China says" the good old days are over" for the U.S..

[Ceka Cianci]

I'm curious..now that  S&P has dropped the credit rating from triple-A to Double-A

where do you think we will be in a year ....with our second life?

I guess this could be considered an "after" thread to the "before" thread of the debt ceiling being raised..

now that it has been raised and it seems to have not achieved to save it's credit rating..

how will this touch our second lives?

now that we lost one of the biggest safety nets we had..

here is one of the articles i was reading thismorning..

please share your thoughts and ideas.thank you =)

China tells U.S. "good old days" of borrowing are over

[Pamela Galli]

Unless LL suddenly goes under, I think SL will still be doing well -- in hard times, people want an escape, and SL is a great escape.  (There is a thread in the Merchant forum asking how this will affect business in SL.)

[WADE1 Jya]

If what I've read is correct, then the trend follows that whenever things get really bad, people start spending higher amounts of cash than normal on cheap & fun escapist entertainment. SL might be that sweet escape which everyone will be looking for when real life just gets too pricy to do anything. So Second Life may actually thrive in harsh economic times.

Unless it gets so extremely bad as breadlines.... then everyone who isn't already a multi-millionaire today will be practically dying -- of course there would be not much internet for home anymore, especially data-heavy streaming apps like SL! It all could become too big a luxury for many who need that cash for basics like food, gas & electricity. Much of Silicon Valley (the big guys included... not just Linden Lab) could get wiped out if we went into a severe Depression.

If you depend at all on income from internet business (or SL), it is smart to diversify & back this up with a localized income-earner that doesn't require global connectivity, or digital era technology... just in case **** really hits the fan.

[York Jessop]

I saw something similair happen in 2008/09, there were alot of restaurants complaining of lower takings yet take aways were booming, its says one very clear thing, people will always want to treat themselves, if they can find a cheaper way of doing that they will, SL is good because as entertainment costs go it beats the socks off a pizza, you can get weeks of enjoyment for a £10 in SL but only 30mins from a pizza IRL.

SL will be just fine

[Elle Benusconi]

I have to agree with the premise that this won't really effect SL all that much.  It should remain an affordable form of entertainment unless the government decides to  taxes to the internet and on-line entertainment activities further.

What surprises me is that with US GDP for the first two quarters averaging less than 1%, unemployment still above 9% and the ratio of debt to GDP at around 100%, anyone would be surprised at the downgrade.   I'm also surprised that S & P was the only one to do a downgrade.

I hope this means that no one will lend the US anymore money.    Maybe that will finally mean that the government will be forced to cut spending and, get rid of some of the new regulations put in place by the Obama administration that is stifling economic growth.

As far as China goes, they should be careful what they say.  One sure way to raise revenue would be to add a 75% tariff to everything imported into the US form China.  The trade balance between the US and China is so heavily skewed it wouldn't effect the US anywhere near as negatively as it would China.

Even with the downgrade, I doubt it will really hurt the sale of US T-Bills.   They are still more stable than anything else available.

[Ceka Cianci]

---

Elle Benusconi wrote:

I have to agree with the premise that this won't really effect SL all that much.  It should remain an affordable form of entertainment unless the government decides to  taxes to the internet and on-line entertainment activities further.

What surprises me is that with US GDP for the first two quarters averaging less than 1%, unemployment still above 9% and the ratio of debt to GDP at around 100%, anyone would be surprised at the downgrade.   I'm also surprised that S & P was the only one to do a downgrade.

I hope this means that no one will lend the US anymore money.    Maybe that will finally mean that the government will be forced to cut spending and, get rid of some of the new regulations put in place by the Obama administration that is stifling economic growth.

As far as China goes, they should be careful what they say.  One sure way to raise revenue would be to add a 75% tariff to everything imported into the US form China.  The trade balance between the US and China is so heavily skewed it wouldn't effect the US anywhere near as negatively as it would China.

Even with the downgrade, I doubt it will really hurt the sale of US T-Bills.   They are still more stable than anything else available.

---

thats what i am hoping for as well with the credit rating drop..it forces them to cut instead of borrow..

one thing i noticed through this whole thing and it seems that the world looking in noticed as well is this..both parties took up to the last two hours before they had finally agree'd..

so bent on their political stance instead of realizing ..hey everyone is watching and guess what you live here too..get the trivial crap out of the way..your country needs you..

they showed the world how rusted our wheels are in the clutch.. that lost a lot of faith in lenders..it's  for the best if it gets spending down to need rather than want..

this thread was a little about sl..a lot about how embarrassing it feels that the biased showed up so much in a major alarming decision..

so what is going to happen anyways?? a lot of what a lot of us were saying they needed to do instead of this debit ceiling increase..real cuts..

cut  out  spending from areas that we really do not need..put money back into the hands of the people that can generate livings so we can get unemployment back down..

there are too many ghost stripmalls and empty manufactoring plants and towns with no economies..

get back to where our dollar is backed by our earning and not our spending..get back to where we can make our own things..things that last more than five years..this whole thing with selling us crap that last only so long so we end up spending..it's for the birds..i'm tired of overpaying for crap that has a 1 year warranty and craps out the month after it expires..

sorry..it was just embarrassing..in just about ever article about this..they never fail to mention that both parties just couldn't work together..

i have to agree..because even after meeting the dealine they still looked like a divorced couple fighting over the kids..

 

ETA: Someone mentioned the last time they saw something  like this was back in 2008..

the last time the market was down 650+ points was back in 2008..lets hope it was just a big burp and not something that is gonna last..

[Pussycat Catnap]

Tea Party wingnuts and libertarians need to be strung up on ropes for bringing us to this state. Couple with all the Republican tax breaks for the wealthy elites during two wars, insane degrees of outsourcing, funneling cash and development into Red China, and every possible means used to avoid funding anything that would grow jobs in a recession.

They've brought down the age of the US in an intentional drive to eliminate the middle class. And we could say that wasn't too bad for the world at large, if there was a free country out there to take our place - but we're handing over to the Reds - who've become more capitalist than us while retaining all of the tyranny of an oligarchy.

Will it hurt SL? The real question is in the chaos that could come, will we care?

We don't need to cut vital social programs that uphold the stability of the middle class - we to cut defense, and raise revenue to -at least- classic Republican ideals as seen un Reagan.

 

[Venus Petrov]

It is embarassing to see our S&P rating go from AAA to AA+ (mind you, they were the same ones who rated the mortgage-backed securities so highly, too, and we know how reliable that was) and it was frustrating to watch the posturing and games our elected representatives played in the weeks leading up to (finally) raising the debt ceiling.

The 'job creators' have had their tax rates kept low since they were enacted under Bush however unemployment is still unacceptably high.  One must ask, why?

The stimulus package was too little.  The focus on job creation wavered again and again.

I see a double-dip in our future.

Impact on SL?  Wait and see.

[Pussycat Catnap]

---

Venus Petrov wrote:

The 'job creators' have had their tax rates kept low since they were enacted under Bush however unemployment is still unacceptably high.  One must ask, why?

The stimulus package was too little.  The focus on job creation wavered again and again.

---

That;s cause the real job creators are the poor. Look at micro-loans - its been creating little economic revolutions all over the world.

Wealthy people get there by exploiting others - give them more money and expect them to suddenly have a change of heart? Not likely.

 

[Peggy Paperdoll]

Everyone keeps comparing the stock market drop earlier this week to the drop on October 15, 2008 and using that date as some benchmark of the worse drop in recent history.  That is more than just a little misleading..........it's "talking points" issued by politicos to tell you just how bad things are.  Comparing raw numbers says nothing about reality.  You have to use percentages to get a remotely accurate picture. The worse single day stock market drop in recent history was October 19, 1987.  That was the year Bush 1 reneged on the famous "read my lips, no new taxes" promise.  It, too, was in response to the lack of spending cuts and deficit spending.........just like today's problem. 

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

October 29, 1029 was the start of the Great Depression..........it was a 12.82% drop.  October 15, 2008 was a 7.87% drop.  And October 19, 1987 was a 22.61% drop.  So, are we in for some bad days ahead?  I say yes..........and it won't turn around again until this government gets its collective head out of its rectum.  Spending cuts by the government, lowering the tax burden across the board, halving the Capital Gains tax, and rewarding success instead of taxing it.  That's the only proven way out of a recession (which, in this case, is more accurately defined and a depression).  Government spending has failed every time in the past.........it won't succeed this time either.  Regime change is in order............next year we, as voters, have the opportunity to complete what we started last year.  There are many politicians in both the states and federal government who need to go find another job...........one I don't have to pay them for with my taxes.

[Void Singer]

totally predictable move on China's part... a global reserve currency now would put them a step higher up the financial food chain, but if the US rating improved bfore it took effect they'd lose that advantage.

[Ceka Cianci]

i guess i am just getting fed up with any of it..what little news i do force myself to see nowdays just turns my stomach..

because we lay down and take it..

i'm so tired of corporations and the congress that backs them up and bails them out and plays pawns on their chessboard..

reagan bush clinton bush jr obama..

not a one is any better than the next..they are all poiticians and woudl cut mine or your throats to stay where they are at..just as easily as ordering a pizza..

i am sick of parties and the bull that comes with them..

i'm tired of 3.80 for a gallon of gas and 6.00 for a gallon of Orange juice and not seeing  a company able to give a pay increase because they are just shy of making the corp cut to get their backing from their invested congressmen who own stocks in the corps...

i guess this last thing with them having to try to come up with a solution was the straw that finally broke my camels back..

they'll get their cut out of me that i am sposed to pay..but not one cent more..

i'm gonna vote  by how they handled themselves from this one situation on out..anything they did in the past..it won't be good enough..it's gonna be the "what have you done for me lately"  stance..their past is wiped of any good..

because they are politicians..i think i'm just gonna treat them for what they are..out with the old liar in with some new fresh ones..just B'cause..maybe i'll just start voting the independant party..because i'm tired of going for the lessor of two evils..

i don't care what impact it has anymore on the outcome..because it won't matter anyways..both sides are after the same kind of thing..us in the poor house either broke or needing them..they can piss off..i'll eat leaves before i need them that much..

i am so ready to just jump on my horse and head into the mountains and never come down..i am getting so tired of congress and the government treating us like we are stupid..

[Ceka Cianci]

---

Peggy Paperdoll wrote:

Everyone keeps comparing the stock market drop earlier this week to the drop on October 15, 2008 and using that date as some benchmark of the worse drop in recent history.  That is more than just a little misleading..........it's "talking points" issued by politicos to tell you just how bad things are.  Comparing raw numbers says nothing about reality.  You have to use percentages to get a remotely accurate picture. The worse single day stock market drop in recent history was October 19, 1987.  That was the year Bush 1 reneged on the famous "read my lips, no new taxes" promise.  It, too, was in response to the lack of spending cuts and deficit spending.........just like today's problem. 

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

October 29, 1029 was the start of the Great Depression..........it was a 12.82% drop.  October 15, 2008 was a 7.87% drop.  And October 19, 1987 was a 22.61% drop.  So, are we in for some bad days ahead?  I say yes..........and it won't turn around again until this government gets its collective head out of its rectum.  Spending cuts by the government, lowering the tax burden across the board, halving the Capital Gains tax, and rewarding success instead of taxing it.  That's the only proven way out of a recession (which, in this case, is more accurately defined and a depression).  Government spending has failed every time in the past.........it won't succeed this time either.  Regime change is in order............next year we, as voters, have the opportunity to complete what we started last year.  There are many politicians in both the states and federal government who need to go find another job...........one I don't have to pay them for with my taxes.

---

i wasn't comparing them to each other in that sense..i was just saying it was the last time it happened..it may have not been for the same reasons..but it's the last time it happened..

thats all..thats why i said i hope it's just a burp..

[Venus Petrov]

One thing I found shocking given all of the lip service to 'jobs, jobs, jobs' was the way congress vacated D.C. leaving 74K or so people without incomes for nearly two months.  And, even with the quickie approval (and beg those that slipped into other jobs to return ASAP), we get to live it all over again next month.

 

[Ceka Cianci]

did i ever mention the 5 lane highway that the federal government is building on both main entrances to our town that has onyl 25,000 people living in it?

all fed funded ..all the people on that road forced to move at the rate the fed decided to pay for their land..houses that had been there for 70 years..

oh and i almost forgot the telephone polls they put in before the road work started..yup they put them in the wrong place..so the really nice rich government is repaying them tpo pull out the ones that were in the wrong spot and paying them to put brand new polls in the right spots..

we have a super walmart..do you think maybe thats why we are getting this 5 lanes into our town?

because it's so super?

the town is nothing but road construction that we never needed.. about the only real use we will get out of a 5 lane highway is that we won't have to ride behind tractors pulling hay back to the barns in hay season lol

meanwhile the 5 schools this highway goes past..they are in the red..i just don't understand the logic sometimes i guess..

 

[Melita Magic]

Good old days can never be over because they are in the past. That's what makes them seem like the good old days.

Obviously the entire world's economy is changing. We might all who grew up knowing any type of prosperity have to tighten our belts the rest of our lives. It won't be comfortable or comforting. Those who grew up not expecting the excess of the '80s might adapt better.

Sometimes hard times equal great times of creativity and innovation because a cushy cage is not what any creative person needs.

[Celestiall Nightfire]

---

Pussycat Catnap wrote:

Tea Party wingnuts and libertarians need to be strung up on ropes for bringing us to this state.

 

---

 

Ahh, yes...nothing like violent, prejuidce comments toward other people,  *that* always helps. 

 

---

Pussycat Catnap wrote:

They've brought down the age of the US in an

intentional drive to eliminate

the middle class.

---

  Wow, you sure do have a huge chip on your shoulder to constantly be tearing down a whole bunch of folks that you don't even know. 

 

So, how's that Christain-love-toward-your-fellow-man thing working out for you?    Because, you seem a little confused on the concept.   (not to mention others... ; )

 

 

 

[Void Singer]

---

Ceka Cianci wrote:

did i ever mention the 5 lane highway that the federal government is building on both main entrances to our town that has onyl 25,000 people living in it?

all fed funded ..all the people on that road forced to move at the rate the fed decided to pay for their land..houses that had been there for 70 years.. [...]

---

It might horrify you to know that while the federal government is funding it, it's actually state and county DOT that's responsible for deciding where and what to build.... federal funding for road projects is like allowance given to children... and the children believe that if they don't spend on SOMETHING, they won't get any more to spend later (and they're half right sadly)

[Melita Magic]

My guess? Something big is going to be built nearby, soon. 

Maybe some oil has been found.

[Peggy Paperdoll]

The problem with that is that creative people are notoriously known as "starving artists".  I don't think any moderately intelligent person in this country expects a "cushy job" without working their butt off to get that job.........what they do expect is an opportunity to get that "cushy job".  That is what this country was founded upon.  Now we have an administration and half of the Congress trying to tell us what we will get out of life........and whatever it is that we get out of life is what they decide we should get.  And rest assured their choice for us will be what is best for them (not us).  That's the way dictators operate.  We have  a problem in this country and I'm afraid we only have one more chance of fixing it.

[Melita Magic]

I can't argue with any of that.

But I still think that when people stand to lose what they have is when they get the most innovative and active in order to keep it. Or, those who know what freedom is like are the most apt to fight for it. 

We get what we accept.

[Ceka Cianci]

---

Void Singer wrote:

---

Ceka Cianci wrote:

did i ever mention the 5 lane highway that the federal government is building on both main entrances to our town that has onyl 25,000 people living in it?

all fed funded ..all the people on that road forced to move at the rate the fed decided to pay for their land..houses that had been there for 70 years.. [...]

---

It might horrify you to know that while the federal government is funding it, it's actually state and county DOT that's responsible for deciding where and what to build.... federal funding for road projects is like allowance given to children... and the children believe that if they don't spend on SOMETHING, they won't get any more to spend later (and they're half right sadly)

---

oh ya ..the town is loving it..the only reason they are getting them is because there is an interstate so many miles away from the town..

the commerce commity which is pretty much the ones that call the shots for the whole town it seems..they are eating it up..

they want all kinds of things built to attract corps..we now have two industrial parks ..the only thing missing is the industry..and the houses that used to be on the roads ..

the home owners outside of town are the ones taking the hit for all these things that are so great for the town..

oh and our landfill that was sposed to be closed down to only our county..it's still taking trash from all around..we catch sewage trucks going in and out of there at ngiht all the time..

it was voted out..but yet they still let them in..

small town government is just as terrible as the nations..

the world is messed up lol

 

[Celestiall Nightfire]

---

Pussycat Catnap wrote:

That;s cause the real job creators are the poor.

---

How many poor people do you know that hire others?  How many poor people do you know that employee others?

 

---

Pussycat Catnap wrote:

 

Wealthy people get there by exploiting others -

 

---

Seriously, laughing out loud here Pussycat.      So, President Obma and his wife are considered wealthy.   Hmm, I wonder who did they exploit?

Oprah Winfrey is wealthy...who did she exploit?  

Here's a list of the wealthiest black Americans:  http://www.forbes.com/2009/05/06/richest-black-Americans-business-billionaires-richest-black-americans.html

Who'd they exploit?

Here's a list of Black Billionaires :  http://en.wikipedia.org/wiki/Black_billionaires

Who'd they exploit? 

What about all the rich Asians, Hispanics, etc?  They *all* exploit others to gain wealth?

Or is is just wealthy Caucasian folks (Republican perhaps?)  that exploit others?   ; )

Also, Pussycat...if tomorrow you were wealthy...I guess that would instantly make you one of the exploiters of the poor. 

Since, by your logic, all that it takes to be seen as a bad exploiter of the poor...is to have money.  Never mind that someone might have worked for that money...or taken years to acquire it through investments and product creation and marketing. 

 

 

 

[Peggy Paperdoll]

A response from Standard and Poor's that hasn't been reported anywhere but FOX News (yeah, that hated cable news network.........I'm also a Tea Party supporter so sue me  :matte-motes-big-grin: )

------------------------------------------------------------------------------------------------------------------

A top official at
Standard & Poor's pushed back Saturday against the Obama administration's
criticism that their decision to downgrade the nation's credit rating was based on "flawed"
math.

The administration had
tried to prevent the downgrade announced late Friday by telling S&P that the
agency had made a $2 trillion error in its calculations about the federal
budget.

But John Chambers,
managing director and chairman of S&P's sovereign ratings committee,
explained to Fox News on Saturday that the downgrade was "motivated by a number
of factors."

"One
was the political gridlock in Washington, which make us think that it's going to
be difficult for elected officials to put the fiscal profile of the U.S.
government on a long-term sustainable path," he said.

"And part of it was
because of the fiscal path itself," he said, explaining that U.S. debt accounts
for 75 percent of gross domestic product and will "trend up over the next decade
unless we get additional fiscal measures than what we have on the table right
now."

 

The agency was also
worried that the eleventh-hour budget deal reached last weekend fell short of
S&P's expectations, he said. S&P was seeking $4 trillion in budget cuts
over the next decade. But Congress passed a plan on Tuesday that slashes up to
$2.4 trillion in cuts over that time.

"If you get to the $4
trillion figure -- which had been mentioned by the Bowles-Simpson commission,
which had been mentioned by the president in his April 13 speech, which had been
mentioned by Paul Ryan in his alternative budget -- that, if you have decent
growth behind it,would have done the trick," Chambers said.

Some Democratic lawmakers
reacted to the downgrade by attacking S&P's credibility.

"I find it interesting to
see S&P so vigilant now in downgrading the U.S. credit rating," said Sen.
Bernie Sander, a Vermont independent who votes with Democrats.

"Where were they four
years ago when they, and other credit rating agencies, helped cause this
horrendous recession by providing AAA ratings to worthless subprime mortgage
securities on behalf of Wall Street investment firms?" he said. "Where were they
last December when Congress and the White House drove up the national debt by
$700 billion by extending Bush's tax breaks for the rich?"

Massachusetts Rep. Barney
Frank, the top Democrat on the House Financial Services Committee, said that the
rating agencies have a horrible record and people should pay no attention to
them.

But Chambers said the
agency's record speaks for itself.

"Standard & Poor's,
if you count its predecessor companies, has been ratings bonds since the 1920s.
We have a long track record of over 100 years," he said, adding that none of the
sovereign bonds that have received one of the top ratings in the U.S. since 1975
have defaulted.

 

S&P is the only one
of the world's three major credit rating agencies to downgrade U.S. debt. But
Moody's and Fitch have issued warnings of possible downgrades.

The White House said
Saturday that President Obama in the coming weeks will "strongly encourage"
members of Congress to "put our common commitment to a stronger recovery and a
sounder long-term fiscal path above our political and ideological
differences."

Chambers warned that the
agency could downgrade U.S. debt a notch lower in the next six to 24 months if
Congress doesn't cut another $1.6 trillion over 10 years to reach the $4
trillion figure.

The probability of
another downgrade is 3-1 odds, he said.

Asked whether the U.S.
can regain its triple-A rating, Chambers said the five governments that did
achieved it in nine to 18 years.

--------------------------------------------------------------------------------------------

The Administration is still trying to tell the world that everything is hunky dory.  The Administration is still persuing a failed policy (at least 10 times in history this "spend you way out of debt" has failed).  Trying to tell experts in the field that their math is flawed.  I'm being kind when I say "morons".  I think they are trying to play the world for fools...........what's more they think they are on solid footing.  People like Barney Frank............that idiot who defended the subprime loans and said it was good financial policy to loan money to people who did not meet the credit rating for the loans they were applying for (saying that everyone has a right to own a home.  Wrong, Barney........everyone has a right to the opportunity to own their own home.  There's a huge difference).  Barney Frank and Christofer Dodd were heads of the oversight for finacial institutions and both pressured those institutions to loand the money to people who could not afford the payments...............they guaranteed those loans through Fanny Mae and Freddy Mac.  Tax payers had to bail out both Freddy Mac and Fanny Mae, along with with Lehman Brothers and a number of banks, including Bank of America.  It wasn't only the financial institutions that brought this on.........contrary to what the Administration and our friends like Barney Frank want you to believe.  They were buying votes for years and tax payers paid the bill with the bail outs.  Now we are going to pay the bill for years to come with the continuing debt we are incurring.

 

Here's the source for my quote above:

 

http://www.foxnews.com/politics/2011/08/06/credit-ratings-agency-defends-downgrade-us-debt/



[Ceka Cianci]

from my understanding..a lot of where we are at right now started in the clinton administration..he was the one that signed off on nafta..

the housing boom was nothing more than houses being bought up..there wouldn't have been such a boom if lenders were not giving out loans to low income families..were they pressured into giving out loans to low income families?

thats my big question..

so low income families are getting loans and jobs are leaving the country..housing boom and income leaving the country..i mean the next guy in line should have caught that i would think..someone should have seen it comng..or was it too late for the next guy to slow down or stop the wheels that were in motion??

in my eyes

Bush instead of riding that train should have found a way in his two terms to put the breaks on ..the way i see it..we were heading for some kind of  train/housing crash nomatter who would have taken up office next..add in those banks gambling with mortgages..bleh..

i don't back any party  myself..i'm more interested in time lines than what party is to blame.the truth as to why we are where we are .the way i see it ..both are to blame and some people should be in prson right now instead of getting bonuses or keeping their jobs..

i looked up the quote about "everyone should own a home"..because i thought it was bill clinton that said it..he may have at one point..i don't remember really lol..then i found this article which was interesting to read..

i'm curious how much truth is in this article..because if it is true that pressure was put on banks to give low income families or people that were high risk loans..atleast there can be some sort of closure on where a lot of the stuff is born that hits the fan later..

 

By William B. Conerly, Ph.D.

Did lack of regulation create the subprime mortgage crisis? I am asked this all the time. The short answer: Of course not. Nowhere close. Not a chance. Here is the long answer.

What regulations have we had? The mortgage originator (your local bank or mortgage broker) was under regulations not to discriminate and to inform you of your interest rate. Those papers you signed without reading? Many of them were “Truth in Lending” disclosures designed to protect you from getting into something you didn’t understand. However, if you didn’t read them, maybe they didn’t protect you.

But you were not the one lending money to a borrower incapable or unwilling to pay the money back. That was your banker. He was not regulated because he didn’t have any risk. He immediately turned around and sold your loan, along with a thousand other loans, to a Wall Street investment bank, which formed the many mortgages into a mortgage backed security or a “collateralized debt obligation.”

There were no regulations protecting Wall Street investment bankers from lending deadbeats money. The idea is that they are smart enough, sophisticated enough, to take care of themselves. (That turned out to be a bad idea, but it was the idea behind the lack of regulation.)

How did these rich, sophisticated investors make such a huge mistake? First they experimented. They tried small variations from the old traditional loans. Variations like adjustable rate mortgages. Low-down-payment mortgages. No documentation mortgages.

These experiments worked well. Surprisingly well. Why? Because it was a rising real estate market. Borrowers who were unable to make their payments simply sold their homes at a profit. No big deal, and no default or foreclosure on the mortgage.

The crucial mistake that Wall Street made was extrapolating from the good times to the bad times. They assumed that these subprime mortgages would be good all the time because they had been good in the rising house market.

Would more regulation have helped? Maybe we could have protected Wall Street investment bankers from themselves. Maybe with good regulations they would not have to give up their summer homes in the Hamptons. Maybe.

In reality, regulatory policy has worked in the opposite direction. The government wanted more risky loans made, not fewer. For example, the Community Reinvestment Act pressured banks to make loans in poor neighborhoods. Banks (and I was a banker under the CRA) figured that making some bad loans was just another tax, a cost of doing business as a regulated company. In 1995, the Clinton administration revised the CRA to increase pressure on banks to make more loans to risky borrowers. In 1997, the first pool of subprime mortgages was securitized (by Bear Stearns!).

The law regulating Fannie Mae and Freddie Mac was rewritten to reduce their capital requirements, meaning they would become riskier. Some critics were concerned about the risk, but here is what Congressman Barney Frank had to say at the time:

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” (

New York Times

, September 11, 2003)

At the height of the real estate boom, the United States set record home ownership rates. Politicians, including President Bush, bragged about their success at getting Americans into their own homes. As recently as August 2007, the President bragged that he was helping Americans get homes with lower down payments and higher loan limits. He also signed a law making it easier for homeowners to walk away from their mortgage obligations.

Would more regulation have reduced the number of bad loans made? Most likely, more regulation would have increased the problem.