Monday, April 21, 2008

Taken from a article...

Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.

Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money.

This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars.

We don't NEED to cover the banks. If they made lousy gambles, let them fail. If the banks were forced between bankruptcy and renegotiating mortgages to ensure ongoing payments they'd start to negotiate with homeowners in good faith and the market would work everything out. Insulating banks from the downside risk of their own bad judgments just makes the pain deeper and more prolonged.

That's not to say that homeowners aren't to blame also, because they clearly are. They got into houses that were way outside of their price range. What's one of my favorite sayings? If you don't have it, don't spend it. It's pretty simple really. See the following overheard conversation:

Poor: I want to buy a house but I have no money. What can I do?

Idiot Bank: You can still buy the house of your dreams. No money down. We have this new cool loan called Interest Only. That means you pay as little as possible. Isn't that awesome?

Poor: Wow? Really? That sounds to good to be true, but then again, you know what they say... If it sounds to good to be true... then it must be awesome!

Idiot Bank: It is awesome! We'll get you into this $800,000 house with no money down and you'll only pay $9/month. Even a broke ass like you can afford that!

Poor: Wow! My mom said that I'd never get anywhere working at McDonald's. Boy was she wrong. I've got a new car and a new house. I'm rich bitch!

Idiot Bank: We're rich too, bitch!

--- 6 months later ---

Poor: I'm so poor! You're taking away my dream, man! It's my right to be in this house! You lied to me and stole my dream! Think of the children! Won't someone bail me out?

Idiot Bank: We're so broke! I don't want to be responsible for all my stupid loans. Won't someone bail me out?

It'd be nice if people and institutions were actually held responsible for their actions. We supposedly have a free market. That means we should let the market work! Let people get foreclosed. House prices will drop back to sane levels. Banks won't lend tons of money to people who have no ability to re-pay. It'd be great. Sure, I'd get screwed because I just bought my house right before the crash, but that's just too bad. I signed the paper and I'm responsible for paying it back. No one is going to come and bail me out.

It's enough to make me want to start smacking people upside the head in hopes that they get some common sense.

1 comment:

Plang said...

Well said. With the exception that we don't want banks to completely go out of business, which would require the Fed (FDIC) to come in and pay everyone who had $100K or less in the bank, we should let them deal with their mistakes.