only his bonus plan but that of other members of the executive committee. It is estimated that of the $90 million Mr. Raines took home between 1998 and 2004, $52 million was due directly to his overstated earnings reports. Mr. Raines had ordered that every employee of Fannie Mae was to be concentrating primarily on growing the business. It was an atmosphere that was ripe for fraud.

Furthermore, as a private entity (never mind the public dimension) Fannie Mae became a major contributor to politicians. I have linked and cut-and-pasted the list elsewhere. Most of the recipients were members of either Senate or House Banking oversight committees. They were, in effect, paid to look the other way.

During an audit in 2005, the overstatement was revealed. Bush requested reform. Sen. Christopher Dodd and Cong. Barney Frank resisted or, worse, offered up proposals that were less than effective. In fact, Frank pushed for less oversight although he denies it now.

Sen. Biden has offered that the current crisis is the result of “tax cuts for the rich”. McCain and Obama have traded charges. McCain has blamed it on “Wall Street greed”. Well, to the extent that the Congress is part of Wall Street I’d have to agree. What’s more, Henry Paulson, a former Goldman Sachs corporate maven rejected meaningful reform as recently as last spring because it would be “too political”.

My thinking is that the crisis was caused by craven and greedy politicians. And nearly everybody currently on the scene bears some responsibility: Bush advocated reform, sure, but weakly. He had the responsibility to lead forcefully. He did not. Obama was the second largest recipient of Fannie Mae political contributions. Biden was just there. McCain almost alone was a strong advocate and voice for reform. I don’t think that is sufficient reason to support his candidacy. If I were he, I’d be touting it about right now instead of weakly pointing the finger toward Wall Street. And, yes, the failure of Fannie Mae and Freddie Mac is the catalyst that sparked this crisis. Enron was a $60 billion scandal. This one is already in the trillions. Where is the outrage?

And that outrage should lead to indictments, imho!!!

Yes, there have been crimes that merit punishment. For sure. At present nobody has the will to press the issue.

Because many of those that need to be punished are in seats of power.

I was listening to Rush on my way to get lunch and he aired a couple of new McCain ads and they hit Obama and this entire situation including using Raines as an advisor.

The more that comes out, the worse this is going to be for Obama.

I started to link to those earlier today but, I suspect that like you, I don't want to be a shill for McCain. I'd prefer that you make your own judgment vis-a-vis the presidential race. I'm just saying it was bipartisan political greed and neither party did enough to stop it. If you think I've taken sides and slanted the story - say so. This is the way I see it.

According to Bush, the perpetrators will be "caught and persecuted".

No shit, that is exactly what he said.