Reidblog [The Reid Report blog]

Think at your own risk.
Thursday, September 18, 2008
Thank you, Larry Kudlow
Every so often, a member of the "conservative movement" offers us a clarifying moment, that illustrates the fundamental differences between the values and ideas of the two major political parties. (Phil Gramm declaring Americans "whiners" for not appreciating how well the economy is doing ... for rich people like him; John "seven homes" McCain declaring that "the fundamentals of the economy are strong," while Rome is literally burning all around him, being just two examples.) This morning on "Morning Joe," CNBC host, GOP booster, laissez-faire economics guru and John McCain sympatico Larry Kudlow, offered up such a moment.

Asked to explain the current crisis on Wall Street and Main Street, Kudlow declared that it's not the fault of the investment banks and hedge fund guys who packaged, bought and sold subprime mortgages for sport and profit, driving up demand for bad loans and incentivizing shady lending, or even the banks themselves, and their coterie of crooked appraisers and greedy mortgage brokers. It wasn't the Republican Congresses who systematically stripped the system of regualtions, thanks in large part to John McCain's buddy Phil Gramm. It wasn't the speculators or the flippers buying second, third, and even fourth homes and condos, or the price-gouging builders raising prices $30,000 a month here in Florida, or the greedy developers and brokers pushing home ownership with "no money down" as the latest fashion trend, or the combined speculative market that juiced up of home values beyond all reason. Nope. Those people are well off, and therefore they're better than you.

No, my friends, it turns out our current economic crisis, led by the massive mortgage meltdown, is the fault of liberals, who literally forced banks to lend mortgage money to poor people so they could assuage their "liberal guilt," and of course, it's also the fault of those icky, horrible poor people themselves. How dare they want to live like the rest of us! Why, they're POOR! ... and that's supposed to mean something in America!

Never mind that percentage-wise, home ownership among the poor is literally negligible, and that a huge part of the housing crisis is the LACK of affordable homes for people with little income, or that the majority of these 3-bedroom, $500,000 homes that are really worth $250,000 are being sold not to the poor, but to the middle class, often at teaser rates that mean their mortages literally can double after six or seven years.

Forget all that, and listen to Larry. He knows that it really was those bloody awful poor people, and the whimpering liberals who pamper them, at the expense of the downtrodden, helpless banks.

After a few minutes of this, Joe Scarborough was literally dumbstruck.

"Okay, so you're saying it's the poor people's fault," he deadpanned. Kudlow sputtered, but he had already said too much.

Going into the break, Scarborough sneered that coming up in the next segment, they'd explain how poor people were behind the JFK assassination, too.

Damned poor people. They screw up everything...

Cross-posted at TPM Cafe.

Update: An astute commenter at TPM finds this link that delves into the role the SEC's lax oversight played in bringing us to the brink. An excerpt:
As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis.


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