Exactly. I have seen blame being cast on the ratings companies for failure to assess the risk correctly. Bollocks. If a financial company is going to bet their company on derivatives that they do not understand, they sure as hell should be paying some smart people of their own to assess the risk correctly.
I expect that 95% of them had no say and no involvement in this particular part of Lehman Bros business. As is often the case in corporate failures, they lost their jobs because a few people at the top made unwise decisions.
Thanks. Good read. No, I’m not seriously suggesting that the government pay off everyone’s home, but I still can’t see how it would be any worse, collectively, than what it is doing now.
These investment firms have a huge moral hazard problem; they know that the government won’t let them fail. We can’t turn a blind eye to the problem like Hoover in 1930, but we can’t just keep these same people afloat who made the mistakes.
I think we need to think outside the box on this one…
From my economically naive perspective, I’d say that one of my desired outcomes is to make the people who made ruinous choices pay for it. I realize that there probably is no money, at least not nearly enough in the bank accounts of money managers, bank presidents, etc. to equal the money the bailout will require, but I do want certain people’s careers trashed, perhaps thousands of people’s lives ruined, financially speaking, as far as possible while falling short of ex post facto laws against doing things that were legal at the time (and probably still are).
This isn’t revenge talking, but common sense: if we want to make the financial system take respnsibility for its actions, we need some powerful object lessons in this disaster. I want middle managers into the next century saying to their bosses “You want me to approve which loans to who? Nuh uh, I don’t want to end up like those poor fuckers in 2008, whose kids are still trying to claw their way out of poverty. It’s a stupid business decision, and I’m not wrecking my life over your greed, boss, sorry…”
Multi-trillion $$ GSE’s with Congressional control over what-should-be-dispassionate credit decisions +
Negative real interest rates by Fed =
Accident waiting to happen
And the gubmint already has it’s mitts on another two markets, Small-business lending and the student loan market. Although they are pocket change compared with Freddie and Fannie. But I’ll be happy to bet a sixpack with anybody on the board that they will go into the dumper at some point, and we’ll be on the hook for that too.
Still digesting the mortgage plan. Not sure I understand yet how this is supposed to work.
If your idea is use tax money to pay off the mortgages that are in default, thus keeping people in their homes while simultaneously ‘fucking’ and ‘putting out of work’ the banks, how would that work? Leaving aside all philosophical considerations and the fact that the value of mortgages in default is much larger than the 700 billion figure, as has been pointed out, how?
The defaulters are in trouble because they can’t pay the banks what they owe to them and the banks are in trouble because they can’t get the money that is owed to them by the defaulters. By paying off the loans (again, assuming that the government had the truly enormous amount of money required), both the defaulter and the bank would be ‘saved’. In what way would this system fuck the banks? It seems like it would be their wildest fantasy-the government swoops in and gives them the money that they are going bankrupt for lack of.
If the goal of the system was to help the defaulter and fuck the bank, then the government could simply invalidate all the loans and award the property to the people in default, then the banks would fail and be fucked, because the loans would be truly worthless.
Not that I am suggesting that this should be done, or picking a side at all in this mess, but I don’t understand your assertion that bailing out both parties with other people’s money somehow helps one and screws the other. If anything, it screws the people who are on the hook for the taxes, but won’t benefit from the bailout.
Right. My original non-proposal would have been for the government to take over the loans in a receivership as part of the bankruptcy proceedings. Then the lenders go out of business, then the government pays off the homes of those in default.
Criminal businessmen are then on the streetcorner begging for change, the government still spends a lot of money, but a new group of lenders spring up to provide credit to consumers, but at a more responsible and newly regulated way.
Again, it’s a non-proposal, but at a minimum, under my non-plan, the managers responsible for the crisis lose their business and aren’t in charge of things anymore. Under the current plan, it is simply a bailout.
And I never thought I would say this: The Democrats are right to insist on more even treatment in this bill. Don’t give it all to the companies that caused the problems…
The people in foreclosure must be kept in their houses and must make payments. The loans have to be reevaluated to show real worth. The people have to make payments to fuel the system. Otherwise it crashes.
I do not even want to discuss that these people must be kicked to the street because they made bad deals. The system needs their payments.
We must make an attempt to rescue our manufacturing base. We need to recreate the middle class again. Bush and Greenspan should be tarred and feathered.
I think I’m just being obtuse. When I read your OP, I took “pay off everyone’s homes” to mean a transfer of money from the government to whomever home mortgage debt is owed. This was the source of my confusion.
We’re heading into the weeds of obfuscatory technicalism. We will be hearing from two or more sets of total experts, who know exactly what they are talking about, and we should simply trust them. Except that, as usual, they will offer mutually exclusive solutions.
I have the deep expertise in high financial gumbo typical of your average hippy, which is to say, not much. So I’m going to have to trust somebody. At the moment, Robert Reich, Barney Frank and Paul Krugman head my list. Phil Gramm, not so much.
Here’s what worries me most at the moment:*
No. No way, no day, no how. Not just “No”, “Fuck, no!”
(Adviso: Took this from Atrios’ blog site Eschaton*. It lacked a direct citation, but I have confidence in the attribution. If anyone can prove otherwise, do so…)
Everyone needs to write to their Congressional Representatives and let them know in no uncertain terms that they will never get another vote from you if they vote in favor of this nightmare.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
So, if this piece of shit passes as is, Paulson could spend every cent as he wants and there’d be nothing anyone could do.
This is nonsense. The people who took on more house/mortgage than they could handle absolutely should not be saved from their own stupidity. They should be hurt. They should lose their homes. Their homes should go down to a more realistic value so responsible people can buy them. Saving them from their own stupidity punishes the prudent and rewards the dumb or assholish. This is not a message we should send as we try to move forward.
So you’d rather reward the lenders who made loans to people who were, by definition, bad credit risks? (That’s what “sub-prime” means.)
What do you mean by “liar loans”? Sounds like a mere cheap shot.
Anyway, here’s an interesting paragraph from today’s local paper, for whatever it’s worth: “The mortgages were called subprime because lenders were not requiring the usual evidence of employment, income, assets and credit history required for conventional mortgages.” Seems to me any lender who did this was begging to be suckerpunched.
If we do not the system goes down. How does that fit in your life. Theses guys in the economic system are terrified. By the way ,you are looking at the wrong tier level. Real theft is done by the big boys with many zeros following . You should not care about petty theft when the big boys are looting us and have been for 8 years.
I’m ALL for investigations that will put evil-doers in jail. That doesn’t mean those who were not victims of the veil doers and simply made bad decisions should be rewarded for the dumbassness. Or is it dumbassicity?
This is like arguing micro economics when someone else is arguing macro economics. The problem is not someone who gamed the system. It is more than 5 million homes to be in foreclosure. That will destroy us. It has to be dealt with as it is, a huge problem of millions of homes. 60,000 a month.
And you envision someone who bought a house they could not quite afford. Someone who was offered a deal that an expert said was a great deal and affordable. Who told them do not worry as your house appreciates you will build an equity you can tap if things go wrong. I ran into many loan companies that called me, emailed me and sent letter after letter. They were all mortgage experts . I was just a lowly home owner. How many wanted me to get into a mortgage with low payments in the beginning and could go up some amorphous amount in the future. But do not worry, it will work out. I did not do it. Those who did are not thieves. They are people who are going to lose their homes.