# "The second leg of the credit crunch" **URL:** \ **Category:** Great Debates\ **Created:** [October 12, 2010, 11:46pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938 "2010-10-12T23:46:12Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![LouisB](https://avatars.discourse-cdn.com/v4/letter/l/dfb087/32.png) [@LouisB](https://boards.straightdope.com/u/LouisB)\ **Post date:** [October 13, 2010, 5:17pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/21 "2010-10-13T17:17:44Z")
> [@](#): > > **Posted by msmith537** : > Not that I think it excuses it, but when George W was elected in 2001, the country was in what we thought at the time to be a pretty bad recession from the **dot com bubble bursting and 9/11**. And here I thought GW Bush was in office when 9/11 went down. Live and learn, I always say. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 13, 2010, 7:32pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/22 "2010-10-13T19:32:25Z")
> [@msmith537](#): > > > [@Damuri\_Ajashi](#): > > > > THIS!!! This is what I keep trying to explain when people ask why I blame bush for the housing crisis. There were no federal regulations or laws that were repealed but when people saw the problem, Bush (following typical Republican ideology) ignored problems because it might interfere with economic activity. > > Not that I think it excuses it, but when George W was elected in 2001, the country was in what we thought at the time to be a pretty bad recession from the dot com bubble bursting and 9/11. It would be politically pretty unpopular to say to people “I know you’re looking for work, but we need to slow the economy down a bit because this growth isn’t sustainable.” Same thing with the dot com bubble. > > The Fed also bears a lot of responsibility for keeping interest rates so low and allowing all this access to easy money. > I wouldn’t have a problem with the lack of regulation except that the banks want it both ways. If they don’t want to be regulated when they make the loans, they shouldn’t expect to be bailed out when they make bad loans. Bush played a more than full part in inflating the biggest asset bubble in history. The Fed didn’t slash rates until we had a quarter of zero growth and it was becoming apparent the Bush tax cuts had failed to create a lot of economic growth. But Greenspan was only doing what Bush wanted by cutting rates… Of the major economys the Fed has always been judged to be the least independent from political interference. This belief has gained a lot of currency over the years due to various incidents like Arthur Burns being caught on the Nixon tapes agreeing to keep interest rates low until after the 1972 election. Greenspan recieved the most criticism for being open to persuasion and the longer he remained Fed chair the worse he got. When Clinton was in power his main aim was to cut the deficit and create a surplus to fund the future increase in Mediucare/Social Security costs, so those were Greenspan’s priorities. When Bush took office Greenspan then believed that the surplus was actually a great danger to the US economy\* and that it was imperative to immediately enact massive tax cuts to end the surplus. When they failed to produce economic growth and Bush suddenly became a minority housing advocate Bush seeks to increase minority homeownershipBy Thomas A. Fogarty, USA TODAY In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing Administration loans. In announcing the plan Monday at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal the “most significant FHA initiative in more than a decade.” [http://www.usatoday.com/money/perfi/housing/2004-01-20-fha\_x.htm](http://www.usatoday.com/money/perfi/housing/2004-01-20-fha_x.htm) at the same time that Wall Street was looking to create hundreds of billions of dollars worth of mortgage-backed securities, Greenspan decided it was a good idea to slash interest rates. I agree we shouldn’t bail the banks out when they screw up. The financial system yes, but not the banks. \*yep, believe it or not back in early 2001 when we had a couple of hundred billion dollars a year surplus Greenspan actually argued that if we kept accruing all that money every year we’d eventually have to invest it in something until we got round to spending it on increased Medicare/SS costs and that would mean the creation of a sovereign wealth fund like Singapore or Norway or Saudi have and that would be a little bit socialist so much better to slash income tax and capital gains and redistribute all that surplus upwards. And it’s a good job he did it because imagine how bad things would be right now if we’d had no deficits during the Bush years and a trillion saved-up dollars to spend on economic recovery. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [October 13, 2010, 7:48pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/23 "2010-10-13T19:48:48Z")
> [@Dick\_Dastardly](#): > > \*yep, believe it or not back in early 2001 when we had a couple of hundred billion dollars a year surplus Greenspan actually argued… Cite please. Not for debunking, but for my edification. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2010, 7:57pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/24 "2010-10-13T19:57:09Z")
> [@msmith537](#): > > Right, because the homeowners bear no responsibility for lying on their loan applications, not understanding the terms of the loan or leveraging themselves beyond their means. If only there was some way of checking that what was put down was accurate. Maybe someone could invent one, we’d call it a credit reporting agency. And we have plenty of evidence of mortgage brokers encouraging prospective borrowers to submit loans without documentation or to lie. > [@](#): > > Chalking the financial crisis up to “banker greed” is simplistic and cartoonishly stupid. Bankers were no more or less greedy than they were in the 80s, 1929, or 1893. They have always been a bunch of id driven jackanapes. They aren’t trying to “screw over homeowners”. They are simply trying to sell! Sell! SELL!! so they can earn fat commissions. One difference. In this case, those who sold subprime mortgages, which got higher interest rates, got bigger commissions than normal, conforming loans. > [@](#): > > I’m a big fan of free markets, but if you are going to privitize the rewards, you have to privitize the risk as well. While I believe the bailouts were necessary to prevent the collapse of the financial system, I also fear they created a moral hazzard where these same banks will feel that they will be bailed out in the future for taking stupid risks. Lots of smaller banks got shut down and sold off. But the only way to accomplish what you want is strong and dynamic regulation. Blaming borrowers, or even flippers, for the problem is not going to help that happen. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2010, 8:02pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/25 "2010-10-13T20:02:32Z")
> [@Digital\_Stimulus](#): > > > [@Dick\_Dastardly](#): > > > > \*yep, believe it or not back in early 2001 when we had a couple of hundred billion dollars a year surplus Greenspan actually argued… > > Cite please. Not for debunking, but for my edification. From [his testimony before Congress, Jan. 25, 2001](http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm). I warn you however, when I was reading it, I almost cried. He talked about paying off the deficit by the end of the decade. Bush really, really screwed the pooch. > [@](#): > > But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets. At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. This development should factor materially into the policies you and the Administration choose to pursue. > > I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the government’s investment decisions from political pressures. Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [October 13, 2010, 8:54pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/26 "2010-10-13T20:54:54Z")
> [@Voyager](#): > > From [his testimony before Congress, Jan. 25, 2001](http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm). Hey, thanks! > [@](#): > > I warn you however, when I was reading it, I almost cried. He talked about paying off the deficit by the end of the decade. Bush really, really screwed the pooch. I doubt I’ll be able to read much of it – I just don’t have the stomach for it. But I’ll try…perhaps I’ll treat it as an exercise in skimming… ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [October 13, 2010, 9:26pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/27 "2010-10-13T21:26:22Z")
> [@msmith537](#): > > > [@Damuri\_Ajashi](#): > > > > THIS!!! This is what I keep trying to explain when people ask why I blame bush for the housing crisis. There were no federal regulations or laws that were repealed but when people saw the problem, Bush (following typical Republican ideology) ignored problems because it might interfere with economic activity. > > Not that I think it excuses it, but when George W was elected in 2001, the country was in what we thought at the time to be a pretty bad recession from the dot com bubble bursting and 9/11. It would be politically pretty unpopular to say to people “I know you’re looking for work, but we need to slow the economy down a bit because this growth isn’t sustainable.” Same thing with the dot com bubble. > > The Fed also bears a lot of responsibility for keeping interest rates so low and allowing all this access to easy money. > I wouldn’t have a problem with the lack of regulation except that the banks want it both ways. If they don’t want to be regulated when they make the loans, they shouldn’t expect to be bailed out when they make bad loans. I hear you but Bush was doing almost everything under the sun to keep people from focusing on the war in Iraq and trying to prove that Republicans were good for the economy and he had a ready accomplice in Alan Greenspan. As far as bailing out the banks, if history has taught us ANY lesson about recessions and depressions its that you MUST save the financial system. Even tariffs are better than letting the financial system collapse even for a very very short period of time. You can always reverse tariffs and there is a t least a chance that your trading aprtners won’t erect retaliatory tariffs in response (see US/China), but a collapsed financial system marks the beginning of the end. What I am saying is that we will ALWAYS bail out the banks because we MUST bail out the banks, so we MUST regulate them, they don’t get to choose: regulation+bailouts OR deregulation+accountability. They will ALWAYS get bailed out, no matter how much we hate ourselves for bailign them out, the alternative is MAD MAX world. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [October 13, 2010, 9:37pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/28 "2010-10-13T21:37:21Z")
> [@Voyager](#): > > > [@Digital\_Stimulus](#): > > > > Cite please. Not for debunking, but for my edification. > > From [his testimony before Congress, Jan. 25, 2001](http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm). I warn you however, when I was reading it, I almost cried. He talked about paying off the deficit by the end of the decade. Bush really, really screwed the pooch. > > > [@](#): > > > > But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets. At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. This development should factor materially into the policies you and the Administration choose to pursue. > > > > I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the government’s investment decisions from political pressures. Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise. This concern with not enough debt was all bullshit. We could have responsibly generated 50 trillion dollars of debt overnight by fully funding social security and medicare/medicaid. Stuff like modernizing our infrastructure (perhaps reinforcing the levees in new Orleans) could account for 3 trillion dolalrs. But noooo, tax cuts for the rich, THATS the ticket. This does highlight one point. The tax cuts for the rich didn’t mean we didn’t get their money, it just meant we got it in the form of a loan rather than taxes. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [October 13, 2010, 9:51pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/29 "2010-10-13T21:51:33Z")
> [@Digital\_Stimulus](#): > > I doubt I’ll be able to read much of it – I just don’t have the stomach for it. But I’ll try…perhaps I’ll treat it as an exercise in skimming… It wasn’t as long as I thought. Urgh…my “favorite” parts: > [@](#): > > Indeed, in almost any credible baseline scenario, short of a major and prolonged economic contraction, the full benefits of debt reduction are now achieved before the end of this decade–a prospect that did not seem likely only a year or even six months ago. Whoops. ☹ > [@](#): > > …Certainly, we should make sure that social security surpluses are large enough to meet our long-term needs and seriously consider explicit mechanisms that will help ensure that outcome. This, when social security has _always_ been a conservative’s bugaboo, its very existence to be endlessly fought. Double whoops. ☹ > [@](#): > > But let me end on a cautionary note. With today’s euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake. So much for that, Bush administration. Infinite whoops. ☹ ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 14, 2010, 12:31am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/30 "2010-10-14T00:31:33Z")
> [@Alan Greenspan](#): > > Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise. That’s got to be the best line of the lot. From a post-2008 perspective that’s absolutely spectacular. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 14, 2010, 12:36am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/31 "2010-10-14T00:36:46Z")
And look at the date of the testimony. A week after Bush took office. Eight days previously to testifying Greenspan was still fully on board the Clinton hoard-the-surplus-to-pay-for-increased-entitlements-down-the-road bandwagon. He wanted to keep his job and all its trappings, his place in Washington society so he did a 180 and agreed to everything the idiot Bush wanted. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [October 14, 2010, 12:55am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/32 "2010-10-14T00:55:50Z")
> [@Damuri\_Ajashi](#): > > As far as bailing out the banks, if history has taught us ANY lesson about recessions and depressions its that you MUST save the financial system. Even tariffs are better than letting the financial system collapse even for a very very short period of time. You can always reverse tariffs and there is a t least a chance that your trading aprtners won’t erect retaliatory tariffs in response (see US/China), but a collapsed financial system marks the beginning of the end. > > What I am saying is that we will ALWAYS bail out the banks because we MUST bail out the banks, so we MUST regulate them, they don’t get to choose: regulation+bailouts OR deregulation+accountability. > > They will ALWAYS get bailed out, no matter how much we hate ourselves for bailign them out, the alternative is MAD MAX world. I would agree with this. However we must also separate between banks that are temporarily illiquid and ones that are insolvant so that we don’t endlessly prop up zombie banks. ---
**Author:** ![randy054](https://avatars.discourse-cdn.com/v4/letter/r/54ee81/32.png) [@randy054](https://boards.straightdope.com/u/randy054)\ **Post date:** [October 14, 2010, 4:07am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/33 "2010-10-14T04:07:37Z")
> [@msmith537](#): > > > [@Damuri\_Ajashi](#): > > > > THIS!!! This is what I keep trying to explain when people ask why I blame bush for the housing crisis. There were no federal regulations or laws that were repealed but when people saw the problem, Bush (following typical Republican ideology) ignored problems because it might interfere with economic activity. > > Not that I think it excuses it, but when George W was elected in 2001, the country was in what we thought at the time to be a pretty bad recession from the dot com bubble bursting and 9/11. It would be politically pretty unpopular to say to people “I know you’re looking for work, but we need to slow the economy down a bit because this growth isn’t sustainable.” Same thing with the dot com bubble. > > The Fed also bears a lot of responsibility for keeping interest rates so low and allowing all this access to easy money. > I wouldn’t have a problem with the lack of regulation except that the banks want it both ways. If they don’t want to be regulated when they make the loans, they shouldn’t expect to be bailed out when they make bad loans. But they knew they would get bailed out because they are “Too big to fail” and martial law would have been declared. They’ll use the same excuse again. Bail us out or else. What should have happened in the interest of the majority of Americans is, sure bail them out, and then break them up into smaller companies with new leadership so that they don’t bring down the whole house with them again. Then reinstate the regulations that were dispelled. At this point, nothing has changed so I expect things to only get worse. ---
**Author:** ![randy054](https://avatars.discourse-cdn.com/v4/letter/r/54ee81/32.png) [@randy054](https://boards.straightdope.com/u/randy054)\ **Post date:** [October 14, 2010, 4:13am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/34 "2010-10-14T04:13:40Z")
> [@msmith537](#): > > Right, because the homeowners bear no responsibility for lying on their loan applications, not understanding the terms of the loan or leveraging themselves beyond their means. > > Chalking the financial crisis up to \*\*“banker greed” is simplistic and cartoonishly \*\*stupid. Bankers were no more or less greedy than they were in the 80s, 1929, or 1893. They have always been a bunch of id driven jackanapes. They aren’t trying to “screw over homeowners”. They are simply trying to sell! Sell! SELL!! so they can earn fat commissions. If you want to distill the current financial crisis down into a single cause, it is the time honored tradition for people to jump on the bandwagon with every speculative bubble. In this case, that bubble was real estate. People thought that real estate prices could only go up. You had idiots who can’t even swing a hammer buying up properties to flip. Here’s a clue. If there are a dozen shows on HGTV, TBS, Bravo and other cable channels about people getting rich on a particular segment of the economy, that is most likely a speculative bubble. > > But no one wants to be the one to say “no, you can’t do that because it’s not sustainable or even rational” so they removed a lot of the regulation that would normally prevent banks leveraging themselves at a 20:1 ratio. > > I’m a big fan of free markets, but if you are going to privitize the rewards, you have to privitize the risk as well. While I believe the bailouts were necessary to prevent the collapse of the financial system, I also fear they created a moral hazzard where these same banks will feel that they will be bailed out in the future for taking stupid risks. In your opinion, at what point in a society would there be a moral hazard for the collective whole, if greed and everyone for themselves, and get it while you can was practiced by everyone in the country? Sure, greed has always existed, but so has murder. The number of murders in this country is pretty small, but if everyone engaged in it, it would eventually effect everyone. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [October 14, 2010, 5:43pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/35 "2010-10-14T17:43:35Z")
> [@msmith537](#): > > > [@Damuri\_Ajashi](#): > > > > As far as bailing out the banks, if history has taught us ANY lesson about recessions and depressions its that you MUST save the financial system. Even tariffs are better than letting the financial system collapse even for a very very short period of time. You can always reverse tariffs and there is a t least a chance that your trading aprtners won’t erect retaliatory tariffs in response (see US/China), but a collapsed financial system marks the beginning of the end. > > > > What I am saying is that we will ALWAYS bail out the banks because we MUST bail out the banks, so we MUST regulate them, they don’t get to choose: regulation+bailouts OR deregulation+accountability. > > > > They will ALWAYS get bailed out, no matter how much we hate ourselves for bailign them out, the alternative is MAD MAX world. > > I would agree with this. However we must also separate between banks that are temporarily illiquid and ones that are insolvant so that we don’t endlessly prop up zombie banks. I half agree with that. If half the banks in America were insolvent after the market dried up for mortgage backed securities (and caused their mark to market value drop in half or something like that), we would have to prop them up until we could liquidate them in an orderly fashion and with enough of a transition period for other financial institutions to step into their place. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 14, 2010, 9:51pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/36 "2010-10-14T21:51:00Z")
> [@Merijeek](#): > > Is the problem after all of the swapping, trading, swapping, securitizing, and under-table handjobs that nobody, in fact, knows who owns a given mortgage? > > Is that really, truly the issue? > > -Joe Sort of. It’s really more like people are having trouble _proving_ who owns a given mortgage. I have serious doubts that this will result in a bunch of people who would otherwise be foreclosed on keeping their houses, for a few reasons. 1. Even if the bank can’t track down the paperwork they need to foreclose, it’s pretty clear that there was a mortgage, and that the current inhabitants still owe it to _somebody_. 2. If the title to the house is really so screwed up that we can’t figure out who owns it, no one, including the current inhabitants, is going to be able to _sell_ it either. I’d expect that some foreclosures will take longer, and there will be some legislative solutions. A few people and a few banks will get screwed, but the vast majority are going to end up about the same. People will probably get to stay in “their” houses rent-free for a bit longer. I seriously doubt that many people who would otherwise get foreclosed on are going to magically win the house lottery because the banks screwed up some of their paperwork. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 14, 2010, 11:12pm UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/37 "2010-10-14T23:12:24Z")
> [@Damuri\_Ajashi](#): > > > [@msmith537](#): > > > > I would agree with this. However we must also separate between banks that are temporarily illiquid and ones that are insolvant so that we don’t endlessly prop up zombie banks. > > I half agree with that. If half the banks in America were insolvent after the market dried up for mortgage backed securities (and caused their mark to market value drop in half or something like that), we would have to prop them up until we could liquidate them in an orderly fashion and with enough of a transition period for other financial institutions to step into their place. That’s all we need to do. We can stop the financial system from collapse without having to keep the insolvent banks in business. When the meltdown happened the Fed should simply have flooded the system with unlimited liquidity, guaranteed all the toxic stuff, then put all insolvent banks/securities firms including Goldman, Citibank etc. through the FDIC process. Anybody who wouldn’t have survived without the bailout (all the big firms) would have been liquidated, the bondholders and shareholders wiped out and at least some of the debt converted into new equity in whatever newly-capitalised institutions emerged from the FDIC process and the Fed/taxpayer with a chance of upside on the remaining debt as the markets recovered. Then you have no zombie banks, new firms that new investors capitalise and the economy can get going again. We didn’t do that as politically connected firms, their bondholders and shareholders got bailed out at 100 cents on the dollar and allowed to hide their bad debt. ---
**Author:** ![Sinaptics](https://avatars.discourse-cdn.com/v4/letter/s/278dde/32.png) [@Sinaptics](https://boards.straightdope.com/u/Sinaptics)\ **Post date:** [October 15, 2010, 12:07am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/38 "2010-10-15T00:07:15Z")
> [@iamthewalrus\_3](#): > > > [@Merijeek](#): > > > > Is the problem after all of the swapping, trading, swapping, securitizing, and under-table handjobs that nobody, in fact, knows who owns a given mortgage? > > > > Is that really, truly the issue? > > > > -Joe > > Sort of. It’s really more like people are having trouble _proving_ who owns a given mortgage. > > I have serious doubts that this will result in a bunch of people who would otherwise be foreclosed on keeping their houses, for a few reasons. > > 1. Even if the bank can’t track down the paperwork they need to foreclose, it’s pretty clear that there was a mortgage, and that the current inhabitants still owe it to _somebody_. > > 2. If the title to the house is really so screwed up that we can’t figure out who owns it, no one, including the current inhabitants, is going to be able to _sell_ it either. > > I’d expect that some foreclosures will take longer, and there will be some legislative solutions. A few people and a few banks will get screwed, but the vast majority are going to end up about the same. People will probably get to stay in “their” houses rent-free for a bit longer. I seriously doubt that many people who would otherwise get foreclosed on are going to magically win the house lottery because the banks screwed up some of their paperwork. Well, I read an article stating that (at least) one attorney down in Florida has cases in which the foreclosure process has been stalled for 5+ years and has started filing quiet title lawsuits to dismiss the banks claim to the title. I know the statute for liens is 5 years. I’m not sure if the attorney is filing because the statute is up, if they just started filing them because it’s a valid tactic no matter the time frame. ---
**Author:** ![Sinaptics](https://avatars.discourse-cdn.com/v4/letter/s/278dde/32.png) [@Sinaptics](https://boards.straightdope.com/u/Sinaptics)\ **Post date:** [October 15, 2010, 12:15am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/39 "2010-10-15T00:15:29Z")
> [@iamthewalrus\_3](#): > > > [@Merijeek](#): > > > > Is the problem after all of the swapping, trading, swapping, securitizing, and under-table handjobs that nobody, in fact, knows who owns a given mortgage? > > > > Is that really, truly the issue? > > > > -Joe > > Sort of. It’s really more like people are having trouble _proving_ who owns a given mortgage. > > I have serious doubts that this will result in a bunch of people who would otherwise be foreclosed on keeping their houses, for a few reasons. > > 1. Even if the bank can’t track down the paperwork they need to foreclose, it’s pretty clear that there was a mortgage, and that the current inhabitants still owe it to _somebody_. > > 2. If the title to the house is really so screwed up that we can’t figure out who owns it, no one, including the current inhabitants, is going to be able to _sell_ it either. > > I’d expect that some foreclosures will take longer, and there will be some legislative solutions. A few people and a few banks will get screwed, but the vast majority are going to end up about the same. People will probably get to stay in “their” houses rent-free for a bit longer. I seriously doubt that many people who would otherwise get foreclosed on are going to magically win the house lottery because the banks screwed up some of their paperwork. I have a 6 year old sub-prime mortgage that was sold shortly after the mortgage was issued. I’m likely in the same boat as these other people. I fully expect the government to issue some kind of remedy for the situation. The banks just can’t be held accountable for all these losses. It’s just too much money. Although I don’t expect anything to be done until after the mid-term and depending on congress make-up, it could be a fight there as well. In the mean-time, I’m checking the counties public record, requesting documentation from my mortgage company and consulting a RE attorney once I find out the state of things. I will fully use this situation to the best of my advantage while I can. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 15, 2010, 2:17am UTC](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938/40 "2010-10-15T02:17:50Z")
The bankers announced that the system can not survive if a bunch of people get their homes for free because the bankers can not prove they own the house. The problem can not be with the big shot financial pros. It has to be the little people who might catch a break. These people keep thinking they have rights and contracts that matter. But that stuff is not important like the wealthy bankers getting full money for the messes they made. They are big important people after all. [Previous page](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938.md?page=1) [Next page](https://boards.straightdope.com/t/the-second-leg-of-the-credit-crunch/556938.md?page=3)