There’s a story coming out of New York that far overshadows the trials and tribulations of New Jersey Gov. Chris Christie although you wouldn’t know it based on the paucity of national coverage it’s received. A major Social Security Disability fraud racket has been uncovered:
Manhattan District Attorney Cyrus Vance Jr. this week charged 102 retirees, including 80 former New York police officers and firefighters, with making phony disability claims since as far back as 1988 to obtain Social Security benefits and tax-free pensions equalling up to 75% of their pay. About half of the cheats attributed their “disabilities” to 9/11, even if they never even worked at Ground Zero.
[…]
Mr. Vance says the 102 indicted retirees collected on average $210,000 in benefits. Since most are still in their 40s or early 50s, each could have extracted hundreds of thousands more had the racket continued. One alleged fraudster is only 32. Mr. Vance says as many as 1,000 people may have been involved in the scheme, and the investigation is continuing.
Assuming the 1,000 fraudster figure the total amount of the fraud could be in the billions.
What struck me about the story was how neatly it dovetailed with the point I made earlier this week about the forces that are now mobilized to absorb any available resource. Consider how this entire operation proceeded. A couple of lawyers and a union official recruited potential candidates in the fraud, setting them up with equally crooked physicians and judges. All terribly systematic. And this might be just one of hundreds of similar disability fraud rings around the country.
My offhand guess is that those receiving payments from the Social Security Disability Fund are mostly in one of three categories:
- Individuals who are genuinely disabled and unable to work.
- Individuals who are able and engaged in fraud.
- Individuals who meet the definition of disability but who would work if they could find jobs.
The people in that last category are simply desperate. I suspect we’ll see a lot more of them if we allow the unemployment payments for the long term unemployed to remain lapsed.
However, it’s those in the second category, however small in number they might be, who will receive the attention and tar the entire program with their crimes. A real tragedy.
We can’t possibly tarnish the good reputations of lawyers, doctors and unionized public employees.
” I suspect we’ll see a lot more of them if we allow the unemployment payments for the long term unemployed to remain lapsed.”
Dave,
How do you think the lapsed long-term UE benefits should be handled?
We need a lot more of this. The SS disability office does ongoing investigations and IIRC, they typically recoup about $10 for every $1 they spend on their investigations, but they are poorly funded. I have no idea how large group 2 is, but I suspect that recent growth is mostly in the third.
Steve
It looks like its mental disabilities that are alleged to have been false. Probably pretty difficult to catch. I wonder what the standard is.
For the record, I’ve been off UEC for years now. My 99 weeks are long gone.
I have no idea whether the emergency benefits should be extended or not, but I am opposed to the states cutting back on their benefits. Gov. Rick Scott of Florida was of the opinion that all unemployed people were free-loaders, just like all the faithful Republicans here, as well as all the Democratic rich people here. So he has had the regular benefits curtailed. I think the max benefit is for 20 weeks now (instead of 26) and falling as the UE rate falls. Of course, that rate is falling because people are giving up, not because of the building boom by Wawa. (Sorry, local story reference.)
As to the emergency benefits: Those were started under Bush. I believe there were two tiers of extended benefits he created, and then Obama added a tier in the ARRA. That means the emergency has been going on since 2008, at least. No idea what the structure actually looks like now, as it hasn’t affected me personally in almost four (!) years.
I also have no idea if they should be extended, or modified, or what. I do know that there aren’t enough jobs to go around. (Even a CNN article this morning admitted that we STILL haven’t recovered all the jobs lost since the recession began, and they were glossing over the issue that a huge number of the jobs “recovered” have been part-time jobs replacing full-time jobs.)
The only recommendation I’ve got is to fire everyone in charge, because it is clear that the entire champagne-sipping arugula-eating bunch of them are nothing but parasites.
It looks like its mental disabilities that are alleged to have been false.
Gee, I’ve got depression documented to back when I was a useful citizen. Perhaps I should file.
Ellipsis: Losing a job is certainly a big mental health stresser, but most people suffer depression or anxiety problems from time to time. Living a life of lies and deception can also create depression and anxiety problems. It seems so subjective.
A disturbing possibility is that people suffering mild mental health problems were “coached” into having actual severe problems.
You do not want to have any form of severe depression.
Well, you know what they say. 90% of them give the others a bad name. 😉
My preference would be an extremely aggressive jobs program and a host of other reforms I’ve suggested around here from time to time. Failing those, continuing to pay unemployment benefits is the least worst alternative.
I dont know any docs doing disability work. I dont know anyone who knows anyone who does. I have to think it is a pretty specialized group. Should make it easier to investigate. Suspect same is true for the lawyers and I also suspect that with a bit of investigation you could find that a minority of magistrates/judges do most of the approvals.
Steve
Well, pretty obviously somebody is doing it and in substantial volume.
90% of them give the others a bad name.
Spoken like a true Chicagoan, I gather?
And Steve, yeah, nobody knows nothin’. That’s alwaulys the way it is.
PD, I’ve had depression issues since well before I was unemployed. But I’m not going to file, as I have two friends in the system who NEED to be in the system (and have the missing body parts to prove it) and I don’t want to contribute to the eventual collapse of the system at their expense.o
Also, what little pride I have left is precious to me, and I won’t squander it on that. I’m not that desperate yet. My wife did avoid the headsman’s axe this morning, afterall, though many of her co-workers did not. More of that B-fucking-PLUS economy I keep hearing about. On the upside, I’m sure the company’s stock price will go up.
Don’t look at me, I’m not doing it.
… More of that B-fucking-PLUS economy I keep hearing about. …
The economy is doing so well that we need emergency unemployment insurance passed several times over. We needed a stimulus package that was going to create billions of jobs, and it looks like the same geniuses are calling for another one.
Now, it turns out the unemployment problem is the fault of greedy companies who keep hiring robots or refusing to hire humans. To fix their asses, we are going to raise the minimum wage, and to really show the greedy bastards, we are going to make them provide health insurance, maternity leave, paternity leave, and any other benefit we can dream of.
If the bastards think they can get away without hiring anybody, we will tax their asses (less the loopholes for us), and we will pass some of it to the people we unemployed.
Of course, all this will help to strengthen and rebuild families. What man does not take pride in providing for his family by marching down to the welfare office to sign-up for benefits. A real man is not the “bread-winner” of the family. He is the “benefit-winner” of the family. Is there anything better than having your testicles removed by a liberal?
Millions of men today are living the American dream of getting an unemployment check, and each night sitting at the dinner table, explaining to their kids how being lazy and shiftless is actually hard work. People with jobs will never know the joy of not answering the phone because it is probably a bill collector, or who will never see the face of their child when told this is the final foreclosure letter from the mortgage company.
Conservatives have caught onto this little scheme: “lose” your job, get kicked out of your house, getting free housing, free food stamps, free schooling, free school lunches, free healthcare, free, free, free. Apparently, the fastest route to Easy Street is via the gov’t dole. Is there anything better than getting kicked in the testicles by a conservative?
I try to understand this logic, but apparently, I am not smart enough.
Wow, and I thought I wad bitter….
You are. That aside, the disability program has been there for years. Its growth rocketed when there were not enough jobs. When there is work, people will preferentially work. Not all, but most.
Steve
@Icepick
Wow, and I thought I wad bitter….
I really only wanted to go after our rich liberal friend, but if I beat up one side, the other side thinks I am scoring points for them. I am not really bitter, but I am bewildered. How can one make conflicting statements and have superior intelligence.
Why does this B+ economy need another emergency unemployment extension, and after spending $800 billion to create this B+ economy, why are some people calling for an additional stimulus package?
“Bush drove us into the ditch.” Are we still in the ditch? If so, when will the non-Bush, non-Republican, non-racist policies begin to work? If not, why do we still need unemployment insurance extensions and stimulus packages?
How can one be studying a subject, but entirely not understand the basis for one’s conclusion. Specifically, the WW2 wartime economy. Actually, we have a Nobel Prize winning economist who has no clue about how it worked, or if so, both fail to include the basis in their argument.
The WW2 wartime economy was war material driven. The consumer products that were produced were non-war related. War materials that were also consumer products were rationed. Raw materials, manufacturing, prices, and wages were all controlled by the government.
Let us not forget all the workers joining the military lowers the unemployment rate, and these are usually, the most productive workers.
Nobody ever accounts for the dead or maimed workers. A job not filled by the dead productive worker will be filled by two less productive workers. This further lowers the unemployment rate.
There was a lot more going on than the government borrowing money. This should be apparent to anybody with superior intelligence or an economist, but somehow, they are not able to grasp it. I guess that these superior minds are too busy identifying racism to be bothered with details.
I did not mean to hijack the thread, but your “B+ economy” comment got me spun up.
TastyBits: Why does this B+ economy need another emergency unemployment extension …
The economy is doing okay — for something in its condition. The financial meltdown was the equivalent to a heart attack. It takes time to recover.
TastyBits: and after spending $800 billion to create this B+ economy, why are some people calling for an additional stimulus package?
Because $800 billion didn’t cover the loss of aggregate demand, which was an order of magnitude larger.
TastyBits: The WW2 wartime economy was war material driven.
Yet people had more hope and opportunity than they did during the worst years of the Depression. They were on the right side of history.
@Zachriel
Here goes my Saturday. No matter. I do not have a life anyway.
The economy is doing okay — for something in its condition. The financial meltdown was the equivalent to a heart attack. …
The economy is not doing OK. The economy is in a coma. The life signs may be reading OK, but the economy still has a feeding tube and shits on itself.
The economy seems to be doing OK because the Fed is pumping money into it as fast as possible, but little of this money is being used to produce anything of value. Most of what is being produced requires few or no workers, and therefore, we see an economic “recovery” that requires few or no new workers.
(Just for the record, the 2008 financial meltdown began in 1999 with the de facto repeal of Glass-Steagall.)
… It takes time to recover.
This statement requires substantial more context. Recover to where and to what? Are we returning to an ante-2008 financial system? Tens of trillions of dollars have been wasted in the real estate sector – building, financing, furnishing, etc. Or maybe an ante-1999 financial system?
If you intend to recover this, you will need to recover the financial system that supported it – warts and all. Of course, this will eventually achieve the same result. Trying to regulate your way to winning result will never work.
(Just for the record, Dodd-Frank will fail because it tries to beat the financial industry at its own game. If Dodd or Frank were smarter than the financial industry, they would be CEO’s of a financial company.)
Because $800 billion didn’t cover the loss of aggregate demand, which was an order of magnitude larger.
Aggregate demand is a meaningless term.
One problem was/is worthless debt. Presently, what has not been passed off to the Fed is being held on the banks books. The second problem is misallocated capital into the real estate sector. The first problem is affecting the second. Also, it is easier to borrow money from the Fed and lend it to the Gov’t.
(Just for the record, the GSE’s distorted the housing market.)
Some of the $800 billion went to pay off political constituents – building projects, grants, studies, etc., but the majority found its way into the pockets of the rich. It is no accident that the rich are getting richer.
Yet people had more hope and opportunity than they did during the worst years of the Depression. They were on the right side of history.
If hope and change were enough to get an economy rolling, this one would be burning up.
A bucket of warm piss is a bucket of warm piss no matter how much shit you serve with it.
@Icepick
What really bothers me is not the glass of warm piss and plate of shit. It is not being told that it is really a glass of “champagne” and a plate of “arugula” salad. What really bothers me is that anybody who disagrees is called a racist.
For me it’s the glass of tepid piss (they can’t be bothered to pass it along fresh) and the plate of shit. Being told that the economy is doing okay when the ONLY reason the UE-3 rate has come down is because of people dropping out is just such rubbish.l
TastyBits: The economy is not doing OK. The economy is in a coma.
That’s an exaggeration. The U.S. economy is growing, and has been growing.
TastyBits: The economy seems to be doing OK because the Fed is pumping money into it as fast as possible, but little of this money is being used to produce anything of value.
Monetary stimulus is like “pushing on a string”. Fiscal stimulus would be preferable, but the U.S. political system is somewhat dysfunctional.
TastyBits: Most of what is being produced requires few or no workers, and therefore, we see an economic “recovery†that requires few or no new workers.
While GDP is growing, many workers are not finding jobs available. The economy is restructuring, and workers need to retrain for the new economy.
TastyBits: (Just for the record, the 2008 financial meltdown began in 1999 with the de facto repeal of Glass-Steagall.)
There was plenty of time for a course correction. Not cutting taxes would have tempered the overheated economy and left the U.S. in a much stronger position in the event of a financial crisis.
TastyBits: Aggregate demand is a meaningless term.
It’s an abstraction, but hardly meaningless.
That’s an exaggeration. The U.S. economy is growing, and has been growing.
Which is why, four and a half years after the start of the recovery, we’re still over four million full-time jobs short of where we were when the recession started? When most of the job growth has been in the part-time area? When even that job growth has been barely enough to keep up with population growth?
SUUUUUURRRRRREEEEE, we’re doing just great.
Could you expand on that a bit, Zachriel? I think the increase in federal credit extended has exceeded GDP growth since, what, 2007? I would interpret that as a flat private economy.
If you mean that the DJIA is rising, that’s true. I don’t see much relation between that and the true economy.
Could you provide evidence for that claim? I think that the sectors of the economy that are expanding, e.g. healthcare, education, are sectors in which that jobs created per incremental dollar are insufficient to account for the natural increase. In other words, the more they grow, the worse the employment situation will become.
In my view the problem is less that it’s an abstraction than that it’s axiomatic. No value for AD can either be proven or disproven.
Just to repeat my position on the economy I think that we’re tremendously over-invested in housing, finance, healthcare, aerospace, and auto manufacturing, just to name a few. Policy over the last dozen years has been to prop those sectors up. That results in enormous malinvestment of resources. That malinvestment is more than enough to account for 1 or 2 percentage points of lost growth per year, which is about where we are.
The longer we defer the necessary “creative destruction” the more serious it will be by the power of compound interest.
Dave Schuler: I think the increase in federal credit extended has exceeded GDP growth since, what, 2007?
That’s the nature of a stimulus. You spend more during a downturn. The deficits have been declining as GDP continues to grow, reaching crossover in 2013.
Dave Schuler: In other words, the more they grow, the worse the employment situation will become.
While healthcare will become an increasingly important source of jobs, the new economy will include new industries.
Dave Schuler: In my view the problem is less that it’s an abstraction but that it’s axiomatic. No value for AD can either be proven or disproven.
Let’s look at aggregate demand in broad strokes. Can we say which country has more aggregate demand, the U.S. or Russia? If so …
Dave Schuler: Just to repeat my position on the economy I think that we’re tremendously over-invested in housing, finance, healthcare, aerospace, and auto manufacturing, just to name a few.
Housing is starting to grow again as the oversupply has been whittled down. Finance will continue to be important. Until the advent of robotic nursing, healthcare will absorb more workers, the U.S. is still a leader in aerospace. The auto industry made some very bad decisions, but they seem to have recovered.
Dave Schuler: That malinvestment is more than enough to account for 1 or 2 percentage points of lost growth, which is about where we are.
So the patient is not in a coma after all. The U.S. has a highly educated and motivated workforce, great natural resources, and a large lead in science and technology. There are problems, but most countries would love to the America’s problems.
Dave Schuler: The longer we defer the necessary “creative destruction†the more serious it will be by the power of compound interest.
Creative destruction is ongoing. Much of that destruction is occurring in the jobs market. That’s why there’s so much pain.
Zachriel, you are not looking at the numbers. For the economy to grow in any meaningful sense GDP growth must exceed the extension of credit. The problem we face is not that extending credit doesn’t produce “growth” but that there is no multiplier. That’s no self-sustaining recovery.
So, you don’t like the word “coma”. How about “lack of a self-sustaining recovery”?
And you’re ignoring how disproportionately large our financial and healthcare sector are by comparison with other OECD countries. The idea that they will be the engines of future growth is risible. That’s the old joke about the guy who loses $1 on every sale but believes he’ll make it up in volume. They’ll grow as long as federal spending props them up.
BTW, the business cycle still hasn’t been repealed.
Dave Schuler: For the economy to grow in any meaningful sense GDP growth must exceed the extension of credit.
That will occur as the economy continues to grow and deficits decline.
Dave Schuler: The problem we face is not that extending credit doesn’t produce “growth†but that there is no multiplier.
You can only calculate the multiplier by measuring against what the economy would have been like without the stimulus.
Dave Schuler: So, you don’t like the word “comaâ€. How about “lack of a self-sustaining recoveryâ€?
The patient is still weak, but continued improvement is likely.
Dave Schuler: And you’re ignoring how disproportionately large our financial and healthcare sector are by comparison with other OECD countries.
The growth in the healthcare industry is slowing, though that doesn’t preclude growth in employment in that sector. The financial sector still needs significant reform.
@Zachriel
That’s an exaggeration. The U.S. economy is growing, and has been growing.
The economy is growing when value is being added to it. To add value requires value to be created. To create value requires somebody to produce that value. Little of what is being produced has any value, and hence, it requires few somebodies to create it.
The energy sector is expanding, but this administration id doing everything it can to stifle it. Manufacturing follows cheap energy, and it is trying to expand. @Dave Schuler has commented on the government supported sectors healthcare and education.
Money is flowing at the top, and this gives the appearance of prosperity. With each go round, the people at the top take their cut, but they only take a very small cut. This has the effect of inflating the “economic indicators”. None of this is new, but presently, there is nothing to mask this effect.
Monetary stimulus is like “pushing on a stringâ€. …
Of course. Monetary stimulus is nothing more than credit creation stimulus. You can lead a borrower to a lender, but you cannot make the lender lend nor the borrower borrow.
Banks have too much trash on the books, and most of the prime borrowers are taken. All that is left is sub-prime, but unless we are going back to the bad old racist Republican ways, sub-prime lending is out. The only way to create more prime credit is to create more prime borrowers, but un/under-employed folks do not make prime borrowers.
This is a real problem in a consumer driven economy. I can elaborate if you would like, but you may not like what I will elaborate. (Where is @Steve Verdon when you need him?)
… Fiscal stimulus would be preferable, …
Economies grow by adding value. Adding valueless currency into the economy does not increase the amount of value in the economy. This is an entirely different debate.
The problem in a consumer driven economy is that fiscal stimulus does not create credit. Credit creation is what drives a consumer driven economy.
… but the U.S. political system is somewhat dysfunctional.
Do they no longer teach US history? Take a moment and Google “Hamilton and Burr”. Is VP Cheney shooting birdshot into his friends face the same? Today’s politicians are a bunch of wimps compared to those of 200 years ago.
While GDP is growing, many workers are not finding jobs available. The economy is restructuring, and workers need to retrain for the new economy.
You keep stating that the economy is doing wonderful, but it is restructuring into something. What is that something? What are workers supposed to be retrained to do? Do they need to move? If so, see my previous posts on poor/struggling people moving?
You have restate this in several subsequent comments, but you have offered nothing more. Again, we have the rich getting richer, and the unemployed getting more unemployed. Honestly, do you really believe this crap?
Is anybody not seeing a pattern?
Consumer economy needs consumers able to borrow. Prime borrowers are not borrowing any more. Banks will not lend to sub-prime consumers. Un/under-employed consumers cannot become prime borrowers. Fed is making money available for almost free. People and institutions with money borrow from Fed and lend to gov’t. Gov’t gives away money, but no credit is created.
We have consumers using gov’t money to purchase things of value, but in the US economy, these things do not amount to much. The value added to the economy requires very few additional workers.
We have numerous programs using money borrowed by the government to prop up insolvent financial institutes, and there are multiple other ratholes where money is being funneled into – Solyndra. This adds no/little value to the economy.
We have the Fed with any number of its own schemes purchasing various paper. This adds no value to the economy.
Those items that add no value to the economy are still counted as adding value. They do add value, but it is to the wealth of the rich.
There was plenty of time for a course correction. Not cutting taxes would have tempered the overheated economy and left the U.S. in a much stronger position in the event of a financial crisis.
WTF. Are you effing crazy? Whoever you got this from is an idiot. (I am almost tempted to listen to the logic. It is like a tooth that hurts, but you are compelled to wiggle it.)
Taxes had nothing to do with the housing or financial crises, and please note, they not the same. The second was a levering off the first.
The government was pushing housing. The community organizing groups were pushing housing. The financial industry was pushing housing financing. The money market industry was clamoring for housing investments. Wall Street was pushing for housing deals to broker. The housing builders were pushing housing developments.
There were numerous people raising the red flags, but they were shouted down. “It could never happen.”
The regulators were working with the industry to insure that there were no restraints on their activity. Future Treasury Secretary Timothy Geithner was the one leading the charge, and he continued after his appointment.
This entire mess is an indictment of using the regulatory system as the primary policing mechanism, and it should refute anybody who claims an industry is being forced to do anything by a regulator.
Glass-Steagall worked because it outlawed activity. Dodd-Frank will not work because it regulates activity. Allowing a tiger to freely roam the city but regulating how it gets lunch ain’t gonna work.
… aggregate demand …
You will need to provide a definition of this concept. Jokes and nebulous statements ain’t gonna do it.
TastyBits: The economy is growing when value is being added to it.
That’s why we have a measure of gross domestic production.
TastyBits: Adding valueless currency into the economy does not increase the amount of value in the economy.
Not directly, but it can lead to an increase in production when there is slack in the economy.
TastyBits: Do they no longer teach US history?
We didn’t say this was the only time the U.S. Congress was dysfunctional.
TastyBits: You keep stating that the economy is doing wonderful …
Well, no, we didn’t. We said the patient had the equivalent of a heart attack and is slowly recovering. The economy is doing okay — for something in its condition.
TastyBits: Taxes had nothing to do with the housing or financial crises, and please note, they not the same.
If you remember, there was a bubble in the housing market and in the shadow market for mortgage-backed securities. It’s straight-forward economics. If tax revenues are higher, it reduces economic expansion. It also increases the cash position of the government, giving it more flexibility in the event of a crisis.
TastyBits: You will need to provide a definition of this concept {aggregate demand}.
The definition is something you can look up in a book. It’s often defined as “The total amount of goods and services demanded in the economy at a given overall price level and in a given time period.”
@Zachriel
If you remember, there was a bubble in the housing market and in the shadow market for mortgage-backed securities. …
Mortgage Backed Securities (MBS) are publicly traded, and as such are not in any “shadow market”. A “shadow market” is simply a private market.
The housing bubble was caused because there was an unnatural excess amount of money available for mortgages. This was due to a number of reasons, but the GSE’s – Fannie & Freddie – were a large part. This caused houses to be overbuilt and the sector to be overinvested.
You are way out of your depth on this subject.
… It’s straight-forward economics. If tax revenues are higher, it reduces economic expansion. …
Taxes have absolutely nothing to do with how much money was or would have been available. The money was going to be lent one way or another. If anything, higher taxes would have caused more people with even lower credit scores to get mortgages.
If I understand correctly, President Bush fucked up everything by keeping taxes too low which ensured unemployment was low, and people could buy things they wanted using the money they earned from their jobs. President Obama has now fixed things by raising taxes which ensures unemployment is high, and people do not have money to buy anything except for what the government gives them.
Rich liberals clamored for their taxes to be raised. Rich liberals had their taxes raised. Rich liberals had their income increase. Is it any wonder rich liberals want their taxes raised?
… It also increases the cash position of the government, giving it more flexibility in the event of a crisis.
The government does not have a “cash position”. It prints or borrows cash into existence. In the event of a crisis, Congress uses off-the-book accounting to cover the expenses.
TastyBits: Mortgage Backed Securities (MBS) are publicly traded, and as such are not in any “shadow marketâ€.
Mortgage-backed and related securities were a significant component of the shadow markets.
TastyBits: A “shadow market†is simply a private market.
Yes, meaning outside the purview of most regulatory regimes. They represented the demand side of the bubble.
TastyBits: The housing bubble was caused because there was an unnatural excess amount of money available for mortgages.
“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,†— Alan Greenspan
TastyBits: Taxes have absolutely nothing to do with how much money was or would have been available.
So you’re saying that raising taxes won’t reduce economic expansion?
TastyBits: The government does not have a “cash positionâ€.
Of course it does. If the government runs a surplus, they don’t need to “print more money” diluting its value.
@Zachriel
Mortgage-backed and related securities were a significant component of the shadow markets.
Each step is regulated. The originators are regulated. The mbs bundlers are regulated. The purchasers are regulated. The only thing that was not regulated were the regulators.
CDS’s should have been regulated as commodities back in the late 1990’s, but that is related to the financial crisis.
Yes, meaning outside the purview of most regulatory regimes. They represented the demand side of the bubble.
No. The demand side of the housing bubble were the pensions and money market funds that needed high performing AAA assets, and the GSE’s were buying all the MBS’s they could. The supply was limited, but the demand was great. Hence, a supply was created.
Alan “the Maestro” Greenspan
He is a complete and utter idiot. First, he facilitated the dot com fiasco, and next, he facilitated the housing fiasco. Then, he does not have enough sense to keep his mouth shut.
By pumping money into the economy, he was facilitating credit creation. This worked so well for the dot com era, he decided to continue it into the 2000’s, and it worked just as well. See above for demand causes.
Regarding large pools of available money, there is a similar effect occurring in education and healthcare.
So you’re saying that raising taxes won’t reduce economic expansion?
If there were any effect, it would have been miniscule.
The GSE’s and the Fed’s low interest rates combined with the repeal of Glass-Steagall caused the problem. Glass-Steagall was enacted to prevent this exact scenario. This is why I keep harping on it.
Of course it does. If the government runs a surplus, they don’t need to “print more money†diluting its value.
I do not think government accounting works the way you think it does.
TastyBits: Each step is regulated. The originators are regulated. The mbs bundlers are regulated. The purchasers are regulated. The only thing that was not regulated were the regulators.
The shadow market, which entailed trillions of dollars in trades every day, was largely unregulated.
TastyBits: The demand side of the housing bubble were the pensions and money market funds that needed high performing AAA assets, and the GSE’s were buying all the MBS’s they could.
Sure, and a lot of that money was funneled into the shadow banking system.
TastyBits: If there were any effect, it would have been miniscule.
Generally, if you pull a trillion or two dollars out of the economy, the economic growth will slow significantly. Not sure why you would think otherwise.
TastyBits: I do not think government accounting works the way you think it does.
If the U.S. had continued to reduce its debt, then it would have had more available resources to approach any crisis.
@Zachriel
The shadow market, which entailed trillions of dollars in trades every day, was largely unregulated.
Um, No. Not even close.
MBS’s are nothing more than bonds. They are purchased by conservative funds looking for safe high performance instruments. Usually, these do not go together, but by combining various classes of mortgages and getting a Credit Default Swap (CDS) to insure it, the credit rating agencies used this information plus the historic performance to give them AAA ratings.
MBS’s are no more attractive than 10 year Treasury notes. They were safe investments. The hedge fund guys were not trading MBS’s for the coupon payoff.
There were some exotic instruments, CDO’s, built from the MBS’s, but these were going into the banks. There may have been others, but they were merely variations.
You have confused the secondary CDS market with the MBS market. The CDS market was not regulated, but the primary CDS market was tied to the actual MBS asset. I believe it was 1998 when the recommendation to regulate CDS’s as commodities was shot down. (Anybody seeing a pattern.)
AIG had gotten deep into the CDS market. A primary CDS is really insurance, and it can be “handicapped” as such. Like all insurance, CDS’s are leveraged, but the ratio is not regulated. For the primary CDS, this is not necessarily bad. The CDS is insuring an MBS and the MBS is being regulated by several entities. Some of the regulations are “nice to do” and others are “shall do”.
A banks books “shall be” sound. Therefore, a regulator could require that the bank prove the books are sound. If a regulator is a tool of the industry (Timothy Geithner), they assume that the bank must be telling the truth.
The secondary markets are where the trouble begins, and this is the financial crisis. The financial crisis is related to the housing crisis through the CDS’s, but they are not the same. This is where the shadow market begins, and this is where the hedge fund guys went wild.
From what is known, the leverage ratios were running about 30 to 1, but that is a best guess with emphasis on guess. Each CDS was leveraged several times. Based on US assets, I have seen numbers from $30 – 300 trillion. My guess is about $80 trillion based upon $3 trillion assets leveraged 26 to 1, but again, it is a guess. The world-wide numbers would be substantially larger.
One important note: When the US government/Fed began guaranteeing this debt, these are the numbers they somehow forgot to mention. Also, AIG was the conduit for funneling money to the rich guys. I can go into this if you like.
Sure, and a lot of that money was funneled into the shadow banking system.
Again, nope. This money is from regulated institutions, and it cannot make side trips into the unregulated nether world. If you want to include the Special Investment Vehicles (SIV) set up by the GSE’s and traditional banks to cash in on the party, now you are getting into the shadow banking system.
The shadow banking system has long preceded this crisis. It was confined to Investment Banks, and can anybody guess what kept the traditional banks out of these activities? Bonus points for anybody who can answer why they were kept out.
Generally, if you pull a trillion or two dollars out of the economy, the economic growth will slow significantly. Not sure why you would think otherwise.
You are trying to make a political statement. I assume that you are used to turning the debate into a political argument. The Bush tax cuts are no more or less germane to this debate than any other economic factor.
If the U.S. had continued to reduce its debt, then it would have had more available resources to approach any crisis.
It would have taken about $800 billion to shore up pension and money market funds. The FDIC was waiting to step in and guarantee the funds. The trash on the banks books was a problem, but that could have been managed by the Fed and Treasury.
The real problem was rich people money that was tied up in the shadow banking system, and they were determined to get burned. The amount of money needed would require several years of US GDP.
The truth is that this economy sucks. It is not President Obama’s fault, but none of his ideas are going to make it any better. They may make it slightly better or worse, but the giant hole has to be worked out.
Allowing the financial sector to collapse would have been no worse, and we would have been much further along. Most of the problem is with the shadow banking sector, and this wealth is valueless paper. The assets that are being used as leverage could be written down and off in a few years, and the economy would really recover.
The problem is that the really rich people would be wiped out.
TastyBits: Um, No. Not even close.
The Financial Stability Board determined that “the global shadow system peaked at $62 trillion in 2007, declined to $59 trillion during the crisis, and rebounded to $67 trillion at the end of 2011.”
http://www.imf.org/external/pubs/ft/fandd/2013/06/basics.htm
@Zachriel
Securitization has been going on for years. It is great that these jokers noticed a year after people began ringing the alarm bells, but what do you expect from the experts.
I am not trying to be an asshole, but I have forgotten more than you know. I started digging into this back in 2006 because it sounded like the late 1980’s, early/mid 1990’s, and Enron.
MBS’s are meant to be bonds. If these guys think that the MBS world is a scary place, they will shit their drawers when they learn about the CDS market. I have seen world-wide estimates of $600 – 800 trillion, and no, those are not misprints.
In late 2006, the housing bubble was pronounced. In mid 2007, the housing crisis was predicted. In early 2008, the financial crisis was predicted. The experts predicted these events could not occur. These same experts are now explaining the mechanics of the events they could not understand when they were unfolding. On the street, these guys are known as hustlers.
TastyBits: I have forgotten more than you know.
You apparently forgot the bit about the size of the shadow banking system, which rivals the traditional banking sector in size with transactions of $650 trillion per year.
@Zachriel
From the link you provided and your quote, it appears you all assume the shadow banking market and the MBS market are the same, and they have been around $60 trillion for the last few years.
NOTE: Transactions only tell you how many times a thing has changed owners.
The shadow banking market consists of various financial instruments. CDS’s are the part that I studied.
Here is a link on MBS’s if you want to learn more: Tanta. Down the page she has three articles about MBS’s, but this is just a starting point.
TastyBits: From the link you provided and your quote, it appears you all assume the shadow banking market and the MBS market are the same, and they have been around $60 trillion for the last few years.
No, they are not the same. $60 trillion is the assets, not the transactions.
@Zachriel
I got distracted in the middle of the comment, but the size of transactions do not matter.
I am not sure where you are getting your information, but it appears to be from academics. This is important because it seems we are discussing two different systems.
The shadow banking system privately trades private financial instruments. This has been going on for some time among investors usually hedge funds. They deal in junk bonds, CDS’s, and other risky financial instruments. Risky being the keyword – very high risk and very high reward.
Getting the actual size is probably impossible, and even the best estimates are educated guesses. The CDS numbers are only a portion, and they are not the highest I have seen. They are a few years old, and they are only the leveraged paper not the underlying asset. The entire shadow banking market would be much bigger.
When Glass-Steagall was repealed, the shadow banking system became open to regulated institutions. We now have some idea of the size of a portion of the shadow banking system, but there is the remaining unknown portion.
Under Glass-Steagall, the shadow banking system was a bunch of rich guys making money off each other and the suckers who wandered in. If the whole thing collapsed, it was no big deal for most people.
When Glass-Steagall was repealed, it was only a matter of time until the failure occurred, and of course, it would be a big deal for everybody. Well, everybody except the rich guys. This was the exact outcome that Glass-Steagall was enacted to prevent.
If I seem too dismissive of the experts, rent, buy, or download the movie “Reefer Madness” and learn what the experts had to say about that noxious weed.