Originally Posted By Kar2oonMan I was listening to a radio show in San Francisco tonight (Gene Burns on KGO 810 AM), and the host brought up a good point. When the home foreclosure rates starting rising dramatically last fall, many people wagged their finger and said "Well, too bad. Those people got in over their heads, that's the way it goes. That's capitalism, chum." But now, many of those same folks don't seem to have much to say as this administration seems to be bailing out big banks and getting involved with the Bear Stearns mess. Somehow, it's important to save the institutions that made terrible investing decisions, but tough luck for the average schmo who made terrible home buying decisions. He also talked about how for years, experts have been screaming at Americans for not saving enough money, but now they blame consumers for not spending enough for the current recession. The government wants people to spend that stimulus check, not save it. And we wonder why people in this country get confused and into financial trouble, following this mish mash of advice.
Originally Posted By fkurucz As I have said before, we have government by the Corporation, of the Corporation and for the Corporation.
Originally Posted By fkurucz I have also heard of this described as "Socialism for the rich: privatize the profits but socialize the risks" As Mel Brooks said: Its good to be the king.
Originally Posted By Dabob2 <I have also heard of this described as "Socialism for the rich: privatize the profits but socialize the risks"> That is exactly right. It was the same thing with the S&L Bailout in the 80's (lookin' at you, Neil Bush). E.J. Dionne had a good column about it just this week: <a href="http://www.washingtonpost.com/wp-dyn/content/article/2008/03/17/AR2008031702154.html" target="_blank">http://www.washingtonpost.com/ wp-dyn/content/article/2008/03/17/AR2008031702154.html</a> "Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy. The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. " (snip) "It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are "too big to fail," because they could bring us all down with them. Enter the federal government, the institution to which the wealthy are not supposed to pay capital gains or inheritance taxes. Good God, you don't expect these people to trade in their BMWs for Saturns, do you? " (snip) "I don't fault Ben Bernanke, the Fed chairman, for being so interventionist in trying to save the economy. On the contrary, Bernanke deserves credit for ignoring all the extreme free-market bloviation. He doesn't want the economy to collapse on his watch, so he is willing to violate all the conservatives' shibboleths about the dangers of government intervention. As a voter once told the legendary political journalist Richard Rovere: "Sometimes you have to forget your principles to do what's right." But if this near meltdown of capitalism doesn't encourage a lot of people to question the principles they have carried in their heads for the past three decades or so, nothing will. " (snip) "But in the enthusiasm for deregulation that took root in the late 1970s, flowered in the Reagan era and reached its apogee in the second Bush years, we forgot the lesson that government needs to keep a careful watch on what capitalists do. Of course, some deregulation can be salutary, and the market system is, on balance, a wondrous instrument -- when it works. But the free market is just that: an instrument, not a principle. In 1996, back when he was a Republican senator from Maine, William Cohen told me: "We have been saying for so long that government is the enemy. Government is the enemy until you need a friend." So now the bailouts begin, and Wall Street usefully might feel a bit of gratitude, perhaps by being willing to have the wealthy foot some of the bill or to acknowledge that while its denizens were getting rich, a lot of Americans were losing jobs and health insurance. I'm waiting. "
Originally Posted By Kar2oonMan >>Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy. The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard.<< Bingo! How many times have we heard over and over again how great capitalism is from these people, and now you can hear nothing but crickets chirping. Meanwhile, the person that is losing their home to foreclosure? To hell with them, serves them right, they should have known better than to listen to these large financial institutions. The individual has to be saavy and informed, while the institutions that lead so many off a cliff get a nice safety net -- paid for by you and me.
Originally Posted By Sport Goofy << experts have been screaming at Americans for not saving enough money, but now they blame consumers for not spending enough for the current recession. The government wants people to spend that stimulus check, not save it. >> The people saying these things are generally not one in the same. Our current government has generally been on the side to encourage consumption and spending. Economists outside the government have lamented the meager American savings rate. In fact, when the government statistic on savings rate showed a negative figure for a year and a half, the commerce department decided to "fix" the problem by changing the way they calculated the statistic. Bingo -- the statistic miraculously turned positive. Of course, even by the new accounting method, it only took about 6 months before the savings rate turned negative again. I guess they'll have to come up with a new way to calculate it this year.
Originally Posted By DouglasDubh First, who are these folks who said people should lose their homes but the government should bail out banks? The only people I've read that said the former also said that some banks might have to fail so that we can this problem behind us. Second, this is not a problem of pure capitalism. Mortgages are heavily regulated, and the government has been very involved in the business for some time. For many years, liberals have complained that banks didn't lend money to the poor. The banks responded to political pressure by lowering the barriers to credit, and now they're being blamed for handing out too much money. Third, there seems to be a suggestion on this thread that if the government helps a corporation, only rich people are helped. It doesn't work that way. Corporations employ people, who spend money on things. If a corporation does fail, many middle and lower income folks are hurt as well.
Originally Posted By Mr X I don't buy that it was political pressure what made them banks lend to unqualified folk. T'was pure and unadulterated greed, it was. And they KNEW they were screwed in the longterm, that's why them CEO's sold off their shares faster than a slippery hog on slauterin day. In the end though, out of the hundreds of companies that went out of business, only a couple were bailed out...Countrywide (the biggest mortgage company) and Bear Sterns, (and old and well known investment bank). In both cases, I don't believe it was because those companies were well liked or anything, but because a sudden bankruptcy of either one would've panicked the markets and could've resulted in something really scary.
Originally Posted By DouglasDubh <I don't buy that it was political pressure what made them banks lend to unqualified folk.> Why would a bank make a loan to someone who could never pay it back? <In the end though, out of the hundreds of companies that went out of business, only a couple were bailed out...Countrywide (the biggest mortgage company) and Bear Sterns, (and old and well known investment bank).> Bear Sterns didn't get bailed out. JP Morgan was the beneficiary of that deal.
Originally Posted By Sport Goofy << The banks responded to political pressure by lowering the barriers to credit, and now they're being blamed for handing out too much money. >> The banks, realtors, and mortgage brokers orchestrated one of the biggest Ponzi schemes in history to inflate their profits. They were not pressured to do this. They were more than happy to collect all of the mortgage origination fees, refinancing fees, realtor commissions, and other transaction costs associated with the real estate bubble. Banks were thrilled to watch homeowners take out home equity loans to buy cars, vacations, and granite countertops while real estate was appreciating so quickly. No one twisted their arm to do this. In the end, the banks will end up with all the foreclosed property and in a position of relative financial strength compared to the homeowners who were sold interest only gimmick loans and teaser ARMs that fueled the real estate boom -- and eventual bust.
Originally Posted By Sport Goofy << Why would a bank make a loan to someone who could never pay it back? >> Most banks never loaned their own money in these transactions. They sold the loans to someone else to shoulder the risk. As long as sucker investors were buying this bad paper, the Ponzi scheme was brilliant. But the day the market for these subprime loans went bust, banks had to face the idea of actually applying lending standards on loans since they would have to finance the things themselves.
Originally Posted By Mr X ***Why would a bank make a loan to someone who could never pay it back?*** Because they could then package those toxic loans and sell them off to unknowing investors, and by slipping the bad stuff in with the good they could, with the help of rating agencies, label that garbage as "A" rated investments. Why do you think there is a liquidity issue in the credit markets these days? I'd have thought you'd know about this stuff. Obviously what I've written is simplified (you could easily write a book here), but that's the jist of it. They collectively foisted all that bad paper onto someone else, and so on and so on, in a giant ponzi scheme. And, by the way, your darling administration did nothing to stop it.
Originally Posted By Mr X ***Bear Sterns didn't get bailed out. JP Morgan was the beneficiary of that deal.*** They avoided officially closing their doors, which was the point. JP Morgan got an early Christmas present though, that's for sure. The building in Manhattan is worth more than the sale price!
Originally Posted By fkurucz <<Because they could then package those toxic loans and sell them off to unknowing investors, and by slipping the bad stuff in with the good they could, with the help of rating agencies, label that garbage as "A" rated investments.>> While collecting handsome fees. IIRC subprime loans paid the highest commission rates to brokers.
Originally Posted By fkurucz I also read somewhere that the housing bubble, in terms of % of GDP, dwarfs the stock bubble of the 1920's.
Originally Posted By DouglasDubh <Because they could then package those toxic loans and sell them off to unknowing investors, and by slipping the bad stuff in with the good they could, with the help of rating agencies, label that garbage as "A" rated investments.> Until people decided to stop buying them. Then they're sitting around with a product they can't sell. <And, by the way, your darling administration did nothing to stop it.> Just like the Clinton administration did nothing to stop the tech bubble.
Originally Posted By Kar2oonMan >>Just like the Clinton<< Here we go. Yes, the fallback excuse for every disaster this administration has gotten us into. I didn't realize that the Bush administration was such ardent admirers of President Clinton that they used his administration as a template for every step they made. It's a wonderful thing to not be held accountable for anything. This is a luxury afforded President Bush only by his most faithful fans. >>They collectively foisted all that bad paper onto someone else, and so on and so on, in a giant ponzi scheme.<< Add to it that homes were selling for record prices, so at least in the short term, the gamble seemed somewhat less risky than in a normal housing market. The banks could foreclose on a house and sell it at a profit, for awhile. Those days are gone.
Originally Posted By Sport Goofy << Add to it that homes were selling for record prices >> The only reason prices escalated as much as they did is because the interest only loans, no-doc loans, and teaser ARMs brought a huge number of buyers into the market who never would have qualified to buy a home before. So, the banks artificially inflated the home market with their ponzi scheme that was sure to hit a dead end.
Originally Posted By Mr X ***Until people decided to stop buying them. Then they're sitting around with a product they can't sell.*** That's exactly what happened, Douglas, thus the credit crisis. And I would agree with you that the Clinton administration didn't intervene in the tech bubble, and there were lots of illegal things going on there as well...HOWEVER, a big difference is that the tech bubble only really affected tech. This situation has the potential to be far worse, as it effects everyday people and their homes.
