Let me get this straight. It was a credit and debt problem that got us into financial difficulty. The credit and debt problem was built upon the foundation of the Government injunction under CORE that banks HAD to loan money to those that weren’t credit worthy because that would promote diversity of home ownership and would fulfil the Government mandate for affirmative action in the housing market. Yes, the private market took that instruction and did everything it could to figure out a way to make a profit off of the Government policy. That is human nature. Even prisoners will do everything they can to make their circumstances as good as they can. If those were going to be the rules of the game then the private market would be creative and innovative to exploit the rules. That is what private markets are supposed to do. There is nothing inherently wrong with that. If Congress passes new legislation restricting certain uses of the internet don’t you think that Microsoft and Google will be burning the midnight oil to figure out the best way to make lemonade out of the lemons? Such proposals are being bandied about as you know now. Heck some of those high tech companies might see an opening to make even more money from the Government restrictions.
There is nothing wrong with what the markets did with the mortgages they were forced to make. The shame and guilt belongs to the Government and its proteges
Fannie and Freddie. It was Government that built the Frankenstein of the financial world. If the Government had not required such loans to be made then all those derivatives and credit default swaps would not have been issued. You are reminded that back when CORE and its various iterations were proposed and passed it was the financial markets that opposed them on economic grounds and the “right” that opposed them on ideological grounds. Those loans by the tens of thousands would never have been made in the first place but for threats by the Government regulators, adhering to the CORE requirements, to come down hard on the banking institutions that did not make enough of those sub prime loans. The banks had no choice but to comply with the Government mandate if they wanted to stay in business since the regulators had the power to shut them down. Once the loans were made then Fannie and Freddie stepped in to buy up those mortgages. You do remember that those executives of Fannie and Freddie made huge salaries and bonuses. Certainly equal to those of other Wall Street types. Fannie and Freddie were complicit in the bundling of those sub prime loans and then the marketing of them by Wall Street. Wall Street would never have been able to market those mortgage backed securities without the support and active participation of Fannie/Freddie–Government.
This was all political policy and social engineering, not economic or financial markets, that created the the mess. Imagine how things would have been if none of those ridiculous and none economic loans had been made. We still would have been building houses and selling them. It would have been at a reduced rate and the values of houses would have increased but not at the unsustainable rates caused by “selling” houses to people who couldn’t afford them and maybe didn’t have a job at all. There would have been no bubble.
But through the greed of politicians for power and their misguided attempts at social engineering we are where we are now. The proposed solution is to dig an even deeper debt hole. We are already in a huge debt hole but the remedy proposed is to have even more people jump in the hole with more shovels and dig it deeper. It occurs to me that we might just be making a hole that will trap even more people in the future. We have already had 700 billion of TARP, don’t forget the 800 billion announced by the Fed a couple of months ago to buy notes for mortages, credit card, auto loans and student loans, then there is the 1 trillion stimulus package working its way through Congress now and the Treasury has let it be known that it will need another 1 to 2 trillion for additional TARP beyond that already recieved. Everyone talks about putting that debt on our children. I am not so sure about that anymore. That much debt can’t wait that long for attention. It is us that will have to deal with it. I do wish the people would demand that Congress discuss now exactly how they propose to handle the additional debt, not merely put it off for another day. Don’t forget that we also have to find a solution to the Social Security and Medicare shortfalls which is going to be trillions more. We need a long term plan. Even the Government has a limit to its credit card. Yes, I know it can print up all the money it needs but that is self -defeating because of the additional inflation it would cause. We are going to have enough inflation with what is on the plate now to damage our future economy.
This is all from a group who can only get about 70% of their major appointments correct. Trying to manipulate the total economy is more complicated than making appointments. I am not encouraged.