T Nation

All Aboard the Lollercoaster

Fried chicken and Koolaid for all, loan payments for none.


WASHINGTON (MarketWatch) – The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie and Freddie necessitated unprecedented action.

The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie.

In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create

[quote]belligerent wrote:
Fried chicken and coolaid for all, loan payments for none

WASHINGTON (MarketWatch) – The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie and Freddie necessitated unprecedented action.

The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie.

In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create

[/quote]

Yeah, let’s the get the fed involved. Aren’t they doing enough damage.

When you bail these companies out, you encourage recless behavior by them and others. At some point to need to let them fail. It’s getting rediculous.

[quote]dhickey wrote:
belligerent wrote:
Fried chicken and coolaid for all, loan payments for none

WASHINGTON (MarketWatch) – The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie and Freddie necessitated unprecedented action.

The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie.

In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create

Yeah, let’s the get the fed involved. Aren’t they doing enough damage.

When you bail these companies out, you encourage recless behavior by them and others. At some point to need to let them fail. It’s getting rediculous.
[/quote]

Damned if you do, damned if you don’t. Having to bail out these big, financial giants is a BIG problem. Letting them go under would probably cause far worse problems. But eventually, we’re not going to be able to keep bailing people out. Iraq’s a mess. Oil’s a nightmare. We need alternative energy sources. We’re going to run out of money if we don’t come up with some solutions soon.

Letting banks fail is the best thing that could happen.

[quote]LIFTICVSMAXIMVS wrote:
Letting banks fail is the best thing that could happen.[/quote]

Why?

[quote]dhickey wrote:
Yeah, let’s the get the fed involved. Aren’t they doing enough damage.

When you bail these companies out, you encourage recless behavior by them and others. At some point to need to let them fail. It’s getting rediculous.
[/quote]

With all due respect, government intervention is exactly what is needed here. I have no issue with companies failing when they’re selling crap, but the notion of sub-prime lending is completely screwed-up and should NEVER have been allowed to happen. But it was and now the sh!t is hitting the fan and the tax payers will be biggest losers in the whole deal.

People are self-interested and these large companies are run by people. Without something there to keep the people in line they’ll screw ANY and EVERYONE to make a few dollars.

That was partly the government’s idea. Remeber that “ownership society” portion of one of Bush’s speeches? The government wanted unfit borrowers to own houses, and that’s what happened. Meanwhile, the financial geniuses at various brokerage companies decided they could package these crap loans and sell them to nouveau riche dupes in the former third world. Everybody wins! …For a short period of time.

[quote]905Patrick wrote:
dhickey wrote:

With all due respect, government intervention is exactly what is needed here. I have no issue with companies failing when they’re selling crap, but the notion of sub-prime lending is completely screwed-up and should NEVER have been allowed to happen. But it was and now the sh!t is hitting the fan and the tax payers will be biggest losers in the whole deal.

People are self-interested and these large companies are run by people. Without something there to keep the people in line they’ll screw ANY and EVERYONE to make a few dollars.[/quote]

Re read the part about encouraging reckless behavior. This is a huge issue and we have to cut the cord. If you don’t, they will only continue to make bad decisions. Do you think the gov’t will help them make better decisions? They make the worst loans of them all.

The other issue is that there will always be someone else to bail out. The airlines will be very soon. Then who, the auto industry, american steel, agricultur? Oops, we are already proping the last two up.

[quote]jsbrook wrote:
LIFTICVSMAXIMVS wrote:
Letting banks fail is the best thing that could happen.

Why?[/quote]

Economics in one lesson - Forget by who. I have it here somewhere.

The Politically Incorrect Guide to Capitalism

What it Means to Be a Libertarian (think this is the title) - Charles Murray

Free to Choose - Milton Friedman

Wealth of Nations - Adam Smith - not an easy read and almost every book you read on economics uses this are a primary reference.

Capitalism the Unknown Ideal - Ayn Rand. Not an easy read but interesting.

There are plenty of others but I haven’t gotten to them yet. There were some pretty smart economists in Austria at one point. Ludwig Von Mises, or something like that, was one that I have been meaining to read.

None of this should come as a huge surprise as it’s not the first time economic instability has resulted from foolish lending practices. Anyone remember the “savings and loan crisis” about 20 years ago?

Huge government bailouts of financial institutions and bank closures are at least part of the legacy left by the last 3 Republican administrations. With the way things look now (bin Laden still alive, Iraq a mess, petrol at an all-time high, and America’s current economic turmoil) W. Bush will probably go down as the worst POTUS since Hoover, deserved or not.

[quote]dhickey wrote:
jsbrook wrote:
LIFTICVSMAXIMVS wrote:
Letting banks fail is the best thing that could happen.

Why?

Economics in one lesson - Forget by who. I have it here somewhere.

The Politically Incorrect Guide to Capitalism

What it Means to Be a Libertarian (think this is the title) - Charles Murray

Free to Choose - Milton Friedman

Wealth of Nations - Adam Smith - not an easy read and almost every book you read on economics uses this are a primary reference.

Capitalism the Unknown Ideal - Ayn Rand. Not an easy read but interesting.

There are plenty of others but I haven’t gotten to them yet. There were some pretty smart economists in Austria at one point. Ludwig Von Mises, or something like that, was one that I have been meaining to read.[/quote]

While you may be right and they may be smart, citing some titles is no answer at all. What is a summary of the rationale as to why it’s better to let them collapse?

[quote]jsbrook wrote:

While you may be right and they may be smart, citing some titles is no answer at all. What is a summary of the rationale as to why it’s better to let them collapse?[/quote]

I already posted and reposted why.

[quote]jsbrook wrote:
dhickey wrote:
jsbrook wrote:
LIFTICVSMAXIMVS wrote:
Letting banks fail is the best thing that could happen.

Why?

Economics in one lesson - Forget by who. I have it here somewhere.

The Politically Incorrect Guide to Capitalism

What it Means to Be a Libertarian (think this is the title) - Charles Murray

Free to Choose - Milton Friedman

Wealth of Nations - Adam Smith - not an easy read and almost every book you read on economics uses this are a primary reference.

Capitalism the Unknown Ideal - Ayn Rand. Not an easy read but interesting.

There are plenty of others but I haven’t gotten to them yet. There were some pretty smart economists in Austria at one point. Ludwig Von Mises, or something like that, was one that I have been meaining to read.

While you may be right and they may be smart, citing some titles is no answer at all. What is a summary of the rationale as to why it’s better to let them collapse?[/quote]

moral hazard

Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. A moral hazard arises if lending institutions believe that they can make risky loans that will pay handsomely if the investment turns out well but they will not have to fully pay for losses if the investment turns out badly. Taxpayers, depositors, and other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions.[1]

Moral hazard can also occur with borrowers. Borrowers may not act prudently (in the view of the lender) when they invest or spend funds recklessly. For example, credit card companies often limit the amount borrowers can spend using their cards, because without such limits those borrowers may spend borrowed funds recklessly, leading to default.

Some believe that mortgage standards became lax because of a moral hazard�??in which each link in the mortgage chain collected profits while believing it was passing on risk�??and that this substantially contributed to the 2007 subprime mortgage financial crisis.[2] Brokers, who were not lending their own money, pushed risk onto the lenders. Lenders, who sold mortgages soon after underwriting them, pushed risk onto investors. Investment banks bought mortgages and chopped up mortgage-backed securities into slices, some riskier than others. Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along.

[quote]dhickey wrote:
Re read the part about encouraging reckless behavior. This is a huge issue and we have to cut the cord. If you don’t, they will only continue to make bad decisions. Do you think the gov’t will help them make better decisions? They make the worst loans of them all.

The other issue is that there will always be someone else to bail out. The airlines will be very soon. Then who, the auto industry, american steel, agricultur? Oops, we are already proping the last two up.[/quote]

Frankly, I don’t see how the government could do a worse job in lending out money than the sub-prime approach.

We know one thing for sure, if the government does a lousy job the people get rid of them. If the CEO’s of banks do a bad job, they get to step down and receive a nice severens package.

[quote]PRCalDude wrote:
That was partly the government’s idea. Remeber that “ownership society” portion of one of Bush’s speeches? The government wanted unfit borrowers to own houses, and that’s what happened. Meanwhile, the financial geniuses at various brokerage companies decided they could package these crap loans and sell them to nouveau riche dupes in the former third world. Everybody wins! …For a short period of time. [/quote]

I do not remember that portion of the speech - I find Bush hard to listen to. I do not find it surprising that this is the manifest of his vision. Heck of a job Bushy.

I support a bailout only if all the top execs are fired, stripped of bonuses and stock.

[quote]905Patrick wrote:
PRCalDude wrote:
That was partly the government’s idea. Remeber that “ownership society” portion of one of Bush’s speeches? The government wanted unfit borrowers to own houses, and that’s what happened.

Meanwhile, the financial geniuses at various brokerage companies decided they could package these crap loans and sell them to nouveau riche dupes in the former third world. Everybody wins! …For a short period of time.

I do not remember that portion of the speech - I find Bush hard to listen to. I do not find it surprising that this is the manifest of his vision. Heck of a job Bushy.[/quote]

Let’s take a trip down memory lane:

It’s not entirely his vision. ACORN and other racial agitators played a part, as did lenders and rich investment bankers. There’s enough blame to go around. But more government regulation will accomplish nothing.

Now there’s so MUCH regulation that people like myself and my wife won’t be able to get a loan without 25% down and a very high interest rate. So housing prices should be on there way down for quite some time.

So much for an “ownership society!”

[quote]Zap Branigan wrote:
I support a bailout only if all the top execs are fired, stripped of bonuses and stock.[/quote]

I agree with this position whenever a govt. bailout occurs.To do anything else is to reward stupidity and greed without consequence.

Interesting stuff. While a bailout may not be appropriate and while government’s direct involvement in running these companies may not be appropriate, we need MORE and not less regulation. We a law along the lines of Sarbanes-Oxley that makes it against self-interest to fuck people over. Make the executives forefeit their bonuses and send their asses to jail for these kind of improper lending practices.

[quote]Neuromancer wrote:
Zap Branigan wrote:
I support a bailout only if all the top execs are fired, stripped of bonuses and stock.

I agree with this position whenever a govt. bailout occurs.To do anything else is to reward stupidity and greed without consequence.[/quote]

Yes, we also need laws to prevent this kind of thing from happening in the future. It’s hard to stay ahead of the curve though. Greedy assholes continually think of new schemes that end up causing huge problems before the law can anticipate and prevent them. We’re always playing catch-up.