If the South did leave the Union a second time I wonder if Kentucky & Missouri would be retained by force again? For that matter I wonder if Oklahoma, Arizona and New Mexico would be forced back under Union control as well.
Then again it might also allow Virginia to reclaim West Virginia.
All that aside, the South has the weapons this time- whereas the North doesn't have the huge military districts and permanent encampments that the South has. And for what it is worth, the military is held in generally higher esteem than it enjoys in the North East or West coast. Look at it this way- if the Confederacy ever attempted to leave agin, it could shut down the petrochemical supplies for most of the North East in minutes. The South now has modern industrial facilities and factories that simply have no equal in the Northeast or Midwest. Plus we have the Marines, Kings Bay, and Norfolk and even the B2 base in Georgia.
In military terms, unless the Union was willing to launch ICBMs from the overflight country and risk a response from the Trident submarines in the Atlantic as well as the air carrier fleet, there is very little potential that the Union could force a Confederacy to return by conventional military forces.
As to why the CSA might not just be Whistling Dixie in a Graveyard? The cultural differences that get aped and laughed at by the Hollywood film industry & the general disdain that people in the Northeast and Midwest have for someone from the South as a stereotype wouldn't be the issue. The grounds for secession would this time be due to the fact that the South is generally more conservative and less amenable to socialism. The impacts on the South due to acts taken by the Federal government still tend to be as considered as the actions taken towards a red headed step child. Meaning aside from military spending- which the rest of the country doesn't want in its own backyard- the South gets perennially shafted in terms of net outcomes of federal programs. We tend to pave our own roads. Build our own factories. And simply find alternate means of making do without depending on often vanishing Federal funds.
The issue of Southern Governors not accepting the Federal loans intended for unemployment insurance is just one of these examples of the difference between the South and the rest of the country. They aren't declining the aid because the cannot use it. Rather they are declining it because in the fine print, after the Federal aid runs out, the states agree to maintain the newly established levels of payments in perpetuity. Southern Governors know how the Monty Shuffle is played and understand that if history is anything to go by, the Fed will live up to its perpetually unfunded mandates to the South.
The stereotype of hick-seed rednecks driving pickup trucks with ten shotguns in a window and two brain cells is laughed at by the rest of the country as being presumably true. Larry the Cable Guy is nationally popular because the rest of the country thinks people in the South really are that way. But like a Joel Chandler Harris story, all is not what it seems. People in the South laugh at the stereotype because they know it isn't true and is indeed a vast underestimate of the abilities and intelligence of people in the South.
There is a limit to how much anyone will put up with before people start voicing opposition to a government. But in an odd twist, despite being underserved by the Federal Government, I suspect that the South would fight tooth and nail if required to keep the Federal Government in existence. I would expect that if there were to be a secession for a second time, places like the Four Corners, California, or even places like Michigan would be those to reach the end of their fuse first in terms of seeing Washington D.C. as a solution provider instead of an obstacle to be removed by force.
Saturday, March 7, 2009
Secession a Second Time
Community Recovery Banks & Not Selling Derivatives.
Not directly. They could and usually did sell the mortgages to either Freddie or Fannie. It is highly unusual for even a local community bank to hold the mortgage paper of loans they provided for even a few days. I checked in to this recently and was told that standard policy in my bank, as well as their local competitors is to close on a mortgage and then almost immediately sell the mortgage paper to Fannie or Freddie. Even now despite all the problems both corporations have. In my case I required the mortgage to not only be initiated by the bank but also held by the bank and not sold to Freddie. As my banker said such a circumstance is highly unusual. Despite being a CRA bank, and the bank clearing over 40,000 mortgages a year, the mortgage department consists of three people who do the paperwork and a single agent at each branch. Meaning less than 20 people are the mortgage department of my CRA qualified/compliant bank.
How many mortgages does the bank hold directly? According to my agent somewhere under 1000. But my bank sure is healthy.
The CRA banks cannot sell their own bundles or create mortage back derivatives. Absolutely true. But the standard industry practice for all small/mid cap banks writing loans is to simply sell the paper to an institution that can. In the case of CRA lending institutions the only market they are allowed to sell to is either Freddie or Fannie.
Saying that CRA banks/lending institutions cannot directly participate in the derivative markets and securities is a bit disingenuous because although true on face value, it neatly overlooks the reality that they were the institutions that were selling to Freddie and Fannie. Of course CRA banks can say "We didn't sell or create derivatives!" because they didn't.
What they aren't making plain to he people of the United States is that they SOLD it to Fannie and Freddie. So obviously since Fannie and Freddie made the bundles that included CRA mortgages, it is now the fault of Fannie and Freddie. Instead of realizing it is the consequence of a progressive social policy law that shirked common business standards of credit, and overlooking the fact that the nation's two quasi-independent mortgage clearinghouses were fully aware of the plausibility of insolvency by including the CRA loans, people are happy to say its the fault of the investment banks in Wall Street .
I have heard this argument before. Except usually it is the one advocated by people who want to legalize drugs. Except when they make the argument that the end users aren't responsible for the negatives of drug economics. They a;ways say that the violence and negative costs of drugs lie almost exclusively with the manufacturers.
With the CRA banks taking the position of the drug producers and the former investment banks of Wall Street taking the roll of the junkie who just got some bad smack, I have to wonder why people are so eager to blame the investment banks in this case. They were fed an adulterated cut of drug, and the people who created the drug are getting away with it because it is simply implausible to any progressive liberal that a social program that tinkers with market economies could cause any harm at all.
Mortgage Loan Causality
The point which is being overlooked by those who find neither fault with the government creating a Community Reinvestment Act or the banks that agreed to do the loans on terms that often were based not on a person's ability to pay but instead upon their ability to be defined as a minority of some sort < race/gender/national origin/disability> is that while only 20% of them went bad, that 20% was bundled in resellings of the mortgages.
Consider in conforming loans, the default rate was less than 3%. Of those in the purview of the governmental program 20 % failed.
So when you had a 20% failure rate embedded in bundles of mortgages, suddenly instead of the normal default rate of only 3%, the holders of these securities began finding out that the default rates were maybe as high as 10%. In the mortgage security business your profit margins are razor thin. Normally 2%. Which is fine when you look at the cost of borrowing money at the time. But in the last 18 months, not only were these bundles seen to be seriously overvalued but also they represented additional costs in terms of what happens when a loan defaults. In markets heavily served by CRA loans, the number of foreclosures contributed directly to the decline in real estate values. People who had jumbos or ARMs suddenly couldn't sell their properties before the balloon payment came due or the mortgage interest rate expanded.
For the holders of mortgage bundles or derivatives based upon bundled mortgages, the decline in values in markets further depressed the value of their holdings. As more defaults and foreclosures happened, the valuation of mortgage securities declined. Meaning even if a mortgage bundle had no CRA mortgages within it, the market for existing real estate as it declined inherently made the bundles less valuable.
So anyone who says the mortgage loan practices of the federally backed home ownership programs, or the clearinghouses of Freddie and Fannie, or the fact that the community reinvestment act loans has nothing to do with the collapse nationwide of the mortgages and home lending business cycle is smoking something funny.
Are there other things that have contributed to the current recession? Yes. But considering the slice of the economy represented by the housing industry, when that industry gets hit with the negative effects of a government policy, the fall out will be massive.
By way of example. What if the Congress had initiated a "everyone gets car financing" plan? Suddenly lenders and auto dealers would be chomping at the bit to participate in the government's policy plan. But eventually, a lot of people would have car loans they cannot afford. The holders of those loans now find that they cannot turn them into secure assets that can be commoditized. Which then gets further compounded by the fact that now lots of people are having their cars repossessed. And a lot of other people who normally could get a car can't even get the financing. At that point you would have the big 3 coughing and wheezing.
Thing is the collapse of the housing market hit the financial sector so completely that it dried up any credit for day to day normal activity. So you have seen it transfer over into consumer credit markets. You have seen it trickle over into durable goods purchases. You have seen it cause a situation where automobiles cannot be purchased by average consumers.
This whole collapse was the fault of Bush not vetoing the measure. Even though he opposed the bill's expansion. It is also his fault in that he did not use the Federal Reserve board and the SEC to adequately investigate the degree of holdings the nation's top banks had in securitized commodities backed by mortgage derivatives. He could have stopped this 18 months ago. He didn't.
And it isn't as if he didn't realize the tidal wave was coming because even the people on the internet knew something was up.
The CRA compliant banks are coming out fine because most are local, small and sold the actual mortgages to Freddie and Fannie who in turn sold them to the investment banks and derivatives brokerages. To say that the CRA banks are "fine & dandy" avoids the reality that they already took the origination fee and didn't hold the paper anymore- often within a day of each closing. The evidence is that the government policy, served and implemented by small local banks became a poison which turned the investment banking industry on its head.
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