Bankruptcy, not bailout, is the right answer
- Thread starter Timshel
- Start date
Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.
If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.
The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.
Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.
So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.
Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.
If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.
The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.
Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.
So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.
FUCK THE POLICE
911 EVERY DAY
The only person that will pay if we do not leave our financial system in place is the US taxpayer. Your pseudo-scientific praxological unrealistic arguments not withstanding.
uscitizen
Villified User
Wm Learned a new word. congrats. Praxoman.
Now if you just had wisdom to go with the knowledge. With luck and work that will come with time.
FUCK THE POLICE
911 EVERY DAY
*sigh*
FUCK THE POLICE
911 EVERY DAY
I will believe Voker, Greenspan, and Bernanke before this idiot supply-sider.
evince
Truthmatters
http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Clinton_Administration_Changes_of_1995
A Luci Ellis working paper has concluded that "Contrary to some media commentary, there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust."[19] Center for American Progress fellow Robert Gordon[20] noted that approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated but had very little CRA involvement.[21] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[21] Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He further states that Gordon's statistic ignores that independent mortgage companies are middlemen who sell subprime loans to banks that are in turn regulated by the CRA.[22]
Ellen Seidman, former director of the US Office of Thrift Supervision during the Clinton administration, who also works at the New America Foundation,[23] has stated her belief that the CRA did not have an effect on the United States housing bubble.[24] She observes that CRA banks were particularly warned to make responsible investments, citing one of her own speeches as an example. She noted that if unregulated independent mortgage companies make subprime loans, affiliated CRA banks should not be able to count them for CRA purposes although she did not indicate whether this practice currently occurs.[25] An analysis by the law firm of Traiger & Hinckley, LLP, which counsels financial services entities on fair lending and Community Reinvestment Act compliance, concluded that CRA banks were less likely than other lenders to make high cost loans or to foreclose in certain metropolitan areas; they also were more likely to retain their original loans.[26]
A Luci Ellis working paper has concluded that "Contrary to some media commentary, there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust."[19] Center for American Progress fellow Robert Gordon[20] noted that approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated but had very little CRA involvement.[21] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[21] Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He further states that Gordon's statistic ignores that independent mortgage companies are middlemen who sell subprime loans to banks that are in turn regulated by the CRA.[22]
Ellen Seidman, former director of the US Office of Thrift Supervision during the Clinton administration, who also works at the New America Foundation,[23] has stated her belief that the CRA did not have an effect on the United States housing bubble.[24] She observes that CRA banks were particularly warned to make responsible investments, citing one of her own speeches as an example. She noted that if unregulated independent mortgage companies make subprime loans, affiliated CRA banks should not be able to count them for CRA purposes although she did not indicate whether this practice currently occurs.[25] An analysis by the law firm of Traiger & Hinckley, LLP, which counsels financial services entities on fair lending and Community Reinvestment Act compliance, concluded that CRA banks were less likely than other lenders to make high cost loans or to foreclose in certain metropolitan areas; they also were more likely to retain their original loans.[26]
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FUCK THE POLICE
911 EVERY DAY
She wants it to pass and she doesn't.
evince
Truthmatters
approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated but had very little CRA involvement.[21] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.
Pretty easy to see I think.
Pretty easy to see I think.
cawacko
Well-known member
She's on some kick about how several prior acts did or did not cause the events of today. We can be discussing whether the bailout is good or bad but she can only post from wikipedia info on how she believes we got here.
FUCK THE POLICE
911 EVERY DAY
"Learning a few things" is not sufficient reason to send us into depression, Desh. There are people here who oppose this bill who are going to lose not only their 401k, but their jobs, and then their houses in the next few years.
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You posted that MBSs were created by GLB. Since I corrected you've posted stuff that is not relevant to that.
You ignored the counter argument on CRA (i.e., middlemen sold to CRA banks) and I don't recall anyone arguing that CRA alone caused this.