B.Y.: I think that Fannie Mae and Freddie Mac were also major factors. And I believe that many of the problems in the mortgage area can be attributed to the confluence of Democratic and Republican priorities: the Democrats' desire to give mortgages to people, particularly minorities, who could not afford them, and the Republicans' desire to achieve an "ownership society," in part by giving mortgages to people who could not afford them. Again, I believe that if you are suggesting that the financial crisis is a Republican creation, or even more specifically a McCain creation, I think you're on pretty shaky ground.
M.T.: Oh, come on. Tell me you're not ashamed to put this gigantic international financial Krakatoa at the feet of a bunch of poor black people who missed their mortgage payments. The CDS market, this market for credit default swaps that was created in 2000 by Phil Gramm's Commodities Future Modernization Act, this is now a $62 trillion market, up from $900 billion in 2000. That's like five times the size of the holdings in the NYSE. And it's all speculation by Wall Street traders. It's a classic bubble/Ponzi scheme. The effort of people like you to pin this whole thing on minorities, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable.
B.Y.: I was struck by the recent Senate testimony of James Lockhart, who is head of the Federal Housing Finance Agency, about the sheer recklessness of Fannie in recent years. Despite "repeated warnings about credit risk," Lockhart testified, Fannie became more reckless in 2006 and 2007 than they had been in the scandal-ridden tenure of Franklin Raines (who departed in 2004). In 2005, Lockhart said, 14 percent of Fannie's new business was in risky loans. In the first half of 2007, it was 33 percent. So something terribly wrong was going on there, and it became a significant part of the present problem.
M.T.: What a surprise that you mention Franklin Raines. Do you even know how a CDS works? Can you explain your conception of how these derivatives work? Because I get the feeling you don't understand. Or do you actually think that it was a few tiny homeowner defaults that sank gigantic companies like AIG and Lehman and Bear Stearns? Explain to me how these default swaps work, I'm interested to hear.
Because what we're talking about here is the difference between one homeowner defaulting and forty, four hundred, four thousand traders betting back and forth on the viability of his loan. Which do you think has a bigger effect on the economy?
B.Y.: Are you suggesting that critics of Fannie and Freddie are talking about the default of a single homeowner?
M.T.: No. That is what you call a figure of speech. I'm saying that you're talking about individual homeowners defaulting. But these massive companies aren't going under because of individual homeowner defaults. They're going under because of the myriad derivatives trades that go on in connection with each piece of debt, whether it be a homeowner loan or a corporate bond. I'm still waiting to hear what your idea is of how these trades work. I'm guessing you've never even heard of them.
I mean really. You honestly think a company like AIG tanks because a bunch of minorities couldn't pay off their mortgages?
B.Y.: When you refer to "Phil Gramm's Commodities Future Modernization Act," are you referring to S.3283, co-sponsored by Gramm, along with Senators Tom Harkin and Tim Johnson?
M.T.: In point of fact I'm talking about the 262-page amendment Gramm tacked on to that bill that deregulated the trade of credit default swaps.
Tick tick tick. Hilarious sitting here while you frantically search the Internet to learn about the cause of the financial crisis -- in the middle of a live chat interview.
B.Y.: Look, you can keep trying to make this a specifically partisan and specifically Gramm-McCain thing, but it simply isn't. We've gone on for fifteen minutes longer than scheduled, and that's enough. Thanks.
M.T.: Thanks. Note, folks, that the esteemed representative of the New Republic has no idea what the hell a credit default swap is. But he sure knows what a minority homeowner looks like.
B.Y.: It's National Review.
That will leave a mark. It takes great intellectual
cowardice, and frankly moral cowardice, to push the discredited
"Teh Blacks and Mexicans caused the economic crisis" theory. In that
sense, this was much deserved. The worst part is that York doesn't even defend
the theory--he just hopes we'll buy this package marked "Blame The Niggers and Spics." But he has no idea what's inside the box.
It's amazing to me that these guys continue this strategy, even as it's clear that the demographics aren't on their side--the country isn't getting any whiter. But that's small potatoes. The bigger question is philisophical. Where is the principle in this? What is "conservative" about this argument, except that it's just anti-government? Here is the conservativism that York is peddling--"personal responsibility" for Harlem and Washington Heights, but none for Wall Street and Midtown.
The Beautiful Struggle: A Father, Two Sons, and an Unlikely Road to Manhood 
as the head of household of a multiracial family composed of an anglo (me) and three "minorities" (my lovely,fabulous, brilliant, silly, breathtakingly beautiful black children), I have waited to even try to buy a house until I could find one where my mortgage/insurance/tax payment would be the same or less than my rent.
the citizenry is not stupid. AND, the shills trying to sell us something more than we want are/have been RELENTLESS.
there am plenty blame to go around, but to assume that us peeps out here can't plan a budget is just......well......
Bravo, this exchange is getting forwarded to everyone I know. To date, I've seen only one major paper (not to say there aren't more, I just haven't personally seen them) with the intellectual honesty to concede that subprime didn't cause this mess, it exposed it. Thank you Financial Times for having the cajones to say this mess was created by financiers speculating on debt and then leveraging it 30 times over to try and make money.
This world needs many more Matt Taibbis and many fewer Byron Yorks. Stat!
Is anyone else thoroughly enjoying the massive fail going on with the conservative pundits? I know I am.
It seems democrats have rediscovered that they are in fact vertebrates.
This is a beautiful thing. A beautiful, beautiful thing.
The problem with Taibbi is that he overlooks how many Democrats supported that legislation and breezes over the inconvenient truth that a Democratic President signed that bill into law. He is also guilty of blaming one thing when a whole mess of things caused this.
Another problem is that even liberals like Ezra Klein and Matt Yglesias said Taibbi had some of his facts wrong. But I imagine that doesn't matter to the majority of the people who read it.
I think Taibbi is underestimating, a bit, the significance of the ABSs in the financial collapse. It wasn't only the inability of counterparties to pay out swaps after defaults occurred that brought down all these companies. A lot of the damage was caused when the underlying assets stopped trading because of the high default rate and the plummeting value of the collateral.
I also think he's underestimating the role that the rating agencies played.
But yes, the purported government push to get poor minorities mortgages had little or nothing to do with the collapse. Mortgage originators were handing out subprime loans because they could sell them to investment banks, not because the government wanted them to help blacks get houses. Investment banks bought them because they could repackage them, tranche them and wrap them in CDSs and resell them. The whole rest of the financial system purchased them because the finished products were given high ratings by rating agencies.
I mean, Bear Stearns and AIG got caught up in the swap market. But Fannie and Freddie failed because of the RMBS market itself.
"The problem with Taibbi is that he overlooks how many Democrats supported that legislation and breezes over the inconvenient truth that a Democratic President signed that bill into law."
Because, if you'll recall, this 266-page amendment was snuck into the bill late at night just before the Christmas recess, and nobody actually bothered to read it or would have had the time to figure out what it meant if it did.
Your argument's like saying "the PATRIOT Act passed 99-1, everyone in Congress clearly approves of it!". That's bullshit and you know it. These people have been using these tactics to get their garbage passed for a long time now. Let's lay it at the feet of the real people responsible and not the ones who got duped.
In the process of trying to destroy liberalism, conservatives are polluting conservatism with bigotry and hatred. This is how conservatives choose to recruit voters...by turning them toward thugism and racism. This is what conservatives want for the future of their party.
No? Then they should stop peddling this B.S.
excellent talk, absolutely correct (darn right, you betcha) that low-middle income folks buying homes did not cause this crisis. They didn't use "Leverage" to ramp the risk up 30-50 times in the hopes of scoring a bigger profit than their neighbors. If they did, we would see footage of Joe the Plumber's lowliest employees living in $800k homes when they could only afford $40k, and their quick evictions after the fall. Phil Gramm fixed it so Margin Calls wouldn't get in the way of increasing precious leverage on CDS trades. After all, how can you pretend to have more than you do if someone keeps reminding you how much you've really bet?
So democrats were: a)Fooled into passing Gramm's bill b) fooled into passing NCLB, c) fooled into passing the Patriot Act (eventhough Biden bragged about how much of it was his doing) d) were fooled into Iraq e) fooled into Patriot Act II.
I no longer want to hear about how dumb Republicans are.
Even if I am to believe that the democrats in congress were as stupid and lazy as you lead me to believe, that leaves one problem: Bill Clinton. He signed it, and certain had time for his people to read it before his pen hit the paper.
So many great comments here that it makes me sheepish to ask, oh but I must ask, what does the title of this post mean? Matt Taibbi sons Byron York?
Maybe I've been spending too much time in Canada, but I honestly don't have a clue what it means.
I'm not going to pretend to know whose fault it is that the Commodities Futures Act got passed in 2000, and how much weight CDS's have compared to untrue credit ratings (Lehman was considered absolute tits as it was failing!) and other stuff, but you gotta love the end of that chat.
Taibbi makes the same mistake I'm sure many of us have over the years - one TNR vs. another TNR - and Byron has to cop to writing for the Pravda-aping, hack-festooned National Review.
I second Sheila on never having heard "to son" as a verb --although I get the idea. But if someone could spell it out I would be grateful.
Democrats have some blame too but nowhere near as much as Repubs do.
The real reason Fannie and Freddie kept pushing those loans to subprime people was that the financial wizards on Wall St convinced EVERYONE that they could virtually eliminate the risk by simply slicing and dicing these loans up into CDO's and CDO squareds etc. The lower tranches would assume all the risk but get paid for it while the upper ones would be safe. Everyone gobbled it up, thinking that we just invented the machine that would avoid "gravity" aka risk. Of course the reality was much different.
Lumping this on minorities is just mindless but always easy.
I took it as a usage of the word son, as in MT telling BY "Son, you have no idea what the F you are talking about"
Lets not completely absolve homeowners here, man got in over their heads and did not read the fine print. Being financially illiterate is not an excuse anymore, we need to start treating people who can't decipher a mortgage document or do their own taxes like people who dont graduate from high school. I'm sorry, it is not rocket science to figure this stuff out and understand the risks you are facing.
The problem with Taibbi is that he overlooks how many Democrats supported that legislation and breezes over the inconvenient truth that a Democratic President signed that bill into law.
I cannot imagine what makes you think that Taibbi "overlooks" anything of the sort. I suspect that he thinks it is irrelevant to a discussion of what caused this mess and in that he would be correct. Why do you think its relevant?
He is also guilty of blaming one thing when a whole mess of things caused this.
This is also an assertion with exactly zero evidence. His point was that York seems to have a very strong opinion about the crisis while not having an even basic awareness of one of its major cause. How you extrapolate from that to the notion that Taibbi thinks there is only one cause is a complete mystery to me.
Doug,
I don't particularly disagree--especially with the part about Clinton signing it. My specific beef is with the scapegoating of minority homeowners. I also agree with Jim. You shouldn't sign shit without knowing what it means, or without getting an uninterested party to translate for you. I just detest the idea that a critical mass--enough to bring down the economy--who didn't read were minorities.
Also, "son" is rap-speak roughly translated as "dis," though that doesn't quite get the essence. It's more like showing your complete superiority over someone else on something. "Schooled" is much better synonym--but I don't know if that's migrated far enough of of the hip-hop world to work as an effective translation.
@Jim: "we need to start treating people who can't decipher a mortgage document or do their own taxes like people who dont graduate from high school. I'm sorry, it is not rocket science to figure this stuff out and understand the risks you are facing."
Well, I agree in principle, but I still believe that when you want to identify the real culprit, all you need to do is follow the money.
Predatory lenders by definition lie and deceive. While the homeowners pays a BIG price for not scouring the fine print, the lender is still enjoying the bonus they received for deceiving them.
"The problem with Taibbi is that he overlooks how many Democrats supported that legislation and breezes over the inconvenient truth that a Democratic President signed that bill into law."
Its a bit too easy to try to paint Taibbi as a partisan hack, but that's really not the case. Sure he hates Republicans, but he really hates all members of Congress. I don't see how he overlooked "how many Democrats supported that legislation." He would be the first to point out the ineptitude of house Democrats. He was simply calling out the bullshit when he sees it. In this case, it was Byron York who clearly had no idea what they were talking about.
Another point here is that neither Fannie nor Freddie made those loans to folks who couldn't afford them, they purchased them after they'd been made.
There was a lot of unscrupulous lending done on the assumption that homes would increase in value and be refinanced before the bubble payments and interest rate jumps.
Fannie and Freddie were there to receive risky loans, not loans that were unscrupulous and should never have been made in the first place.
Being financially illiterate is not an excuse anymore, we need to start treating people who can't decipher a mortgage document or do their own taxes like people who dont graduate from high school. I'm sorry, it is not rocket science to figure this stuff out and understand the risks you are facing.
I think this is a tremendous oversimplification of the realities here. I agree that we shouldn't absolve people of their financial responsibilities because of ignorance but I am not even sure how we would even if we wanted to. I mean how is it exactly that we treat "people who don't graduate from high school" that is relevant to how we move forward on this issue?
As with many lower income and often less financially savvy individuals, they were taken advantage of by people who knew quite well that they were taking advantage. The people who took out these loans just like the people who take out payday loans will suffer the consequence of their ignorance. But we're past that now. The question going forward is how we adjust policy to deal with this imbalance. Educating consumers on financial risks is part of it but so is controlling predatory lending practices.
From the UrbanDictionary:
Son. Verb. Northeast slang shortened from "To make someone your son". To show someone up, to make them look stupid. To embarrass someone.
. My specific beef is with the scapegoating of minority homeowners.
I totally agree with you on that, it is unfair to blame minority homeowners, and it isn't factual that they caused the crisis. Also the increase in minority and overall homeownership was a bipartisan objective and one Bush and Clinton bragged about.
From what I have seen, a lot of defaults are by people understood what they were signing, they just didn't assume their houses would drop in value. Many were not unlike the people who would invest in stocks like dogfood.com under the assumption that there is a new paradigm out there and they are in on the ground floor.
The other thing about Taibbi that rubbed me wrong was how, in the beginning of the exchange, he was practically begging York to blame the media for McCain's demise. Yet to his displeasure, York didn't mention it. It was as if he had an agenda to be as big a dick as possible.
TNC gave a pretty good working definition of sons/sonned there. it may be derived from the classic old head rapper claim to have "fathered the style" of younger rappers. if not, there's still some related symbolism there. heh.
i defer to urbandictionary.com's excellent diagramming:
sonned
v. Past tense of 'son'.
1. What Can-I-Bus did to LL Cool J
2. What Nas did to Jay-Z
3. What 50 Cent did to Ja Rule
4. What Game turned right around and did to 50 Cent
[....]
See also: to son, son, schooled, owned, pwned, served, destroyed, defeated, smacked down, beat down, beat bad, b-boy, hip-hop, breakdancing, graff, graffiti, DJ, turntablism, battle, battle rap
1. Future tense: "I'm gonna son this kid really bad at the battle tonight."
2. Past tense: "Aha, that kid? Pssh. I totally sonned him the other day, and he still wants beef?"
3. Present tense: "We son kids all day long in my crew."
Matt Taibbi is unquestionably a dick. I like his writing, but I can't stand to see his face when he's on Bill Maher.
Like somebody said two weeks ago, do the math.
MT did. BY didn't.
Mr. Coates,
I'm a Bush-voting (twice), Wall Street subprime derivative trader, who's 90% likely to end up voting for Obama due to the competence gap (ie McCain just hasn't shown me any sign that he's equipped to be President).
The point I'd like to make about the current financial crisis is that there's no one cause, no one villain to blame. Over the past 3 yrs as we've seen this problem unfold, it's clear that this catastrophe has a thousand fathers. McCain's answer last night that it is all Fannie Mae/Freddie Mac was ludicrous.
So probably the CRA had a small role in the crisis; as did Fannie/Freddie profligacy; as did poor assumpmtions by rating agencies; as did overlow interest rates; as did spread-hungry investors; as did poor risk management at banks; as did reckless homebuyers; as did a culture that promoted houseflipping; etc., etc., etc. When you get a meltdown of this size, it truly takes a village.
Though we probably disagree on politics more often than not, your blog is always interesting and thought provoking. Keep it up.
Thanks. And you win comment of the day.
@Doug:
I hate to pile on, but without being familiar with Taibbi's work generally, I don't see any evidence that his argument in this chat was dems hands were clean.
He brings up the cds market in the context of whether it's fair to link this to McCain's policies. Since this was sponsored by Gramm, the main architect of McCain's economic thinking, represents Gramm's core deregulating impulse, and that core deregulating impulse is what McCain endorses and follows about Gramm's thinking in terms of economic policy, it is politically fair that McCain is taking a hit electorally on economic issues because of the financial crisis.
What you're arguing against is against an argument that the repubs were solely responsible, which is manifestly untrue of course. However, Taibbi never once said or implied that. In other words, you're arguing against a straw man.
I would second Mr. E., though I think, on balance, the CRA's faults were de minimis, and certainly pale in comparison to those of the rating agencies -- but the real culprits were the change in SEC rules allowing the assumption of much greater leverage in conjunction with the complete lack of regulation of the kinds of assets that were being leveraged. When the assets turned toxic there were not enough reserves for institutions like Lehman to cover.
I also want to point out that bond rating agencies used to be paid by people buying rather than selling bonds, and that the change created manifold problems, beginning with conflicts of interest, but also, the ability of bond sellers to shop agencies. Unless that changes (or is significantly regulated -- for instance, notifying purchasers that an agency that gave a different rating was ditched in favor of one that gave a superior rating), all of this is quite likely to happen again in some form or fashion.
Howling, when Taibbi blew off York's point about dems voting for the 2000 act, he did that to distance Democrats from their actions in pushing that legislation. He made it sound as if Gramm pulled some Jedi mind trick and got it by the Dems. I saw that has his way of absolving his side. Taibbi isn't interested in the facts or discussion, he starts from the assumption he is more correct and smarter than everyone else and selectively uses only information that fits into his agenda.
Here is another article explaining how tied into deregulation the Clinton admin was. Taibbi laid unregulated swaps at Gramm and Gramm only in his little spat
http://www.eurotrib.com/story/2008/10/16/71314/481
If it is fair to hit McCain about deregulation, then Obama is also at risk. When asked about good Republican ideas, he specifically mentioned deregulation.
Barbara,
Definitely the spreading of CDS contracts from corporate credit to subprime credit expanded the problem, in two ways:
1. In '05/'06, when investors were clambering for subprime paper and there literally wasn't enough bonds being printed to supply them, CDS allowed them to get into the game (ie put more people into a bad trade)
2. Financial players didn't consider the network effects that come from CDS counterparty risk; effects that could cause chain reactions of losses to spread through the market (see: AIG).
I do think that the CDS "problem" in some ways mirrors the subprime lending problem, in this sense: on an individual level, each might make sense; but done repeatedly and at such high volumes, they create systemic risks. A bank making one mortgage loan to one shaky subprime borrower's not a big deal; every bank making thousands of these to every Tom, Dick and Harry is. But that's a topic for the PhD theses of the next decade I think.
...
As for the Rating Agencies, perhaps I'm naive, but I think the conflict of interest aspect contributed maybe 25% tops to their mis-ratings, the other 75% being poor assumptions/lack of historical data. That is, maybe in some cases banks pressured them to give AAA ratings to bonds with only 18% credit enhancement where their models said 20%; but the problem is that the losses are going to be 70%, so the bond would have been toasted either way. The models just didn't take into account how the '03-'07 lending craziness differed from past situations.
HowlingFantods, please go back and closely read the dialogue. Tabbai is not making an argument that Democrats are blameless or that Fannie and Freddie were not (like most of the financial industry) recklessly managed. He is just ridiculing Bryon York's and the "Movement Conservative" meme that the meltdown was all the fault of shiftless Black and Brown people by showing that BY has no idea what he is talking about. Of course the Clinton Democrats and Congressional Democrats accepted the "zeitgeist" of recent era that "regulation bad, deregulation good" and were influenced by the blandishments of lobbyists and constituents. (The biggest employer in Biden's state was MBNA (now owned like so much else, by Bank of America), Chris Dodd's state is the headquarters of many hedge funds.) But this has been a Conservative/Republican era. They have always been eager to claim all economic good to have been the result of their polices. This meme is just a way to escape accountability, and particularly nasty, vicious one while we are at it.
to 'son' someone is akin to 'schooling' somebody, or 'owning' somebody- it basically means 'decisive victory'
My point was simply that "CRA" is not synonymous with "subprime lending," and I bristle when it is assumed, for instance that anything close to a critical mass of subprime loans were provided by institutions subject to the CRA to begin with, to minority homeowners, and that minority homeowners were, in particular, more likely to default.
When confronted with actual facts (i.e., subprime loans financing expensive homes in expensive neighborhoods that aren't exactly the subject of the CRA, by institutions that were not subject to the CRA, in states with low minority population), the response is often, "well, the CRA set the trend in motion." It's another version of "Well, there goes the neighborhood as soon as a single black family moves in."
That's where I'm coming from.
What you say about the agencies is true, except that you probably discount how pervasive a conflict of interest can be. For instance, the buyer might have insisted on a greater number of the underlying mortgages being examined, which would have led to more accurate ratings. And a buyer might have had greater awareness of the uncertainty involved, which also might have led to lower ratings, and so on.
I think that both sides are oversimplifying the argument, but McCain trying to pin the blame on Fannie and Freddie is complete BS. As Mr. E pointed out, there were numerous factors that contributed to this collapse and anybody saying otherwise either a) doesn't know what they are talking about; or b) pandering for political points.
I'm a partisan--totally in the tank for Obama. But, while I give him two points for writing Paulson that stern letter about the subprime mortgage crisis, its kind of like, ok, then what? Why wasn't more action taken. Why didn't you craft a bill (maybe he did--anybody know). I want more than talk, I want action. But on the flip side of that, McCain not only sat on the side lines too (he wrote a stern letter, and jumped on a bill in 2006), Phil Gramm was/is his economic adviser and was the chief architect for deregulation. So what frustrates me about McCain is that a couple of months ago, he was spitting conservative talking points about free market good, regulation bad, but now that everything has gone to hell, he has had a born again political conversion.
Give me a break. Both sides are culpable. Gramm drafted the legislation in the dead of night, for whatever reason, people didn't read the bill, and Pres. Clinton signed off on it.
Even without the Fannie and Freddie blame game (which has an extra homophobic aspect to it: the meltdown was Barney Frank's fault), the whole conservative line blaming the victim of this ponzi scheme, which after all was the sole basis of the Bush economic recovery (after the foreshadowy depression like loss of jobs during his first 4), is trademark conservative class warfare. The people who lost their homes or are struggling mightily to keep up with mortgage payments that ought insure Shaquille O'Neill sized mansions are the ones even Andrew Sullivan is willing to blame, rather than the ones running the con enabled by deRegunomics. They have to do this--it's the Cadillac Welfare Queen all over again--to justify spreading the wealth up and away from 98% of the population under the con of tax breaks and deregulation to promote business.
I'm a Bush-voting (twice), Wall Street subprime derivative trader, who's 90% likely to end up voting for Obama due to the competence gap (ie McCain just hasn't shown me any sign that he's equipped to be President).
The same gap was apparent to anyone remotely reality-based in 2000 and most certainly 2004 (after 9-11, Iraq Invasion, etc.). Bush is Sarah Palin born into American royalty. Go back and watch debates from those years if you don't believe me. Now that circumstances are dire, people want to vote for the competent guy instead of the cool rich kid who throws the best pool parties. If the manifestly more competent guy had been allowed to win (or whatever) in 2000, things wouldn't be nearly as dire as they are right now. Please remember this when things get better and there's another election. Tell your friends; it's important. Thanks in advance.
thanks Coates. will spread the word on this.
Saw Roubini on CSPAN on Saturday morning. He pointed out that the vast majority of Fannie/Freddie loans were NOT subprime. (I think the figure was less than 30% were subprime.) In any case, Taibbi is absolutely right and Byron Yorke's hair is fabulous.
I got to "son" my own right wing dad on this one this weekend. He called up to "blah blah Fred Raines, Fannie Mae this ... minorities that" and (like dads since the beginning of time) assuming I wouldn't know enough to counter him.
Little did he know I have been reading up on this obsessively since the spring and got the distinct pleasure of taking him to school on the CDS market.
It takes great intellectual cowardice, and frankly moral cowardice, to push the discredited "Teh Blacks and Mexicans caused the economic crisis" theory.
But he didn't. He says that Fannie and Freddie's reckless lending, and not particularly even to minorities, was a 'significant part of the present problem,' and that some of the problems could be attributed to the confluence of Dem and Rep priorities, which includes lending to people, including minorities, who couldn't afford their loans. That's a really far cry from "Teh Blacks and Mexicans caused the economic crisis." It's more like, they played a five percent role.
Asher,
He said "particularly minorities." He didn't say "including minorities." But you already knew that, right?
So, almost nothing Taibbi says makes sense. First, Im pretty sure fannie and freddie didnt speculate in the CDS market, they sold MDS insurance, and they blew up precisely b/c people arent paying back their mortages. Second, with US housing stock down over $1T it is kinda plausible that if AIG sold a lot of synthetic puts on the market they blew up for that reason. Third, its really stupid to quote the CDS market in notional value since most of those contracts will expire without requiring payout. Fourth, of course the CDS market has grown its a relatively new product. Fifth, he pretends like if there werent speculators buying CDS on MBS exposed assets, then AIG wouldnt have lost money, but its more likely that those spreads would have been bought by investors covering the extra MBS assets they were purchasing, which means more ill advised investments in housing. Finally CDS trades in no way resemble a ponzi scheme, and are only responsible for the bubble only in the same way the existence of stocks is responsible for the DotCom bubble.
The only place i think taibbi is right is where he says this byron guy should be ashamed of himself. York clearly looks to be picking the easiest "team blue" constituency to scapegoat and blaming them.... but thats exactly what taibbi is doing with his "greedy traders" routine. It takes a pretty strong lack of perspective to miss the fact that Taibbi is doing the same thing York is... flailing for a plausible scapegoat that votes for the other side.
The biggest thing to take away from this exchange is this: It is a complete waste of time listening to political commentators on the financial crisis. It is obvious that neither york or taibbi has a clue what they're talking about.
That said I think the treatment of york's argument is unfair. He describes fannie and freddie as 'major factors' and not the lone causal agents, and his argument blames government for its alleged role in diminishing underwriting standards, not blacks and mexicans. Now, I don't know why he thinks this, possibly he does just want a rationalisation so as to pin it it on minorities, or perhaps he heard the argument and found it persuasive. I think he deserves the benefit of the doubt.
From where I sit in the land of whitey, "schooled" has migrated far further into this land than "son" has, but keep using "son" because this is how we learn!
You do know Asher, don't you, that Fannie and Freddie don't actually write any loans at all. They buy them on the secondary market, and their share of that market declined substantially between 2000 and 2007. Details, details.
I have been humbly sonned.
As usual it is the left that injects race into the discussion while completely igonoring its own executive influence on the bill in question.
It is undeniable that a Democrat president signed off on the bill. To lay the blame at the feet of the Republican party and only there is more than just irresponsible, it is disingenuous but again that is extremely typical of the left.
As to the race issue, who in the world ever blamed the subprime crisis on minorities?! It certainly wasn't anyone I know on the right. While many minorities were recipients of these loans, so too were thousands of whites. Furthermore, the crisis simply does not revolve around subprime loans to lower class minorities. Rather it is the resulting overspending of middle and upper class whites who were able to purchase far more home than they could afford when money was 'cheap' on the market and they stupidly agreed to ARM loans. So no the right isn't blaming minorities for the mortgage mess. Instead it is stating factually that many Americans foolishly agreed to loan terms that were extremely shortsighted and self-defeating that led to an enormous part of this economic collapse. It is you 'enlightened' leftists that oversimplified the discussion at hand and threw in wonderful phrases like 'nigs and spics' in a cheap, tawdry attempt to disparage your philosophical opponents. And as usual it is the left that encourages and inflames racial divisiveness as a means to a political end. Frankly if you had any integrity whatsoever you would be ashamed.
M.T. also ignores the fact that the Democrats opposed Republican efforts to regulate the industry in 2005 to prevent the credit agencies over extending on sub-prime mortages.
Why did the Democract oppose it? They thought it would prevent low-income and minorities from getting mortgages.
On a side note, I like how it's the conservative war against liberals that turn people to hate and racism...but just look at this article. B.Y. is calm and respectful while M.T. is snide, arrogant and insulting. Which group are the tolerant ones again?
There's plenty of blame to go around for everyone on this issue. It's not partisan, it's the end result of our degraded political system.
I'm more apt to blame the CRA and unqualified borrowers than the excesses of the CDS traders, because I can understand the former, but not the latter. I can put a human face on the guy with bad credit who nevertheless can find a mortgage lender. Who the heck can visualize Credit Default Swaps?
I'm not a fool (I'm an investor, and I majored in Economics) but I'm sure Taibbi could make me look like a fool in a debate about derivatives. I'll bet he could make you look like a fool, too. I can understand what that guy York is saying, so I'm inclined to go with him.