If it were up to me, I would address the financial crisis by first looking at what the problems are:
1. Financial institutions made some brain-dead decisions by giving out too many loans to people they probably knew couldn't pay them back, otherwise known as sub-prime mortgages. Assuming that property would continue to soar like it has much of the past 5-8 years, the big banks gambled that even if a lot of people foreclosed, they would still have an appreciated asset in the real estate. Well, lots of people did foreclose, and houses flooded the market and real estate prices went down. Now all the big companies who put all their poker chips into the housing market have lost a big chunk of their principle investment.
2. Too many people took out mortgages they couldn't afford. I'm not sure I buy it, but many people (mostly the Dems) claim that they were tricked into it with "predatory" lending practices. Even if tghat's true they still signed onthe dotted line without understanding the contract, and that leaves a lot of the blame square on their shoulders for their foreclosures.
3. The Fed has printed way too much money not backed by gold, leaving the dollar weak in an increasingly competitive world market.
So, to solve the problem, what does Congress do? Throw a lot of money and power at the treasury. True conservatism just cannot bring me to swallow the pill of throwing $700 billion at one person or department in the government.
One argument I hear from a lot of people, including many conservatives, is that this is actually an investment, not a cost. This is true, since the plan is trying to buy up assets from the companies for way less tah nthey are worth, not simply give them money to get back on their feet. That way the federal government has billions of dollars worth of assets, mostly real estate, that will hopefully appreciate.
This argument, however, leaves a few questions in my mind: First, if this is such a good investment, then why can't private investors buy in instead of taxpayers? Second, if putting so many eggs into one basket killed the financial industry, why wouldn't it do the same thing to the federal government? Remember, the bill proposes that we buy up BAD loans from the companies...doesn't sound like such a great deal to me.
Another argument, which is probably more sound, is that a financial collapse affects everybody. The cheesy phrase they use is "from Wall Street to Main Street." As companies start clamping down on their losses, they will start lending way less money. It will become harder and harder for ordinary people to get credit to buy a car, go to school, buy a home, etc. Probably more devastating is the fact that businesses, especially small businesses, will have a hard time getting credit to buy things necessary to expand their business. Right now much of the economy rests on the ability of people and businesses to buy things on credit. Think about how many fewer cars and houses will sell if half as many people can get the loans to buy them. Think about how many fewer start-up businesses will pop up if no-one will give them a small business loan.
This argument, while sound, doesn't pursuade me. The marketplace is full of risk, and markets fluctuate, sometimes radically. Call me heartless, but I say let the market crash. Let the credit industry seize. Let the grandma's and grandpa's with their 401k's in the stock market loose their retirement. Do we think that our money in the stock market has no risk attached to it? This is one of the risks, so let it be.
I'm convinced that this will be a good thing in the end. Housing prices will go down and more people will be able to afford to buy. Oil is already going down, bringing food prices with it. It may take a few years of recession, but in the end the market will be much more healthy for it.
4 comments:
To what extent [jail time/monitary] can the on the ground sales people, managers, regional managers, and top brass be held accountable in our current justice system?
Does the protection for incorporated entities only extend to the boardroom folks?
On point 2, I feel sorry for an arbitrary 1/3 of the loan holders. The ones who are too naturally hopeless to understand the loan process. The 1/3 who should have researched more but let the loan officer wink them into it, and the ones who knew they couldn't do it are on their own.
From Wall Street to Main Street = super cheesy
You're right, Wall Street to Main Strett is a super cheesy one-liner.
As far as I understand (and I admit that I have limited knowledge of incorporation law), incorporation does not protect individuals from criminal prosecution, only civil suits. A small-scale example would be someone driving a caompany car. If that person gets a ticket for speeding, or anything else, then the person is has to pay the ticket himself. However, if that person gets into a wreck and does some major damage, then the company is accouantable for any damages claimed in a law suit. This might get messy if damages are done in direct result of a crime (driving under the influence, speeding, etc.). Also, the corporation is only accountable if the person is on the clock/doing company business.
Under our current justice system, I think there is only on way sales people, managers, regionaly managers, and top brass can be held accountable. That is if major evidence is brought to light that proves that there was knowing and willing fraud. This means that you can prove that the person knew that they were presenting false or misleading information. This kind of evidence would be needed i neither a criminal or civil case, even thoguh a civil case would have a lower burden of proof. In most cases, however, it's just gonna be your word against their's without much hard evidence except a contract signed by the buyer.
I, too, feel sorry for the borrowers who probably will never understand the loan process. It's not a simple process and they have no frame of reference to know what htey can afford and what types of things to expect. Be that as it may, I believe strongly in personal accountability when it comes to contracts.
The problem, though, is that there is no real way of distinguishing those who truly didn't and never could understand the process from those who were just dumb and irresponsible. And the second you offer up "relief" to those going into bankruptcy or foreclosure, everyone will claim that they were tricked into it by mean, predatory lenders.
On a side note, I was appauled to learn yesterday at the debate that the Obama campaign favors giving power to bankruptcy judges to change both the interest rates and the principles of mortgages of people filing chapter 11. That kind of power should not be in the hands of unelected officials and is borederline communist.
I won't use the "C" word.... but that is the defiantly wrong channel for getting that work!
A government agency altering contracts and adjusting prices definitely warrants a mention of communism. I'm not affraid of using the word, even if it does border on inflammatory. I think if the government is going down that road then we have the duty to call it what it is. And unelected officials altering contracts and setting prices is most definitely communist.
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