Roots of Financial Crisis

The other day a talk radio host state that the economic crisis was solely the blame of the Democrats and Fannie Mae/Freddie Mac. I will wade into the matter by noting the argument starts blaming Clinton for changing the lending rules to make it possible for more loans to be made to low income families and in marginal communities. The argument continues that Fannie and Freddie “forced” the banks to make hundreds of thousands of bad loans to these people who in the past they banks would have disqualified. The implication is that the banks were “forced” to make these loans and these loans going unpaid are at the heart of the financial crisis.

No bank was forced or required to make loans they it did not want to make. The changes allowed banks to modify their policy. Thousands of banks and credit unions, primarily small local or regional banks, never made these loans. They felt uncomfortable about increasing their risk. Many other banks made the loans sparingly and thoughtfully as a way to help more people to become homeowners. Coupled with subprime loans a large number of regional and national banks strongly promoted the loans. The choice was the banks’. Some did not take the risk whereas others recklessly issued as many loans as possible.

Second, Fannie and Freddie are purchasers of the loans from the banks. They did not make the loans. Banks issued loans that Fannie and Freddie would purchase from the banks via prescribed terms. It was the banks who skewed the process when they did not verify the income information was correct (or in some cases noted to the borrower that the bank was trusting the income was correct…thereby hinting they were not verifying the information on the forms). The banks pushed on a good number of marginal loans to Fannie and Freddie for which the bank had not done due diligence.

Third, the bulk of “troubled” loans are loans that the banks were making before the changes and had more to do with the banks decisions the subprime loans that the changes signed into law by Clinton.

Fourth, the argument should not be accepted a face value. It is clearly an oversimplification and put forward by political operatives with a political agenda of seeing their party as noble and the other as ignoble. What is not articulated in the argument against Clinton is that it was a Republican Congress that promoted, pushed through the changes, and prevailed upon Clinton to sign them into law.

Fifth, we should keep a balanced view by remembering that there are multiple causes that flowed together. Fannie and Freddie are factors, but there are many more significant causes than Fannie and Freddie changing their policies and purchasing a large number of subprime loans. Amongst those factors are:
- The defining of swaps as being investment vehicles rather than defining them as insurance vehicles (swaps regardless of the title they were given were insurance vehicles). The change was pushed through a Republican Congress so as to avoid the higher cash reserve requirements required to back-up insurance vehicles. The prime advocates, including the authors of the bill allowing the change, were Republicans. Various Democrats too supported the change.
- Subprime loans. These loans eliminated the requirement to have a down-payment to secure a mortgage. Subprime loans were based upon the assumption that prices of homes would keep going up.
- The false assumption that housing prices will keep increasingly and the real estate/mortgage industry encouraging potential home buyers do buy now/upgrade now or they will not be able to afford to buy it later.
- Eliminating various regulations that allowed banks to merge and to have investment arms that in some cases engaged in questionable investment practices.
- The rosy view by the Fed Chair and Congressional leadership of financial executives. They held that they executives would never do anything to put their firms at risk. Yah, right.
- Overheated housing market driving prices increasingly higher. Demand being higher than supply of modest priced homes pushed prices higher.

NHL Rule Change Needed

This NHL season I have noticed again and again players who collide with a goaltender being given a penalty. Goalies need to be protected from players charging through the crease…I have no problem with rules to protect them. That said the current rule as framed and interpreted by referees needs to be examined. There are players who are being penalized for goalie interference who are should not be so penalized.

Last night during the Washington Capitals-Buffalo Sabers game during a scramble in front of the net a Caps defensemen literally body checked a Sabers’ winger into the Caps goalie. Seconds later, the Sabers scored but it was waived off for goaltender interference and the Sabers’ winger given a penalty. Later in the game, a Caps player is cutting in with the puck along an arch from the faceoff circle on the goalie’s right. As he shoots the puck, the Sabers’s defenseman rides the winger out and then body checks him upending him into the goalie. The Caps player was penalized for goaltender interference.

What gives with penalizing an offensive player who has been manhandled by a defensive player into the goaltender? The only way that an offensive player can avoid such penalties is to stay at least five feet away from the crease. Such an expectation is outrageous and the rule needs to be changed. If the defensive player is responsible for the propelling an offensive player into the goaltender, not only should the player be not penalized but the defensive team takes the consequences of their action. In the Caps game the Buffalo goal should have stood. Yes the goalie was knocked to the other side of the crease by the body of the Buffalo player, but it was the Cap player who drove him with a hard body check into the Caps goalie.

By nullifying goals and penalizing offensive players, defensive players are free to ride and body check offensive players into the goaltenders. Again, the rule must be changed.

Shameful Police Action

Late March 18 a man was rushing his wife, another family member to a Dallas hospital. They had received word that his mother-in-law was dying. A block from the hospital the roads were somewhat disserted as the man approached an intersection, the light was red but with little traffic. With the flashers on the driver slowed and moved through the intersection once it was clear and proceeded into the hospital entrance.

Dallas police officer, Robert Powell, rushed up behind him with is lights flashing. The driver kept going down the drive and into the parking lot with his flashers still on. As the family got out of the car the officer drew his car and ordered the occupants back into the car. The video clearly indicates that the driver was trying to explain that they needed to get inside to see his wife’s dying mother before she passes. The police officer told him to he could care less what the family needed to do, he wanted them back in the car.

The driver’s wife and her sister ignored the police officer and walked off. The officer demanded the license and insurance. The driver said he was not certain he had the insurance card but he had the registration card. The officer threatened to tow the car and to put the driver in prison. The driver kept trying to explain what was happening but the officer remained cold and unmoved even after a nurse came out to confirm that the mother-in-law as within minutes of dying. Another police officer had not only arrived but suggested to Officer Powell to not issue the ticket and let the driver get inside. Powell who later stated to his department that “I handled everything appropriately” remained unmoved and held the man thirteen minutes as he slowly wrote the ticket, and then lectured the driver on his attitude.

When the driver arrived at his mother-in-law’s bedside he was too late. She had passed away just a few minutes before.

While Powell feels he was justified in his actions, I do not. The context clearly showed that the man was headed for an emergency. His story made sense. If Powell had any doubts, at the very least he could have followed the man inside. I recognize police officers have a tough and stressful job, but that said we need police officers who have enforce the laws with common sense and compassion. Powell’s actions last night serves as an example of what we do not need to see from our law enforcement officers. If anything Powell’s actions and attitude ostracizes the officers from the public by decreasing the respect given to them.

The Dallas Police Department initially put Powell on dispatch duty. The Dallas Chief of Police Kunkel upon hearing about the matter and after it was published in the press appeared before the press earlier today to say that after reviewing the tapes he has suspended his officer. The Chief issued an apology to the family and community as a whole. Chief Kunkel says that Powell will remain suspended without pay until the review is complete and the review could recommend that Powell be dismissed.

Given that the department’s initial reaction was mild and no suspension took place for a week I am left wondering if Chief Kunkel would have taken this action if the driver of the vehicle was not NFL running back Ryan Moats and the matter had not come to the attention of the press.

Three Humorous Signs

This place either has a different type of clock or they have a strange way to do their math to claim being open "24 hours".

Spring Has Arrived

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