Tag Archives: new york times

The Crash: The beginning of the end…

The response to the post on complexity theory and the financial crises has been very positive. Been recieving lots of positive feedback, thank you to any who have written or commented.

Several people, including Steven Johnson, the author of Emergence, posted a link to this great piece “The Economy Does not Compute” that I encourage everyone to read.

Dave D. emailed me with this fascinating story from the New York Times that arguably pinpoints the moment the incentives in the market were shifted that started us down the road to the present crises. Entitled Fannie Mae Eases Credit To Aid Mortgage Lending the piece is dated September 30th, 1999. This excerpt below really summarizes the underlying logic and benefits for initiating the change as well as predicts the ultimate catastrophe that it would unleash (remember, written in 1999):

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

The article shows us the challenges around blaming any one individual – except possibly Blll Clinton – as once the incentives for embracing a higher risk group were altered it vastly increased the chance that more and more people would cater to them and expose themselves to that risk.

The other fascinating thing about this piece is how the web is now getting to be old enough that it is becoming a fantastic tool for historians. Think of how much richer our history is going to be when critical documents like this one are both more accessible and easier to locate.

And he's off…

As with all things Obama it seems like people saw what they wanted to see in his acceptance speech.

Was it his best speech? Hardly. But it was the right speech. Political, attacking and yet still laying out a vision.

I’m predicting a 12% convention bounce. Bold, I know, but after Taylor’s prescient 5 month Biden prediction, I’m feeling the pressure to deliver something big.

Regardless of the bounce, I worry about how the Democratic Party seems to slowly be sinking its teeth into the Obama machine. Over the past few months I sense a slight drift towards a more “traditional” liberalism and less championing of a new progressivism. He’s started to play it safe – a challenge that arose during the primary and that, once he grasped, shook him up, loosened him up, and had being himself again.

Obama’s unique – and thus perceived risky – perspective is what made him popular. Put out that flame and you kill his passion. Fortunately, this speech showed his original political instincts and leanings are still very much alive. The policy prescriptions -bound together by a narrative of encouraging both individual and collective responsibility – were sensible and pragmatic. His instinct to reach out and make space for others, while holding firm to some core principles, also shone through.

I don’t think it is possible, but I do fear the party will do to Obama what it did to Gore and Kerry – try to force him to make compromise after compromise, slowly sucking the life and passion out of him as it transforms him into block-vote seeking automaton. It ain’t a pretty picture but look at the speeches Kerry and Gore gave, it would be a different world if they’d spoken like that 4 or 8 years ago.

Fortunately, the New York Times thinks Obama has insulated himself against this outcome in large measure because he’s already managed to remold the party in his image. I hope they are right. Looking at the people in the stadium – the mix of race, class and age – suggests this is the case. It certainly was a picture of America as we’d all like to see it.

I just hope that the make-over has filtered higher up as well. I can’t bear to watch the democrats lose another election – especially with such talent leading them.