Wednesday
Oct012008
Bankruptcy, not bailout, is the right answer
Wednesday, October 1, 2008 at 6:29AM The Blogmother
One of the better articles I have read on why we don't need a bailout. You cannot hold back the waves of the ocean or sweep up all the sand on the beach. Nor can you stop the business cycle from doing what it must. Here is a really good essay by Jeffrey A. Miron is senior lecturer in economics at Harvard University on why we don't need a bailout. It is called Bankruptcy, not bailout, is the right answer.
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Reader Comments (14)
noone bailed me out when hubby and I both lost our jobs after 9/11
I hate that the media keeps pointing at subprime mortgages as the culpret in this. They are not. The Self Help Credit Union in my town has been making, and still is making subprime mortgages today. They use sound underwriting practices, i.e., they don't put people in mortgages with temporary teaser rates that they can't pay when the rate jumps. The problem is predatory mortgages. Brokers putting people in mortgages that they could not possibly pay after the teaser rates went up.
I don't support the bailout but my BS detector goes off when an economist doesn't distinguish between predatory and subprime loans and then blames the government for pushing subprime loan underwriting with the 'predatory lending' mess.
I do not have all the financial background. HOWEVER I know enough to know that you do not reward bad behavior. Even though this is hard pain is one of the best teachers I know. I was working at WorldCom when Bernie Eppers did his dirty work with the accounting. I and many others lost their jobs. Probably some ended up foreclosing on their homes. No bailout for those of us that struggled through hard years. I and many worked through that battle. Thank God I was able to keep my house with help and miracles that came my way. If I had missed three mortgage payments I would have been out of my house with no help from the bank.
I hear that the Senate is going to vote on something tonight. I hope to God that more will fight this again. This is nothing but a cover up of the failure of government policies and possible corruption. I am looking forward to hearing the results of the FBI fraud investigations.
Please, somebody tell me, what difference, policy-wise, is there between Obama and McCain?
Both McCain and Obama, presently, from what I have heard on the news this afternoon, are pushing for the Senate to pass the bailout bill, to give Wall Street $700-plus billion. Both men are sounding the alarm, using fear -- just as Bush has done since nine-eleven -- to try persuade the American people to go along with Wall Street's bailout boondoggle.
The rhetoric of Obama's campaign has been all about change and [the stupidity of] hope. Change what? How is he different? It seems to me that he is just the same fecal matter, but a different day.
Check out this piece:
http://powerofnarrative.blogspot.com/2008/10/terrorist-state-abroad-and-at-home.html
@ Sue Ellen
Isn't that exactly what the government did? They turned banks in to predatory lenders with their insistence that banks had to give loans to "low income" borrowers.
Instead of confronting real discrimination in lending, they said "just give a loan to everybody" so they could get the number of minority homeowners up. Instead of creating a commission to seriously investigate claims of racism, they turned the phrase "affordable housing" into "a guaranteed right to have a mortgage".
As far as the ARM's go, that was the only way they could justify giving people a home with no money down. Basically many of these people were just paying for a down payment for the first few years and then the actual value of the mortgage kicked in. Again, this is the only way the banks could justify giving out the loans and they needed to make the loans in order to fulfill basically a government mandate.
Why do you think the gov't is so keen on this idea? Because it was their fault to begin with. Fannie and Freddie made money off each loan -so the more loans made, the happier they were. They were guaranteeing loans and giving the banks false confidence.
As far as the mortgage backed securities on Wall Street, that was just pure greed. The only way to make any money was in housing so they ran with it. Wall Street has been inflating the true value of the market since the 80's. Housing gave them a way to get back in the game and they gambled and LOST. But the housing bubble wouldn't have existed had the government not decided to put their noses where it didn't belong.
This isn't a partisan issue, it is a government is crap and sold us out issue. Once they saw that people were defaulting left and right,they should have shut down Fannie and Freddie. They should have immediately dealt with the crisis when there was something that still could have been done. Now they want to come in on their white horse after Wall Street twisted their arm and said, "Help us, this is your fault anyway!!"
NO BAILOUT. I want criminal charges, people to resign, and the government to get out of the housing market.
@sue ellen,
The media SHOULD be pointing this whole mess back to Fannie & Freddie because that's where it all started. The government in the 90's went to the banks and told them they had to start doing loans in a certain way so that more people could own homes. If the banks didn't comply with the federal mandate, then they would be heavily fined. Standard banking principles went straight out the window.
Subprime and predatory lending are tied together. The Congress reps who were crying about predataory lending were the very ones who were pushing for Fannie and Freddie to do more and more loans. And when the regulators pointed out the problems about Fannie and Freddie, Congress denied there was a problem.
The government needs to get out of the housing market and let the businesses fail. To try and "prop it up" is nothing short of socialism. Is socialism as an economic model working anywhere in the world today? No, but that's the road we're headed down. My two senators are probably going to vote for this piece of crap bill. It's a sad day.
OFF TOPIC:
Conservatives are attacking Gwen Ifill, accusing her of possible bias.
http://www.huffingtonpost.com/2008/10/01/ifill-on-race-and-rightwi_n_131041.html
(Note: the bad grammar is intentional.)
Well, the Senate has gone and done did it: They voted in favor of the bailout bill. They did not listen to their constituents. Folks from all over the country have been calling and emailing and faxing their senators, telling them not to give Wall Street the gazillion dollars that they have been asking for.
If this vote does not let you know that our elected representatives, who hold a federal office, are one-hundred percent beholden to the moneyed elite in this nation, then I don't know what will.
I don't know folks. Well, yeah I do. Someone should go to jail. It's that simple. When they say we have to give any entity that much money, we should see someone in handcuffs.
Although Bush is proof that not all governors make good presidents, this current situation is a prime example of why senators have not been selected in the past. Senators are good at voting. They're professional voters.
Both McCain and Obama have been either running in the opposite direction from a real solution or championing this bailout bill. Not to mention, they each want credit for it and they were both rewarded handsomely from Fannie Mae and Freddie Mac in terms of campaign donations.
Both of their campaigns either are currently or have been tainted with people affiliated with producing this mess.
I return to my original statement. Someone should be in handcuffs and not the strange woman in the cow suit. But, that's a perfect example. Our government (president & congress), and the banking and mortgage industries are responsible for this $700 billion dollar problem that this sorry solution may not fix. But, everyone wants to point fingers across the aisle. But let a black woman in a cow suit chase someone down the street and she's in handcuffs on the front page of CNN. WE HAVE A SERIOUS PROBLEM.
(Sorry for the caps.)
@ VJ
The community reinvestment act is not the culprit. Banks practiced redling for years--systematically disinvesting from neighborhoods with poor people and people of color. It is possible to lend to low income people and to finance affordable housing and small business without going bankrupt. Nonprofit lenders do it everyday with a lot less overhead and none of the big ones are anywhere near being in the red. As a matter a fact, most non-profit lenders have a good return on their loans, because they create loan terms that are reasonable and have strict guidelines for what a person can afford. They do their due diligence, don't discriminate and lend responsibly.
The problem is these banks got greedy and sloppy at the same time. They knew they were lending people more money than they can afford and had terms that were unreasonable and deceptive. The risk made them more and more rich and the market more and more out of control. It's funny how everyone wants to now scapegoat low income people for Wall Street's irresponsibility. I have little sympathy for a company that can give them employees million+ dollar bonuses and they cry that their bankrupt. Obviously, they are the ones who acted irresponsibly. The fact is, these people who took the loans already payed their price, they lost their homes. What price the wall street pay?
Community reinvestment projects tend to have a nearly 100% rate of return. The problem was lenders encouraging people to take out a 500K ARM when they qualified for a 200K fixed rate one and people letting greed take over and making poor choices. The American Dream is a powerful symbolic form of corporatism and colonialization and a means of keeping people poor. The brokers bundled these loans and sold them and resold them and everybody made a lot of money until it came time to pay the mortgages. This occurs in smaller but significant amounts by the credit card debt people carry. The price of housing is over-inflated. People either mismanage their money from lack of skills or in response to unresolved emotional issues. Or someone was doing fine but lost their job or got sick. Companies that leave the US (and take the jobs overseas) and get out of paying taxes to the US legally. It's many things, but I don't think a CEO who gutted a company should get to walk away with 200M when everyone else has lost it all, but our gov't doesn't have it set up that way. Somebody is profiting...but it's not the average tax payer. If that is a priority to people then there's going to be a lot of work necessary to get that changed! One politician is not going to stop this white supremacist power structure - not even Obama. It is rumored the reason why Kennedy was assassinated had to do with him wanting the gov't to be in charge of the Federal Reserve instead of it being privately held.
First, let me thank you all for letting this white guy lurk.
I'm conflicted about the bailout thing. Not really convinced either way. Read what http://www.barackobama.com/2008/10/01/remarks_of_senator_barack_obam_127.php" rel="nofollow">Obama said about it yesterday. Even if he and McCain are basically at the same place in terms of the policy, I'd much rather have someone who can give it to me in nice words, well-delivered. If you're force to drink poison, it might as well taste good.
One the other side, a friend of mine wrote a http://triedntruecolors.blogspot.com/2008/09/of-bailouts-and-reparations.html" rel="nofollow">post with a nice take on the bailout as it relates to white privilege and the inability to even have a decent debate about reparations for African Americans.
Somebody needs to go to jail.
I'm against the bailout. I'm suspicious.
It is rushed, and the way Paulson and the Bush Admin. are pushing it it feels too much like "Weapons of Mass Destruction" hysteria. Fool me once.... These folks are the ones talking the stock market down.
For the longest time the Bush Admin. (and McCain) talked about the "fundamentals of the economy" were strong. Now all of a sudden, it's the end of the world, and if something is not done it's the Great Depression.
I don't believe them. I think it's a looting of the Treasury, one last Bamboozling scheme. If they aren't helping out the regular folks out there (remember Children's Health Care was too expensive) then forget about it.
At some point, the banks and credit markets will regain their composure and start lending again. What's happening now is a normal occurrence in the business cycle - shaking out the excess.