Tuesday, February 26, 2013

Hostile AI: You’re soaking in it!

I was in a Facebook discussion about “Friendly Artificial Intelligence” — this is a buzzword from the Singularity Institute people. They believe in their heart of hearts that artificial intelligence of literally incomprehensible power is just around the corner, and they see their job as somehow assuring that it is “friendly”, that is, having its interests more or less in line with human interests. (book-length pdf)

Now, there are about three major things wrong with this, and the discussion was started by someone writing a school paper on just what those problems were. I chimed in:
I am generally on the side of the critics of Singulitarianism, but now want to provide a bit of support to these so-called rationalists. At some very meta level, they have the right problem — how do we preserve human interests in a world of vast forces and systems that aren’t really all that interested in us? But they have chosen a fantasy version of the problem, when human interests are being fucked over by actual existing systems right now. All that brain-power is being wasted on silly hypotheticals, because those are fun to think about, whereas trying to fix industrial capitalism so it doesn’t wreck the human life-support system is hard, frustrating, and almost certainly doomed to failure.
Corporations are driven by people — they aren’t completely autonomous agents. Yet if you shot the CEO of Exxon or any of the others, what effect would it have? Another person of much the same ilk would swiftly move into place, much as stepping on a few ants hardly effects an anthill at all. To the extent they don’t depend on individuals, they appear to have an agency of their own. And that agency is not a particularly human one — it is oriented around profit and growth, which may or may not be in line with human flourishing.

Corporations are at least somewhat constrained by the need to actually provide some service that is useful to people. Exxon provides energy, McDonald’s provides food, etc. The exception to this seems to be the financial industry. These institutions consume vast amounts of wealth and intelligence to essentially no human end. Of all human institutions, these seem the most parasitical and dangerous. Because of their ability to extract wealth, they are also siphoning off great amounts of human energy and intelligence — they have their own parallel universe of high-speed technology, for instance.

The financial system as a whole functions as a hostile AI. It has its own form of intelligence, it has interests that are distant or hostile to human goals. It is quite artificial, and quite intelligent in an alien sort of way. While it is not autonomous in the way we envision killer robots or Skynet, it is effectively independent of human control, which makes it just as dangerous.

[update 10/2014: Charlie Stross has roughly the same thought]

89 comments:

hoyhoy said...

Excellent! You should post this to zerohedge.

fsascott said...

"The exception to this seems to be the financial industry. These institutions consume vast amounts of wealth and intelligence to essentially no human end. Of all human institutions, these seem the most parasitical and dangerous. Because of their ability to extract wealth, they are also siphoning off great amounts of human energy and intelligence..."

Do you realize how closely your message resembles Exra Pound's nattering on about "usura"?

The financial industry provides useful services to people and deserves to be compensated for them. The business/credit cycle cannot be blamed on it.

The blame lies with governmental and quasi-governmental agencies such as the Federal Reserve System, Fannie Mae, and Freddie Mac. The latter two were legislated into existence by Congress for the purpose of implementing a social policy of encouraging home-ownership through subsidized lending. Their structure socialized risk while privatizing profit - a bad combination, but not one that can reasonably be blamed on historically private-sector financial institutions.

Canada experienced no housing collapse, and no financial crisis comparable to those that took place in the United States, because the Canadian government stayed out of the housing market. American politicians and pundits might do well to observe their example and learn from it.

mtraven said...

That is called the "Hitler was a vegetarian" argument. Fortunately for me, plenty of other people, including Nobel laureates, basically agree with me, so the opinion is not confined to insane fascist poets.

fsascott said...

"That is called the "Hitler was a vegetarian" argument. Fortunately for me, plenty of other people, including Nobel laureates, basically agree with me..."

And your response is called the "argumentum ad verecundiam."

It is also intellectually dishonest at a deeper level. Hitler's vegetarianism was not of any import to his political philosophy. That is why attempting to discredit vegetarianism by reference to Hitler is frivolous.

However, Pound's diatribes against the financial industry were central to his political philosophy, and the similarity of his beliefs to yours is therefore a relevant point. Perhaps some Nobel laureates agree with him and with you, but if you wish to be judged by the company you keep, be judged by all of it.

ysprats said...

Hey fsascott - someone once used the fact that Ezra Pound complained about something sortof related to mtraven's point to attempt to make specious points about an argument they had no proper refutation of - so that put you in rhetorically terrible territory - so there! (The fact that it was you who did so makes my point even more irrefutable :-)

ysprats said...

"The blame lies with governmental and quasi-governmental agencies such as the Federal Reserve System, Fannie Mae, and Freddie Mac."

And Ezra Pound apart - that bit outs you as mere under-bridge material. The timing was all wrong for Freddie and Fanny to have driven the last financial crisis. The private sector drove the give anyone with a pulse lending behavior - F&F just came along later for the ride.

mtraven said...

Yeah he's the pet troll around here, always good for pulling out a fancy Latin phrase instead of thinking.

Argument from authority (and its relative ad hominem) are indispensable and perfectly valid parts of reasoning when used appropriately, I defend them here.

mtraven said...

@hoyhoy if you want to put a link to here on zerohedge please do, I'm not a regular reader so don't feel comfortable plugging myself there.

fsascott said...

ysprats - Fannie and Freddie had been under orders from Congress since the mid-1990s to hold more and more loans made to borrowers with below-median and below-60%-of-median incomes, and they set the market standard by classifying as eligible loans those with a loan-to-value ratio of 97% or less. Prior to this, the typical conventional mortgage had an 80% or less LTV - i.e., a 20% down payment was required. Had this remained the case, it is quite likely the collapse would never have happened. Morgenson's and Rosner's book "Reckless Endangerment" is a good account of the GSEs' role.

Indeed, the private sector had a role, but to pretend that politicians and politically-allocated credit did not have the major one is either disingenuous or naive. The Canadian private sector and the U.S. private sector are very similar, yet a housing bubble and subsequent burst did not happen. Why? As noted above, the Canadian government did not encourage or subsidize mortgage lending to persons who were not creditworthy.

As for mtraven, he accuses me of using Latin phrases instead of thinking, even as he uses one himself. We have each used two Latin words, so we're even. A "pet troll" is apparently anyone who dares to disagree with him. He hasn't bothered to address any of the points of disagreement. So far as I can tell, he is just a crank about banking - rather like Pound, but without Pound's education or command of the English language.

Jeff J said...

This is the best blog post I've read in some time.

fsascott: "Canada experienced no housing collapse, and no financial crisis comparable to those that took place in the United States, because the Canadian government stayed out of the housing market."

Hogwash. Government fingerprints are *all over* the housing market here in the form of financial regulations. The private sector here is *not* the same as yours. It is regulated, much to its chagrin I'm sure. If anything, Canada is a huge success story for bigger gov't intervention and regulation.

Our current right-wing gov't is actually broadcasting TV ads encouraging people to avoid credit card debt. Can you imagine!

fsascott said...

The financial sector in the United States is highly regulated. Four Federal agencies - the Federal Reserve, the FDIC, the Comptroller of the Currency, and the Office of Thrift Supervision - oversaw banking here, with tens of thousands of pages of regulations, annual exams, etc. There are also state banking commissions. None were able to prevent the collapse. The "Senegambian in the fuel supply" (to quote W.C. Fields) was the social engineering that went on through the Clinton and Bush administrations to encourage lending to uncreditworthy borrowers in the name of broadening home-ownership amongst persons with sub-median incomes.

I did not say that the Canadian financial sector was unregulated by the government of Canada. I said that the government of Canada did not encourage or subsidize lending to persons who were not creditworthy. That you should fail to understand the difference between the absence of regulation and the absence of perverse regulatory incentives reflects poorly on your reading comprehension. Indeed, you make my case for me by pointing out the Canadian government's efforts to encourage people to avoid credit card debt. Clearly the regulatory emphasis is different in Canada, and that is why it never experienced a mortgage bubble/burst like that in the U.S.

The financial system needs regulation, but that regulation should be concentrated on safety and soundness, rather than on providing incentives for unsound lending to persons without adequate collateral or means of repayment. These incentives were prominent in the U.S. regulatory structure under Fannie Mae and Freddie Mac, the Community Reinvestment Act, the Home Mortgage Disclosure Act, and other measures that run at cross purposes with bank safety and soundness.

hoyhoy said...

Is fsascott some automatic troll that's run by a Goldman prop trading computer in its spare cycles? I mean, how can any sensible person have that opinion?

Bruce Sterling agrees too... Large financial centers in certain cities around the planet are certainly going to kill millions of us by destroying our social safety networks in the name of their imaginary financial efficiency. You're a thousand times more likely to die because of what some urban banker did in 2008 than from what some Afghan-based terrorist did in 2001. Financiers live in small, panicky urban cloisters, severely detached from the rest of mankind. They are living today in rich-guy ghetto cults. They are truly dangerous to our well-being, and they are getting worse and more extremist, not better and more reasonable. You're not gonna realize this havoc till you see your elderly Mom coughing in an emergency ward, but she's going there for a reason.

hoyhoy said...

> The financial sector in the United States is highly regulated.

Is it? Why hasn't one executive gone to jail since 2008 then?
If fraud is legal, how can you say that the "private
sector" banks (funded by $85B-per-month in socialist government
welfare via TARP, QE, ZIRP, TWIST, etc)
are regulated?

> Four Federal agencies - the Federal Reserve, the FDIC, the Comptroller of the Currency, and
> the Office of Thrift Supervision - oversaw banking here, with tens of thousands of pages
> of regulations, annual exams, etc.

Laws exist, but they're not being enforced. The SEC hasn't prosecuted one criminal
case since the crisis began! There have been civil cases brought, but those have
tended to be a slap-on-the-wrist that have amounted to a scant
day-or-two of trading income for the TBTFs.

> There are also state banking commissions. None were able to prevent the collapse.

Indeed, but the regulators are/were captured! Just because people didn't do their job, doesn't
mean that nobody should do their job!

> Was the social engineering that went on through the Clinton and Bush administrations to encourage
> lending to uncreditworthy borrowers in the name of broadening home-ownership amongst persons with
> sub-median incomes.

Again, this became legal because of the actions of the TBTF banks lobbying congress in the late '90's.
The firewall between commercial and investment was torn down which allowed banks to

What I hate about this argument is that the private sector banks lobbied congress to remove the remnants of
Glass-Steagall in the late '90's. And, when it all blew up, the bankers yell, "IT'S BECAUSE THE GOVERNMENT
GAVE LOANS TO POOR PEOPLE!".

Who underwrote the loans and wrote the law that gutted Glass-Steagall? The corporate governance of Citibank,
JP Morgan, and Goldman Sachs, that's who! The results of this are the biggest financial catastrophe
of all time -- 10M foreclosures with another estimated 10M-to-go, 14.3M year-round vacant properties,
6M loans in default or near default.

> I did not say that the Canadian financial sector was unregulated by the government of Canada.
> I said that the government of Canada did not encourage or subsidize lending to persons who were
> not creditworthy.

The Canadians also didn't tear down their protections between commercial and investment banking and
reconfigure their entire treasury to backstop daddy's gambling addiction like we did here either.

> That you should fail to understand the difference between the absence of regulation

That you should fail to understand that there is a revolving door between the SEC, the Treasury, the FDIC
and the Fed is illustrative that _you_ do not understand how the current system is organized.

> Indeed, you make my case for me by pointing out the Canadian government's efforts to
> encourage people to avoid credit card debt. Clearly the regulatory emphasis is different
> in Canada, and that is why it never experienced a mortgage bubble/burst like that in the U.S.

Yeah, it's not captured by a corrupt oligarchy hell-bent on hollowing out the nation state!

hoyhoy said...

> The financial system needs regulation, but that regulation should be concentrated on safety and soundness,
> rather than on providing incentives for unsound lending to persons without adequate collateral or means
> of repayment.

Couldn't agree more. Currently, the banks are allowed to profit from non-paying loans leveraged fifty-to-one using
exotic investment vehicles. We should wind-down Citibank, Wells Fargo, BofA, JP Morgan Chase and Goldman
Sachs tomorrow and prosecute the corporate governance for massive fraud, corruption, and debasing our currency
for their own enrichment. They are all completely and utterly failed and insolvent. This is the point of this
blog post. The financial system is now being run for its own sake. There's no point to it. Call it a hostile
AI or whatever you want. There is no meaning to Wall Street at this point other than pure unabated fraud and
corruption.

> These incentives were prominent in the U.S. regulatory structure under Fannie Mae and Freddie Mac, the Community Reinvestment Act,
> the Home Mortgage Disclosure Act, and other measures that run at cross purposes with bank safety and soundness.

In your world, is it as simple as FREE MARKET GOOD GOVERNMENT BAD!? Just because the government has some levers that can somewhat
(not really) be operated by the populace doesn't make it evil. It doesn't have to be evil. The state exists to check
the rapacious business interests and insure that the output of industrial production is distributed somewhat sanely.

Or as Mark Blyth says, "We're kicking the State, and the State is what will protect you. We're kicking away the foundation
of the building as the hurricane is approaching."

fsascott said...

You all blame the effective repeal of Glass-Steagall, but why does no one comment at all on the legal change that made "too-big-to-fail" banks possible, namely, the Riegle-Neal Act of 1994, which allowed banks to branch across state lines?

I remember when that Act was passed, by a Congress controlled by Democrats, and signed by the Democrat in the White House, how these people could possibly maintain with straight faces their historic posture that the Democratic Party was the champion of the "little guy," the "working stiff."

In the years since then, we have arrived at a situation where the five largest banks in the United States control more than 50% of total commercial bank deposits nationwide. This would have happened regardless of the Gramm-Leach-Bliley Act's passage. While that Act
allowed commercial banks to engage in investment banking, it still subjected their investment banking activity to the more stringent capital requirements of commercial banks. Freestanding investment banking houses, like Lehman Bros., were allowed (as they had been under Glass-Steagall) to operate with much more leverage than commercial banks were or are. Merrill Lynch and Bear Stearns were actually made sounder by being taken over by commercial banks, which were required to capitalize them more robustly.

I do not blame regulation for the failures of the financial system, nor do I suggest that absence of regulation would have prevented them. I do blame perverse regulatory incentives, and believe that the absence of such incentives would have been salutary.

The idea behind subsidized mortgage credit for borrowers with submedian and sub-60%-of-median borrowers was that poor people are poor because they lack assets and access to credit. This is a confusion of a symptom with a cause. They lack assets and access to credit largely because they lack the mental capacity to acquire assets and to manage credit. We can no more alleviate their condition by giving them assets they have not earned and credit they cannot manage than one can make a moron a genius by giving him a piece of paper identifying him as the holder of a Ph.D.

The central failing of the liberal ideology is the belief that equal treatment under law must lead to greater equality of results. In fact, when everyone plays by the same rules, there will always be winners and losers. When the reaction to this is to institute preferential rules for the less proficient players, the game has been rigged to produce a dysfunctional outcome.

The conundrum with which we have to deal is, as Charles Murray pointed out years ago, is that half of the population falls on the left side of the bell curve distribution of intelligence, and are consigned as a result to the humbler ranks of society. And whereas a century ago, there was plentiful employment for the dull half of humanity as agricultural laborers and domestic servants, the modern high-tech economy has rendered them largely superfluous. What does a humane society do with these people? Denying the existence of the problem, as egalitarians do, is no solution to it.

hoyhoy said...

I actually partially agree with you here. The traditional ideologies don't really apply. What are we supposed to do with superfluous labor? Let banks throw them out of their houses so they can harvest scrap metal for the Chinese or throw them in jail? That's what doing nothing implies. Rather than printing-up money to backstop failed banks, that could have went to a jobs program to reconfigure the transportation infrastructure and living arrangement.

My problem is this binary logic of, "WE NEED TO SHUTDOWN THE GOVERNMENT BECAUSE OF FNM!" That's just nonsense. Do we need to shutdown capitalism because of failed banks? I'm not shilling for the blue team here. They're just as bad as redistributing surplus notional wealth to the aristocracy. What this blog is really criticizing is the doomsday Wall Street machine that runs failed capitalism is really having the same effect that failed communism had i.e. wealth coalescing into very few hands.

Ultimately, when you mechanize most of the production, what are the workers supposed to do? Why are we still pretending that we all have to toil to increase industrial production if scarcity is solved? If robots did all the work and could sustain our population, why not have the goal be total unemployment? But, somebody has to keep the robots running I guess. But does that mean only the people who own the robots get to survive?

What I disagree with is empowering failed private sector banks and a parasitical financial industry that isn't an industry at all. We're left with this symbology of industrial capitalism, but we have a post-industrial economy. We could have just as easily printed-up money to repudiate credit card, student loan, and mortgage debt. But, we only printed money to further empower finance capital. That's the crux of the problem. Why reward failure and cause further harm to the population?

The subtext of what you're saying is -- "IT'S THE GOVERNMENT! AND POOR PEOPLE! I'M THE GOOD LIBERTARIAN!" It shouldn't be that controversial to say, we print-up some certificates that represent debts against future production, and distribute them to people in the population so we can have a medium of exchange to circulate food, iPhones, Internet, etc. But, the libertarians all carry-on with this weird religion. "CLEARLY FAILED BANKERS SHOULD HAVE ALL THE CERTFICATES!" No! That's not capitalism or libertarianism. I don't know what it is to be honest. Dismantling what's left of the State isn't going to help anything. If anything, it will cause finance capital to be concentrated into fewer hands.

fsascott said...

'My problem is this binary logic of, "WE NEED TO SHUTDOWN THE GOVERNMENT BECAUSE OF FNM!"'

Now, I never said that. But we do need to shut down Fannie Mae and Freddie Mac. Using political allocation of private sector credit to implement social policy has not turned out to be a good idea. Even Barney Frank has come around to that point of view, after having advocated subsidized lending for a long time. If government is going to subsidize housing, it ought to do so directly and appropriate the funds through the regular budgetary process, rather than through indirect measures for which the downside risk is difficult to quantify.

"What I disagree with is empowering failed private sector banks and a parasitical financial industry that isn't an industry at all."

You are painting with very broad strokes here. Alongside the too-big-to-fail banks and their problems
there is a part of the financial industry that could almost be part of a separate world - several thousand community banks and credit unions that operate in relatively small local markets, dealing with depositors and borrowers that are also their neighbors. You can't fairly describe these institutions as "parasitic." They had nothing much to do with the collapse and most of them have emerged unscathed from it. The ones that didn't suffered largely from purchasing mortgage-backed securities that had the implicit guarantees of quasi-governmental rating agencies, which enjoy official status under the Basle accords, and in some cases, insurance through outfits like AIG. They were victims rather than parties to the crime.

To find the proper approach, one needs to go back in time before the socialist-capitalist conflict arose to the anti-Hamiltonian faction in the political controversy over central banking in the early nineteenth century. Reading these critics (for example, John Taylor of Caroline) one discerns that the primary fear of the opponents of the First and Second Banks of the United States was that the politicization of credit would work to the disadvantage of agriculture (the principal "small business" of the day). They did not deny the usefulness of banking, but preferred that there be many small banks, outside the ambit of political influence, rather than a large and market-dominant bank. The Jacksonian defeat of the re-chartering of the Second Bank of the United States effectively brought such a circumstance into existence, and it prevailed for a remarkably long time - essentially until the passage of Riegle-Neal.

Printing money (fiat currency) has a long history of disaster, whether it be the assignats of the French revolution, the reichsmarks of the Weimar republic, the franc of the French Fourth Republic, the post-WWII lira, or the Zimbabwean dollar.

We would be better off reinstating limited gold convertibility under a system like Bretton Woods. The extremes of the business cycle have increased since Nixon abandoned Bretton Woods. Central banking can work very well if it adheres to an external discipline such as the gold standard. History has shown that when that discipline is removed, the value of currency becomes the plaything of politicians, and it always ends in tears.

hoyhoy said...

OK, we get it. If banks create money (1000T in derivatives, fractional-reserve lending, rehypothecation, etc) that's good. But, if the government does it (unfunded liabilities, FNM), that's bad. Make sense. Thanks for your clear thinking on these matters!

fsascott said...

Money creation by banks is constrained by bank capital. There is nothing wrong with fractional-reserve banking that could not be made right by a suitable regulatory capital requirement.

On the other hand, money creation by governments, in the absence of an external discipline like the gold standard, is constrained by nothing.

Which is the greater menace? The experience of the Weimar republic, Peronist Argentina, the French Fourth Republic, and many similar episodes of history show that governments have historically done much more economic mischief than private-sector banking.

It should not be necessary to point out to any well-informed person that the derivatives and rehypothecation of which you complain are products of the secondary mortgage market, which was brought into being by the creation of Fannie Mae in 1938 as a New Deal agency. Without that, there would be no secondary mortgage market and none of these financial instruments would exist.

It has to be said in Fannie's defense that the agency was reasonably innocuous until it was privatized in 1968 under LBJ's administration in order to get its debt off the Federal balance sheet, in an effort to avoid exceeding the debt ceiling (sound familiar?). The resultant privatization of profit and socialization of risk set the stage for the risky practices that began in the mid-'90s with government-directed allocation of credit to unsuitable borrowers.

The extension of mortgage credit is a business transaction, not an eleemosynary function. Loans are meant to be paid back. If politicians want to subsidize housing for the poor, they should do it directly, by means of regularly budgeted public expenditures, so that the costs are identified in advance. Having done so would have been greatly preferable to the kind of indirect subsidy that took place through the GSEs, which buried those costs in the ill-quantified risks of their lending, and of the securities they sold to investors.

hoyhoy said...

What I find unpalatable about your arguments here is that you start with the assumption that money is real and that if "the government" wasn't involved, that our situation would somehow be improved. The government and the "private" banks have merged into a monolithic structure at this point. Congress is essentially owned by the holders of concentrated finance capital. They merely rubber stamp massive bills sent to Congress by private-sector lobbyists. The idea of the nation-state itself is rather a deprecated notion. We have a handful of massive corporations who fly various flags of convenience when it comes time to pay taxes or be held responsible for the externalities of their business.

fsascott said...

I have not said "if 'the government' wasn't involved, that our situation would somehow be improved."

I have clearly stated several times that it is perverse regulation that is at fault, not regulation per se, and that the answer is better regulation that does not give perverse incentives or reward feckless behavior.

Government SHOULD be involved in protecting the safety and soundness of banking. It SHOULD NOT attempt to allocate credit to the uncreditworthy. The notion that the possession of a house with a no-downpayment mortgage will make a responsible middle-class citizen out of a member of the lumpenproletariat is fatuous beyond belief. Yet this has been the mission of the GSEs since the mid-1990s, one in which they were eagerly joined by operations like Countrywide Financial and other crony capitalists.

Crony capitalism exists because of the ability of politicians to dispense opportunities to collect economic rents to their cronies. To suppose that private enterprise corrupts politics is to suppose that the patrons of a brothel corrupt the whores. The answer is to restrict the ability of politicians to dispense those rent-seeking opportunities, and of government to create them in the first place.

As for the "assumption that money is real" - it is as real as the participants in an economy believe it to be. They might have an easier time believing so if, as I've observed in previous posts, the money-creating authority were constrained by an external discipline. The gold standard, or the comparable use of some other benchmark beyond the money-creating authority's ability to manipulate, would accomplish
this. With a fiat currency, the credibility of money is lessened. It then depends solely on the degree to which the authority abuses it. The United States has not abused it - yet - to quite the degree that (say) Argentina has.

"The idea of the nation-state" may be a rather depreciated (which I think you meant to say rather than "deprecated"), but nation-states, or (as in the case of the EU) cartels of nation-states, are still ultimately the money-creating authorities. They print the bills, punish counterfeiters, set regulatory capital requirements and other rules for banking (e.g., the Basle accords), and enforce them as they see fit.

As far as "massive corporations who fly various flags of convenience," in a competitive world there will be competition between nation-states, and those which make the cost of doing business less or the rewards greater will enjoy an influx of business. Tax and regulatory arbitrage have always existed and always will. We see this in a smaller way as high-income taxpayers flee high tax states such as California and New York, or as employers hampered by labor unions in closed-shop states flee to right-to-work states.

This is nothing but the creative destruction that accompanies varying degrees of economic freedom. To eliminate it would require eliminating economic freedom - which is a subdivision of the freedom of association - entirely. We know how such total dirigisme turned out in Stalinist Russia and Maoist China.

hoyhoy said...

And, I shall call this fictional land, LIBERTOPIA! Capitalists who pretend to hate the State are like NFL players who pretend to hate football fields.

fsascott said...

Where, hoyhoy, did I ever say I was a libertarian? I merely criticised certain activities of the state, suggesting that there were better, more straightforward and honest ways for it to accomplish the desired goal.

If the desire is to subsidize housing for the poor, government should do so by direct appropriation of public funds rather than by lending them the funds of government-sponsored enterprises or encouraging others to lend them bank depositors' or investors' money under the delusion that it will be repaid. Government should not confuse an eleemosynary function with a commercial transaction.

If your post is to be construed as a reply to anything I wrote, you are attacking a straw man.

"Capitalism" is merely a term, originally intended to be pejorative, coined by Karl Marx to describe an economic arrangement under which property is privately held and business enterprise is carried on by competing entities. I am broadly in favor of this arrangement, which does not seem to be a bad one compared to the alternatives. Yes, the state is necessary to it. I agree with James Madison and Fisher Ames that among the most important functions of government is providing the protection of private property and means for enforcement of contracts by an impartial arbiter.

hoyhoy said...
This comment has been removed by the author.
hoyhoy said...

Where does one find an impartial arbiter? Do you think you're being impartial by quoting narratives concocted by The Cato Institute and the Heritage Foundation?

The ultimate problem is that the US has been kiting checks since it went off the gold standard. And, now we have an imperial tribute economy that makes it uneconomical for Americans to do much of anything.

But, all you keep saying is "BARNEY FRANK LOVES POOR PEOPLE AND THAT'S WHY WE'LL HAVE HYPERINFLATION." I mean, for the past thirty-years, Americans have been using their houses as an ATM and filling it up with consumer products from China. There was a sort of perverse logic to it. But, now the credit has run dry, and the "capitalists" have run out of ideas. And, your way of dealing with it is to blame the powerless. Sure, as it is now, I'm agreeing, the "economy" is completely unhinged. Unpayable debt wealth, socialism is evil, and everything is acceptable except for telling the truth.

Also, you fall into this whole mindset of the militarization of the everyday viewing everything as a competition. Why does everything have to be a competition? It turns out that groups who cooperate will dominate groups who compete with themselves. The spectrum of your thought is "COMPETITION GOOD, COOPERATION BAD!". Sometimes competition is good, other times it isn't. We're all prone to dividing ourselves into factions or tribes. I think that's hard-wired into our monkey minds. Reverting to Ayn Rand-style hoarding is merely capitulating to your most primitive instincts. Capitalism and hoarding is a successful ideology because it's easy.

fsascott said...

'But, all you keep saying is "BARNEY FRANK LOVES POOR PEOPLE AND THAT'S WHY WE'LL HAVE HYPERINFLATION."'

No, actually, I said in one of the posts above that Barney Frank, while he used to be an advocate of subsidized lending, changed his mind, and now thinks it is a bad idea (see my post above marked 8:45 PM. That is called learning from experience. You might profit by his example.

I do not "blame" the "powerless." I take a realistic view of the character and capacity of the bottom half of society. This need not preclude some sympathy for their condition, or some effort to ameliorate it. Let's just not delude ourselves that their limitations are purely or even mostly external, or try to imagine they are or can become something they are not.

hoyhoy said...

Yes, if only the "bottom-half" could "manage credit" just like the true meritocrats at insolvent banks like Citibank, Wells Fargo, BofA, Goldman Sachs, and JP Morgan Chase! fsascott, where do you get these stories? I'm sorry, but I'm really laughing-out-loud at this.

fsascott said...

Did I say I approved of the banks you mentioned? In point of fact I noted above that "too big to fail" banks are the product of the Riegle-Neal Act of 1994, which I criticized strongly. In any event, Morgan and Wells are not and never were "insolvent." Citi and Bank of America are another story; Citi's Robert Rubin (Clinton-era Treasury Secretary) was particularly egregious. Goldman is not a commercial bank and cannot be lumped with the others, whatever else you may think of it. Learn something about the differences between these institutions before tarring them all with the same brush.

The matter of fact is that we never had a mortgage collapse like the one that took place in 2008, before the government mandated GSE lending to below-median and below-60%-of-median income customers, and before it began to coerce private lenders into granting similar credits through regulations like the CRA and HMDA. The agencies followed the mandates government gave them, obtained cooperation from operators like Angelo Mozilo, and sold their securities to banks for their investment portfolios. See Morgenson and Rosner.

There would never have been a financial collapse had
these perverse regulatory incentives not been in place.

What is the matter with regulating commercial banking for the safety and soundness of its operations, and not trying to involve it in social engineering that runs at cross purposes to these? The great liberal FDR instituted the FDIC to ensure the safety of small depositors' funds. How has it come to be the progressive orthodoxy that banks should be mandated to lend to the uncreditworthy - an activity neither safe or sound?

hoyhoy said...
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hoyhoy said...

If AIG were to have been declared insolvent (which it was), my understanding is that all the TBTFs would have went down. But, yet you persist saying, "THE GOVERNMENT SUBSIDIZED THE UNCREDITWORTHY". You know what, they absolutely have subsidized the uncreditworthy especially at AIG, Citibank, Wells, BofA, and JPM! And, notionally they subsidized subprime loans at the request of the private sector major banks!

I'm not sure what you're arguing here other than trying to convince people who know better that various watered down Cato Institute memes you've heard repeated on Fox News are "true". And, that's fine. More power to you. We all have to believe in something.

fsascott said...

I was firmly on the right wing long before there was a Fox News or a Cato. Don't blame them for my thoughts.

You have things back to front. The GSEs, acting under direction from Congress, subsidized the uncreditworthy; they drew investment banks, large commercial banks, and the non-bank financial sector (e.g. Countrywide Financial) into cooperating in this activity by offering them incentives to do so. Again, see Morgenson and Rosner. You assert the contrary but provide no documentation or reference.

AIG's role in this was as a provider of credit insurance. Credit would not have existed to be insured (however unsoundly the insurance was underwritten) if the credit had not been extended in the first place. So our attention is directed once again to the question, why was it extended?

There's of course the existence of the GSEs to start with, and the mission they were given to subsidize sub-median borrowers. Then there's the preferential status given by domestic bank regulations and the Basle accords to marketable securities (including mortgage-backed securities both of the GSEs and of private sector non-bank mortgage financiers) over loans a bank makes and holds for its own portfolio; the quasi-governmental status enjoyed by the bond rating agencies S&P, Moody, and Fitch, under the same regulations; and the preferential status enjoyed by insured credits under the same regulations. All of these must be counted among the incentives government gave for the extension of these credits.

The GSEs dominated and still dominate the residential mortgage industry. They hold or guarantee an absolute majority of residential mortgages in the U.S. The leavings of the GSEs, a minority of the total, are divided up amongst the non-bank financials and commercial banks.

Indeed, as a supplier of credit to the economy, commercial banks have steadily declined in importance for more than two decades. A 2004 publication of the FDIC (FDIC Banking Review, 16:2, p. 31) indicates that banks and thrifts supplied only 19% of the economy's credit, down from 40% twenty years earlier, and that the GSEs own as many residential mortgages as all commercial banks combined. The share of the erconomy's debt directly funded by commercial banks fell relative to the growth of the credit markets, reaching a low point in 1993 and then stabilizing.

You are barking up the wrong tree in blaming commercial banks for a crisis in the mortgage market dominated by the GSEs.

hoyhoy said...

Yes, we get it, fraud is legal and non-paying mortgages are THE BIG GOVERNMENT'S fault! And we should continue to pay failed banks $85-billion-a-month because poor people can't pay their bills. You make total sense. If only we were more capitalist, none of this would have happened!

fsascott said...

"Yes, we get it, fraud is legal and non-paying mortgages are THE BIG GOVERNMENT'S fault! And we should continue to pay failed banks $85-billion-a-month because poor people can't pay their bills. You make total sense. If only we were more capitalist, none of this would have happened!"

The fault is that of perverse government, more so than of "big" government, though of course the bigger government is the more opportunity it offers for corruption.

George Melloan summarizes the point on p. A17 of yesterday's Wall Street Journal:

"When President Clinton forced the banks to begin their subprime mortgage binge in the 1990s, he called it 'affordable housing' for people with limited means, a politically appealing idea. ...As we should have learned in the 2000s, guarantees and taxpayer-supported lending creates moral hazard. With Uncle Sam backing you, risk analysis is thrown out the window. Current FDIC bank-capital standards give a zero risk rating to securities guaranteed by government agencies, meaning that holding them doesn't require banks to raise more capital to acquire more of these securities. [See my comments earlier about the Basle accords on this point]

"To implement affordable housing in the Clinton years, the Department of Housing and Urban Development lowered capital standards for Fannie and Freddie and encouraged them to be very tolerant in their mortgage purposes. Soon fast-buck artists were generating substandard paper and palming it off on Fannie and Freddie, who later would show that they too were no strangers to corruption. [See my comments earlier about Angelo Mozilo]

"To further liquefy the market, pools of mortgages became the basis for issuing vast amounts of mortgage-backed securities that circulated all over the world. When housing prices began to fall and foreclosures began to mount in 2006, holders of these securities began to realize that many of the mortgages backing their securities - as many as half, we later learned - were subprime. The market froze, precipitating the crash.

"The moral is that government backing - implicit during the heyday of Fannie and Freddie and explicit today - leads to sloppy banking and ultimately to defaults..."

You have not even tried to rebut this account, and you can't. It is not, again, as I said, the consequence of "big" government so much as of perverse government.

I'd be in favor of bank regulation that focused on solely on safety and soundness, as I've said many times before. The CRA, HMDA, etc., should be scrapped. There should be no mortgages made for more than 80% of a property's assessed value. If someone can't come up with 20% down, he should rent. That's all someone with a no-downpayment mortgage is effectively doing anyway, but unlike that, an honest landlord-tenant transaction does not put the FDIC at risk.

A commercial bank should be required to maintain a MINIMUM tier I capital to assets ratio of 5% (which is now considered "well capitalized") and should not be considered "well capitalized" with less than 8% tier I capital to assets.

These would be the actions of a strong government that used its strength wisely, rather than that of one that is merely large, and so much so as to be unwieldy, unwise, and counterproductive in its actions. Unfortunately the latter is what we have had for the past two decades, and still have.

hoyhoy said...

I know. It was entirely Clinton's fault. If he wouldn't have done that, we'd all be rich right now.

fsascott said...

That kind of wisecrack neither addresses the points I have made nor contributes any other insights. Surely Clinton was one of the major players in setting the economy up for a fall. A Congress controlled by his party passed the Riegle-Neal Act, which is directly responsible for the development of too-big-to-fail banks, and he signed it.

Clinton's Treasury Secretary, Robert Rubin, was up to his elbows in the disaster that was Citigroup, extracting millions of dollars in compensation from it for filling what appears to have been a sinecure directorship, even as the company was losing money. No one seems very serious about holding him to account for this.

For that matter, what about Jack Lew of Citi, whom your man in the White House picked to fill Rubin's old post? Wasn't his confirmation testimony before the Senate a model of opacity? Anyone that seriously expects the present regime in Washington to do anything about the safety and soundness of banking is whistling past the graveyard.

hoyhoy said...

I'm agreeing. That's why I'm going to vote Republican. They're going to fix everything.

fsascott said...

Of course the Republicans are not going to fix everything. There were Republican backers of subsidized lending, too. That's why nothing was done to reverse the Clinton-era initiatives during the first six years of George W. Bush's administration when Republicans controlled both houses of Congress. Certain Republican constituencies, e.g., in the real estate industry, supported it, along with solidly Democratic constituencies like labor unions and the social engineering bureaucracy.

However, you seem unwilling to acknowledge the damage the Democrats did in originating the measures that led to the catastrophe, or the failure of the current administration to address them. Indeed, the Dodd-Frank Act further ensconced too-big-to-fail institutions in the regulatory structure and has done nothing to enhance the safety and soundness of the financial system. Instead it has created an unanswerable consumer-finance bureaucracy that seems to have as its main task the browbeating of lenders into extending more credit to people who are likely to be deadbeats. The course is being set towards another calamity.

hoyhoy said...

I know, I hate deadbeats! Aren't the Republicans going to round them up and put them into camps?

fsascott said...

I'd be happy if the GSEs just didn't lend to them and if government did not use the CRA and HMDA to pressure private lenders to lend to them.

Why did the market for mortgage-backed securities collapse in 2008? Because a significant number of the mortgages had become non-performing, that is to say, they weren't being paid down timely. Why was this the case? Because the loans had been made to people without resources for repayment or adequate collateral. Such persons commonly become deadbeats, and their failure to meet their obligations was the source of the entire problem.

Credit, like education, employment, and many other facets of human activity, is an inherently discriminatory function. Discrimination is not always invdious. It is necessary and proper in some things. We appropriately discriminate between right and wrong, true and false, beautiful and ugly. That's why some students get straight A's and others flunk. That's why some people do well at their jobs and are promoted, whie others are incompetent and get fired. And that's why we have credit scores.

Extending credit to people who were poor risks, in the futile hope that their condition might somehow be improved, was at the root of the mortgage crisis. This vain hope was embodied in mandates given to the GSEs and regulations enforced against the private sector. It's why so many bad loans were made.

Until that crucial point is recognized, and the financial regulatory system is re-focussed on keeping lending safe and sound (and solely that), with loans made only to customers with high creditworthiness, the financial system will continue to be at risk of a similar collapse. All your flippant and irrelevant cracks will not change that.

Dan Brook said...

I agree with The Corporation that capitalist corporations are sociopathic. In their relentless search to maximize profits, everything else is simply an externality: positive ones like jobs, goods, services, and taxes as well as negative ones like resource depletion, deforestation, pollution, global warming, dyshealth, layoffs, abandoning communities, and so on.

Two tangential points (tangents are like appetizers, often my favorite parts):

1) "McDonald’s provides food"

Not quite. Food is defined, by dictionary.com for example, as "any nourishing substance that is eaten, drunk, or otherwise taken into the body to sustain life, provide energy, promote growth, etc." McDeath neither sustains life for animals nor humans, nor rainforests, causing different types of destruction in the different arenas in which it operates.

Further, real food decays; McDeath's products do not decay, do not grow mold, do not attract bugs, etc. It make imitate food, but it isn't the real deal. McDeath serves food-like products, things designed and processed to resemble and act like food.

http://boingboing.net/2010/03/17/happy-meal-is-ageles.html

2) "Hitler was a vegetarian"
It shouldn't matter even if he were, but Hitler was in fact NOT a vegetarian.

See Rynn Berrry's Hitler: Neither Vegetarian Nor Animal Lover

http://www.jewishveg.com/schwartz/revHitler.html

hoyhoy said...

But, wait, didn't all of the banks fail, and then the failed bankers got promoted? I thought we were running a reverse meritocracy now where the biggest failures became the winners.

fsascott said...

Well, certainly that was true for your man Jack Lew.

"All" the banks did not, however, fail. There are over 7000 banks in this country, and many of them neither received any of the much-misrepresented "bailout" moneys nor wanted them. Community banks largely did not suffer - particularly those with market areas outside large cities or other places with concentrations of non-Asian minorities, because they were not coerced into making loans to so many submedian customers under CRA and HMDA provisions. You ought to learn something about banking before presuming to make sweeping judgments like the ones you have.

You correctly pointed out some posts ago that "SEC has not prosecuted one criminal case..." Why don't you ask your man in the DoJ Eric Holder about that? He has, after all, been attorney general for the past four years. Maybe if he could wrest himself from such onerous tasks as obfuscating and equivocating about the administration's purported authority to kill American citizens without due process of law, he might actually do his job in this and other regards.

hoyhoy said...

Slow down there. I don't vote for these guys. These aren't my guys. I don't own any of the specific cartels that have captured the State. What's the point of ensconcing a cartel that I don't own? I barely pay attention to the alphabet soup of agencies and rules that you continually blather on about. There is no difference between the red and blue teams nor the "private" and "public" sector any longer. You're just repeating old John Birch Society stories updated for the times. The irony is, nobody wants the outcome we're getting, but you can't resist picking a fight or articulating a narcissism of small differences where none exist.

fsascott said...

You speak of "cartels that have captured the State," as if it were not rather that the state has captured the mortgage finance industry, and many other industries as well. And it is you, with your denunciations of "libertarianism" (which I have never professed) that seem to be the principal advocate of state power essentially without limits or bounds.

You "barely pay attention to the alphabet soup of agencies and rules" because you are not obliged to do so in your line of business. Your online details indicate that you are a "software engineer." Perhaps your field needs some intrusive regulation. It would not be difficult to parody mtraven's strictures on the financial industry and apply them to yours. I know of no other business in which it is possible to design a product with inherent faults, sell it to customers knowing that, then come along later with an "update" that they have to buy in order to fix the faults, but which introduces new faults, facilitating the next such transaction in an infinite chain. If any industry can be accused of creating "hostile AI," yours is certainly a good candidate for that distinction.

There is most definitely a boundary between the private and the public sectors, and the delineation is as clear as the point at which my land ends and the public highway abutting it begins. What is mine is mine and what is the government's is its - and government is not shy about reminding me. In fact, there are some in government who have the idea that everything is the government's, except what it graciously allows the citizen to keep. This is the thinking of bad old King John, back before his barons forced him to sign Magna Charta in 1215, and it is amazing how many people who call themselves "progressive" adhere to such a view.

How did the John Birch Society come into this? You behave as though associating me with some bogeyman of the left, e.g., Fox News, Cato, or now the JBS, suffices in place of addressing the issues raised. You are simply not to be taken seriously.

Anonymous said...

@fsascot:

Where exactly is the evidence that Fannie Mae's clients were the ones defaulting?

http://mediamatters.org/research/2011/10/11/still-wrong-crowley-revives-myth-that-community/182896

http://politicalcorrection.org/factcheck/201110140001

http://www.theatlantic.com/business/archive/2011/12/for-the-last-time-fannie-and-freddie-didnt-cause-the-housing-crisis/250121/

Seriously, where is the evidence that the FMs' loans were the ones that went bad? A little more than your opinion, please, especially when that opinion doesn't seem solidly based in the facts.

-Dan L.

Anonymous said...

@fsascot:

Incidentally, I'm not sure why you're objecting so strongly to being accused of endorsing the John Birch Society's position on this. You're not so far off:

http://www.jbs.org/news/our-government-created-financial-crisis

TL;DR: "It's teh gubmint!"

There's also the fact that if you're going to accuse your interlocutors of being liberal shills you should really expect to get the same in kind.

-Dan L.

Anonymous said...

I'm assuming fsascot will not be returning to explain this graph.

http://s3.amazonaws.com/dk-production/images/15231/large/Screen_Shot_2013-01-03_at_5.46.15_PM.png?1357961048

-Dan L.

hoyhoy said...
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fsascott said...

The graph is easy enough to explain.

The base lines, showing "Fannie Mae Delinquencies" and "Freddie Mac Delinquencies" show the percentage of delinquency in ALL loans held by those agencies. Bear in mind that between the two, the GSEs hold an absolute majority of all residential real estate loans in the United States.

The lines showing "Subprime ARMs Seriously Delinquent," "Subprime Loans Seriously Delinquent,' "All Loans Seriously Delinquent," and "Prime Loans Seriously Delinquent," represent the respective segments of all loans outstanding, including those held by the agencies.

In other words, those lines represent a breakdown by loan type. They are ranked as one might expect, with subprime ARMs highest in serious delinquency, subprime loans of all types nest highest in serious delinquency, and prime loans delinquent lying below the line showing the percentage of all loans seriously delinquent.

Further, loans in serious delinquency (90+ days overdue) constitute a fraction of total loans in delinquency, which include those with payment overdue by even a day, just as loans in delinquency represent a fraction of all loans. All of this is mathematically obvious and is hardly an exoneration of the GSEs.

Incidentally, a delinquency rate of 3.0%, shown for all loans held by Fannie Mae, or even 2.3%, shown for all loans held by Freddie Mac, as of February 200, is quite high. The regulatory capital to assets ratio required of the agencies was very low, so low indeed that their non-performing loans basically wiped out their capital. That is why both agencies' losses had cost the US taxpayer $154 billion as of the end of 2012, and could potentially cost another $363 billion:

http://www.heritage.org/research/reports/2013/01/a-housing-market-free-of-fannie-mae-freddie-mac

To this date, the only reason that the agencies' bonds have not collapsed is that the Federal Reserve System is supporting them.

Private-sector banking has done much better. One of the reasons for this is that it was and is better capitalized than the GSEs, though in my opinion it could stand to be more robustly capitalized.

Many of the large banks (e.g., Morgan, Wells, and U.S. Bank) that took "bail-out" monies did not need or want it in the first place, but were forced to take it under the pressure of Hank Paulson's Treasury Department in the waning months of the Bush administration. Others (e.g., Citi) did need it. However, all of these major banks have paid it back, with interest. The "bail-out" program actually made money for the government.

http://www.bloomberg.com/news/2010-10-20/bailout-of-wall-street-returns-8-2-profit-to-taxpayers-beating-treasuries.html

It is true that the near-zero interest rate policy followed by the Fed has given some indirect subsidy to commercial banks by cutting their cost of funds. However, the principal beneficiary of that policy is the United States government, which is the world's largest debtor. Smaller borrowers are merely along for the ride, as a remora is on the shark.

Anonymous said...

@fsascot:

In case you missed it I asked for direct evidence of your claims. You're still not supplying any.

I mean, geez, $154 billion sure sounds like a lot.

But...

"It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it. More than 84 percent of the sub-prime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations. The nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations."

http://www.forbes.com/sites/stevedenning/2011/11/22/5086/

Again, your personal opinions about poor folks are not worth very much. Try rebutting some of the arguments in the links I've posted.

-Dan L.

Anonymous said...

@fsascot:

Not to mention that you simply ignore the fact that the FMs delinquency rate was up to an order of magnitude below that of the private sector's.

"Incidentally, a delinquency rate of 3.0%, shown for all loans held by Fannie Mae, or even 2.3%, shown for all loans held by Freddie Mac, as of February 200, is quite high."

High compared to what? Not the delinquency rates for private home loans. That's obvious from the graph.

Ultimately your arguments about the capitalization of the FMs ignores the fundamental question of who lost the most money in the disaster: the FMs or the private mortgage industry. Everything I can see points to private lenders losing more and furthermore driving the increase in subprime loans granted by the FMs in 2007.

Your argument is predicated on the notion that poor folks are particularly lazy, stupid, and irresponsible, which the low rates of delinquency on FM loans (relative to private home loans) demolishes quite neatly.

And finally, as hoyhoy noted earlier, the timing is all wrong. As you point out, the FMs were making these loans back in the 90's. They didn't blow up when the fed funds rate spiked after 9/11. Why not? And when the (smaller) spike came in 2008 the delinquency rate was still lower in the private industry.

There's no doubt that the FMs poor capitalization exacerbated the crisis in 2008 but as far as actually causing it? No. The financial crisis was a complex event and when you point at a single cause (one that happens to suit your ideological biases) you show yourself to be a rather simplistic thinker. You simply haven't made an argument that the FM's lack of capitalization was the primary or even a primary cause of the crisis.

A similar criticism also applies to liberals who want to point to nothing other than banking executives to be fair.

-Dan L.

Anonymous said...

"And when the (smaller) spike came in 2008 the delinquency rate was still lower in the private industry."

Should be "lower than in the private industry."

-Dan L.

Anonymous said...

Also, more credible sources than heritage please. They've demonstrated numerous times that they consider their agenda to be far more important than the truth.

Before you rag on my "liberal" sources...umm...Forbes?

Anonymous said...

Correction. The first spike in the fed funds rate I referred to happened in '98/'99, not 2001.

-Dan L.

Fsascott said...

"High compared to what? Not the delinquency rates for private home loans. That's obvious from the graph."

You are misreading the graph. The graph does not show an overall delinquency rate for private home loans.

It shows overall delinquency rates for Fannie Mae and Freddie Mac, and what appear to be rates of serious delinquency for all subprime ARMs (whether held privately or by the agencies), serious delinquency for all
subprime mortgage loans (whether held privately or by the agencies), serious delinquency for all mortgage loans (whether held privately or by the agencies), and serious delinquency for all prime loans (whether held
privately or by agencies).

"Serious delinquency" is distinguished from "delinquency." The former means loans 90+ days overdue and the latter means loans overdue by any amount of time. It is obvious that seriously delinquent loans constitute a subset of delinquent loans, just as delinquent loans constitute a subset of all loans. The graph breaks down the types of loans that are seriously delinquent, whether held by agencies or privately.

It is noteworthy that the graph shows subprime loans are most frequently seriously delinquent. And to whom are subprime loans made? To persons with submedian incomes and inadequate collateral. Such people are typically "lazy, stupid, and irresponsible." That is what makes them deadbeats. It is why no sensible lender would lend to them, except for policies like those imposed on the agencies as Barney Frank sought to "roll the dice" on subsidized housing, and policies like the CRA and HMDA imposed on private-sector lenders.

The egalitarian hope, embodied in these regulations, that giving a lumpenprole a house with a mortgage would somehow elevate him into the middle class is as vain as the suggestion that issuing a diploma to an imbecile will miraculously raise his IQ.

To be fully informative, the graph ought to have shown overall delinquency rates for all mortgage loans and overall delinquency rates for all private-sector mortgages. In the absence of such figures, I would guess that the overall delinquency rate for the agencies' mortgages was about the same as that for all mortgage loans.

The point to bear in mind is that the agencies held and hold such a large percentage of all mortgage loans that their losses were much larger than that of any private-sector lender. Even a low delinquency rate across the GSEs total portfolios represented a much, much, larger amount of money than the delinquencies experienced by any individual private sector lender.

If you don't like the Heritage citation for the $154 billion figure, here is a link to USA Today, which is hardly a partisan organ of the right, mentioning the same figure:
http://usatoday30.usatoday.com/money/economy/housing/2010-10-21-fannie-mae-freddie-mac-bailout_N.htm

hoyhoy said...

We get it. The people with the least power, money, and influence in society caused all the problems. Reading that Heritage Foundation link really changed my mind about that. Before that, I always blamed the corporate managers who paid the lobbyists to write the laws. The billionaires in the glass buildings selling empty-boxes back-and-forth to each other based on non-paying mortgages are creditworthy Randian heroes like you. It's great that the banks can profit from defaulted mortgages leveraged up 100-to-1. I'm really proud of how fiscally shrewd they are. They should receive bigger bonuses!

Anonymous said...

It was not "the people with the least power, money, and influence in society." It was the social engineers that thought that these lumpenproles could be uplifted by encouraging them to borrow money. Again, see Morgenson and Rosner - particularly on the Democrat apparatchik James A. Johnson, former CEO of Fannie Mae.

http://en.wikipedia.org/wiki/James_A._Johnson_(politics)

hoyhoy said...

There's no "winning" this argument. Your side believes that pieces of paper with numbers on them and transactionalizing every aspect of the daily existence is the only way to live. People who read this blog have an equally dogmatic and recalcitrant position of "I don't fucking know. Can't we be nice to each other and distribute the output of industrial civilization more sensibly?"

fsascott said...

"More sensibly." And what do you mean by that?

American society has come a long way towards equality of opportunity, and - lo and behold - has found that equality of opportunity does not produce equal results. In fact, it simply creates more unequal outcomes. We've seen this, for example, in the broadening of opportunities for formal education. As Jerry Z. Muller wrote in his article "Capitalism and Inequality" (Foreign Affairs, March/April 2013):

"At the turn of the twentieth century, only 6.4 percent of American teenagers graduated from high school, and only one in 400 went on to college. There was thus a huge portion of the population with the capacity, but not the opportunity, for greater educational achievement. Today, the U.S. high school graduation rate is about 75 percent... And roughly 40 percent of young adults are enrolled in college. ...the greater the equality of institutional opportunity there is, the more families' human capital endowments matter. As the political scientist Edward Banfield noted a generation ago in 'The Unholy City Revisited,' 'All education favors the middle- and upper-class child, because to be middle- or upper-class is to have qualities that make one particularly educable. Improvements in the quality of schools may improve overall educational outcomes, but they tend to increase, rather than diminish, the gap in achievement between children from families with different level of human capital..."

Muller's points about "human capital" are of course a genteel restatement of what Murray and Herrnstein pointed out long ago in "The Bell Curve," which is that the "qualities that make one particularly educable" (summarized by the intelligence quotient) are substantially innate and inherited. It follows from this that inequality and social class are not artifacts of a particular system of law and economics, but are inherent in all human societies, and that efforts to suppress them are doomed to failure. Indeed, as socioeconomic rank becomes increasingly dependent on intellectual ability, the greater its stratification will be.

It is my observation that people who speak about "distribut(ing) the output of industrial society more sensibly" tend to be those who envision themselves in the rôle of deciding what "more sensibly" means, and thus place themselves in the top ranks of their new, more sensible order, in the stead of others whom they have cast down to what they view as deserved humiliation, e.g., the Maoist Red Guard forcing doctors and teachers to work in rice paddies or to remove "night soil." It seems implicit in your remarks that you are an aspiring member of such a nomenklatura.

hoyhoy said...

I wish I was half as sure of anything as you are absolutely sure about everything.

hoyhoy said...
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hoyhoy said...

Do you think this is a sensible way to distribute industrial output?

http://bit.ly/ZkHz88

Gosplan was less fucked up than the G20's industrial policy at this point. But, we have the "free market" which leads to perverse outcomes like this.

hoyhoy said...

Also, I see that known Marxist apparatchik, David Stockman basically agrees with me...

http://bit.ly/YVbEPI

Anonymous said...

Stockman says that we have devolved from a free market economy into one that is managed for a privileged few. I agree. The problem is that the privileged few are people like James A. Johnson and Franklin Raines. When one looks at the career of a man like Johnson - supporter of McGovern, Mondale, Kerry, and Obama - one wonders, why? Did he really believe in their redistributionist ideology, or did he just see it as a way to carve out some handsome economic rents for himself?

There are plenty of such people, who resemble the character of Señor Manuel Ordoñez in Gil Blas, and contrive to do well for themselves looking after the interests of the poor. They make up an influential segment of the constituency of the Democratic party. Whatever their motives, they have managed to line their nests very comfortably on the strength of misguided liberal guilt and sappy sentimentality about the down-and-out.

hoyhoy said...

Yes, let's go back to red versus blue! The bankers are the redistributionists! Whose decision was it to suspend interest on savings to "recapitalize" failed banks? Oh yeah, the Democrats, Republicans, and the failed banking oligarchy. You're a jackass. Do you have a billion dollars and feel like you're part of the scam? If so, good job!

fsascott said...

Whose decision was it? The Federal Reserve System's, under the leadership of Ben Bernanke. It wasn't so much to recapitalize failed banks as to sustain the enormous debt of the United States government, the world's largest debtor, at the lowest possible cost. If interest rates were to rise to historical norms, the entire revenues of the United States not spent on entitlements would be spent on servicing the national debt.

Large banks - which I again point out make up a very small number of the 7,000+ banks and thrifts in this country - may have benefited by Bernanke's decision, but they are merely along for the ride. And whatever benefit those banks may have gained from it is by no means unalloyed. The effect of the near-zero discount and Fed funds rates has been to compress net interest margins. All other things being equal, the effect of a rise in prevailing interest rates to historic norms would probably be to improve the NIMs of competently managed banks.

Governments have long practised stratagems to mitigate their own debts by paying off cheaply what they borrowed when it was more dear. Allowing lesser debtors to benefit in the same way at the same time is a time-honored means of gaining political support for such measures.

You are probably quite ignorant of history, but you might consider the Lex Valeria de ære alieno of 86 B.C. as an illustration of how ancient manipulations of this kind are. The amazing thing is how politicians continue to get away with the same old tricks.

hoyhoy said...
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hoyhoy said...

If it wasn't for Ben Bernanke, poor people, illegal immigrants and Obama none of this would have happened. Then, and only then would we have had a "free market" and everyone would have been rich. Also, you're forgetting that back 400,000 years ago when cavemen traded pretty stones back-and-forth, this all happened before. One caveman ended up with all of the stones. He was the "winner" (as predicted by God, Ayn Rand and Milton Friedman) If you know history, you can relate that caveman with the all of the stones to our current situation where insolvent banks trade nonsensical securities representing non-paying mortgages back-and-forth. It's actually inevitable that all of this should happen. George Washington and Jesus founded this country knowing that these exact circumstances would occur in 2013. Thank you for your prescient analysis of why we should have one person in the entire world who has all of the notional money in the world. YOU ARE A GENIUS! If only we would have listened to you earlier.

fsascott said...

You, on the other hand, have not advanced one fact-based argument or used any logical reasoning. Your flippant, irrelevant, and abusive remarks illustrate the old legal maxim:

"When you have the facts on your side, argue the facts. When you have the law on your side, argue the law. When you have neither, abuse opposing counsel."

Of course it isn't the case that if it weren't for Bernanke, etc., etc., none of this would had happened and "everyone would have been rich." The mortgage collapse of 2008 and its aftermath are products of steps taken years ago, some of which I have previously mentioned, e.g., the Riegle-Neal Interstate Branch Banking Act of 1994, which is the principal regulatory change under which certain banks became "too big to fail"; the Congressional mandates given to the GSEs to hold increasing amounts of paper from borrowers with submedian and sub-60%-of-median incomes; and the passage of measures like the CRA and HMDA which run directly counter to bank soundness and safety. You have apparently taken no note of these points.

Finally, it is impossible that "everyone would have been rich," because there will always be rich and poor. The human race is a very unequal lot, varying widely in individual capacities and characters. These differences invariably manifest themselves at any level of civilisation more advanced than the most primitive band of hunter-gatherers, and that is is why every human society worthy of the description has ordered itself hierarchically, in every time and at every place throughout recorded history. Those brief paroxysms during which particular societies have tried to deny inequality have always ended in bloodbaths (e.g., the French reign of terror, the Stalinist Holodomor, the Maoist Cultural Revolution, the Cambodian killing fields) and when stability returned to the stricken peoples, hierarchy has always reasserted itself in some form or another.

Your attempted parody of what you imagine to be the views of a person on the right reflect an overweening moral vanity and intellectual condescension. The former appears unwarranted based on your apparent principles, while the latter does based on your deficient knowledge about how the financial system actually works. Moreover your economic views appear to be based mainly in an envy of rich people. Envy is one of
the baser human instincts, and among them is perhaps the least satisfying. Why don't you try one of the others for a change? Gluttony and lust can at least yield some crude physical pleasure, which is more than can be said for envy.

hoyhoy said...
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hoyhoy said...

No, I'm agreeing with you. You're a Randian hero and creditworthy. I'm not a hero nor creditworthy. Therefore, I should be homeless. You're absolutely correct. Only Lloyd Blankfein should get to enjoy money. Everyone else lost in the free market. After all, every human interaction has to be a game to be won or lost. I'm not being flippant. You won!

hoyhoy said...

Also, if you don't enjoy money and transactionalizing human existence, then you're a Maoist Communist Stalinist and have to be sent to the capitalist gulag. I'm agreeing with that too. Because Communism = Socialism = Command-and-Control economy presided over by a dictatorship (in accordance with the ancient prophecy bespoke by George Washington, Jesus, Ayn Rand and Milton Friedman).

fsascott said...

"No, I'm agreeing with you. You're a Randian hero and creditworthy. I'm not a hero nor creditworthy."

Your creditworthiness has to do with how promptly you pay your bills. Your thinking is very confused, but I do not know whether a similar confusion is also present in your checkbook.

"Therefore, I should be homeless."

People who cannot afford a mortgage can rent. Not being eligible for mortgage credit does not imply homelessness.

" You're absolutely correct. Only Lloyd Blankfein should get to enjoy money."

Do you think I, who have criticised the Riegle-Neal Act, am a fan of Lloyd Blankfein? Incidentally, did you know that Goldman Sachs was the largest single source of contributions to the Obama campaign in 2008?

"Everyone else lost in the free market."

The problem is that it ISN'T a free market, but rather one that is distorted by perverse regulatory and tax incentives. It is these market constraints, rather than the free market, that have influenced and continue to influence the course of the financial markets in an adverse faahion.

"After all, every human interaction has to be a game to
be won or lost."

When did I say that? We, or at least I, am attempting to discuss a few facets of human behavior as they pertain to money and banking and economic life. I have not ventured to comment about "every human interaction," only about these. That leaves a wide variety of human interactions relative to the nuclear and the extended family, voluntary associations, cultural, spiritual, and aesthetic values, and the higher life of the mind largely unexplored.

fsascott said...

"Also, if you don't enjoy money and transactionalizing human existence, then you're a Maoist Communist Stalinist and have to be sent to the capitalist gulag."

You have things entirely upside down. It is the Marxists who are insistently, dogmatically, pure materialists. If you don't want to take my word for it, go back and read Marx.

We reactionaries, while we venerate Tradition, Family, and Property, have never held that the first two are
mere offshoots of the latter, as Marx did when he railed against "the claptrap of the bourgeois family," or as Engels asserted at length in "The Origin of the Family, Private Property, and the State." Tradition and family are independent concepts. Tradition expresses the lessons learnt by the cumulative experience of millennia of human existence; the family antedates all systems of economics and is the fundamental unit of all societies. The moral and metaphysical elements of these concepts cannot be reduced to the material, as Marxists hold that they can.

"Because Communism = Socialism = Command-and-
Control economy presided over by a dictatorship"

Of course not all collectivisms are equal in all things. There are differences of degree, as there are between similar varieties of disease. If Soviet communism was the H1N1 flu, British socialism was the stomach flu. Hpwever, each is debilitating in its own way. The turmoil in the European Union largely reflects the collapsing condition of social democracy in states that can no longer afford its costs. The banking crisis in Cyprus is a direct consequence of the overinvestment by Cypriot banks in bad sovereign debt, mainly that of Greece. As Sheila Bair (head of the FDIC) pointed out in yesterday's Wall Street Journal, banks overinvest in sovereign debt because by regulation it is risk-weighted at zero, a highly dubious assumption. And who made that regulation? Governments, the issuers of sovereign debt.

" (in accordance with the ancient prophecy bespoke"

Do you mean it was made to order, like a Savile Row suit? That is what "bespoke" means.

" by George Washington,"

I have to admit a liking for old George. It was he who observed that government, like fire, was a dangerous servant and a fearful master - words we would do well to heed.

" Jesus,"

Jesus said thar his kingdom was not of this world. Christianity is a path to spiritual redemption, not a blueprint for social organization.

" Ayn Rand"

A bad writer and a half-baked philosopher, whose one trick was to turn Marx's materialism on its head - mainly valuable for her ability to horrify leftists.

" and Milton Friedman"

I'll bet you have never read any of Friedman's scholarly works on economics, and that your sole exposure to him consists of having seen an episode or two of "Free to Choose." You deride what you do not comprehend.

hoyhoy said...

YOU WIN! YOU'RE A WINNER AND A CHAMPION! AND CREDITWORTHY!

fsascott said...

I'll just leave you with this, from yesterday's Washington Post:

"The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. ...

"In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

"Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

"Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. ..."

http://www.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html?hpid=z1

Look who is leading the gullible down the primrose path once again.

As Jacob Burckhardt observed,

“the state incurs debts for politics, war, and other higher causes and ‘progress’. . . . The assumption is that the future will honor this relationship in perpetuity. The state has learned from the merchants and industrialists how to exploit credit; it defies the nation ever to let it go into bankruptcy. Alongside all swindlers the state now stands there as swindler-in-chief.”

hoyhoy said...

I'm totally convinced now. That article really made me change my mind. It really is the fault of big government and the powerless. Fsascott, The ghosts of Lord Reagan, Milton Friedman, Margaret Thatcher and Ayn Rand are all smiling down on you now. Who's a good boy? Fsascott is a good boy!

fsascott said...

HoyHoy (should it be heu heu?) - If you have nothing of interest to contribute to the conversation, then why continue to post? Your remarks are not making any sort of case for your position, and the attitude of superiority and sarcasm you affect seems quite unwarranted by its merits.

hoyhoy said...

Dude, you won. I'm convinced now. the USA failed because it wasn't capitalist the same way the USSR failed because it wasn't communist enough. You're so right that it hurts.

fsascott said...

You don't have that quite right. The USSR failed because collectivism always does, sooner or later. The Chinese, a bit smarter, abandoned Marxism in practice while retaining the Communist party simply as an instrument of authoritarian government. The Chinese have prospered as they have moved away from collectivism.

The EU and the USA are experiencing failure to the degree that they have embraced collectivism. Instead of expanding their collectivism, they ought to be backing away from it, as the Chinese have done. It would be easier to begin doing this now, while it can still be done gradually, rather than waiting until social democracy collapses under the burden of its unsustainable costs.

hoyhoy said...

Oh, totally. That's what I'm saying. The US needs more competition! We need a war of all against all to increase industrial production for the State. I'm agreeing with you and Lord Reagan on this one.

fsascott said...

Except that's not what I'm saying. I don't want to "increase industrial production for the State." That sounds like some sort of Stakhanovite dream of the old Soviet Union.

In a free society, industrial, agricultural, extractive, and any other kind of production exist at whatever level they do because of market demand, not because of some quota set by the State. Market demand is merely the sum of individual demands, and is a very bottom-up kind of phenomenon - people voting with their dollars, so to speak.

You seem to like to use language that imputes to persons or institutions a character that they really don't have. Let's take, for example, your reference to "the powerless" in one of your comments above. To say that something is powerless is to imply that it is without any ability to affect anything.

Do you really believe that the bottom quintile of society, the deadbeats, the slothful, the vicious, those with two-digit IQs, are without any ability to affect anything? That's rather like saying that drag lacks the power to affect the flight of an aircraft, or that excess ballast lacks the power to affect the way a ship sails.

Here's an interesting article about the nature and composition of mortgage defaulters:

http://isteve.blogspot.com/2013/04/foreclosures-on-2005-vintage-mortgages.html

Evil rich people did not force these people to default on their bills - any more than they forced the same segment of society to bear more children in bastardy than in wedlock, to commit most of the violent crime, to consume most of the illegal drugs, or generally to flourish in all types of social pathology. And to say that these behaviors are without effect - that the people who engage in them are powerless - is an obvious falsehood. They have exerted a great and malignant power over the American economy and body politic.

hoyhoy said...

fsascott, I wish I could live in your simplistic world of good and evil. You're a cartoon of an actual person. What's amazing to me is that you think pretending to believe this nonsense is going to make you successful.

fsascott said...

How do you know how successful I am or am not? It may be - indeed, I suspect that it is - the case that, after forty years in my own business, I have far greater prosperity, far better social entrée, much more aesthetic satisfaction, and greater spiritual contentment in my life, than you now enjoy or ever will do.

Learn not to be quite so smug and morally vain. People will think the better of you.

hoyhoy said...

You're the good person, a winner and a champion. Other people are the bad people and losers.

hoyhoy said...

Did you read How to Win Friends and Influence People too? You're a winner and a champion!

fsascott said...

Persons who subscribe to what Tom Sowell has called "the vision of the anointed' often act as you are doing when confronted with disagreement. They cannot argue their side of an issue cogently, so they pretend their interlocutor is not worthy of serious response, and dismiss him with flippancy or sarcasm. Such snottiness and superciliousness as yours is still no substitute for reasoned argument.

Anonymous said...

Anybody against "shooting the C.E.O. of Exxon" ?

Hello...anybody?

Anonymous said...

Your take on business and AI reminds me of Charles Stross' "Invaders from Mars" essay: http://www.antipope.org/charlie/blog-static/2010/12/invaders-from-mars.html