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Imperial Forum → Politics → The "Rescue Plan" as its being portrayed by the US.
Pfft yeah they'll just issue bonds. Guess who will be the ones who have to end up buying those bonds and prop it up? China and Japan forcibly to the rescue again. Hopefully they learn their lesson this time.
I'm kinda sitting the fence on this issue. On the one hand I don't think any government should make efforts to bail out private business, but on the other hand I'm not fully aware of what the consequences would be if the banks aren't bailed out.
Ditto.
I have a great idea.
Get rid of the Federal Reserve, and adhere to extreme free-market economics. No government intervention at all, including no issuing and enforcing of patents.
http://www.youtube.com/watch?v=S27yitK32ds
This women for president!
Theo, Correct on the first portion.
Yes, the Banks made a profit. Then the holders the bundled loans received a dividend.......as a bond does.
questions....
A. that is where the Govt. stepped in w/Freddie and Fannie lowering the standards.
this is where the govt. weenies got into the game, and said, "well, all Americans, should have the American Dream (a House) and the govt. should do what it can."
Well, it did. It cut Freddie and Fannie loose.
B. No. These so called "Investments" were given the illusion of being as solid as "Treasury bonds."
After all, it was Freddie and Fannie clearing out bundles of these securities.
Freddie and Fannie bought most of the loans that the banks were securing through their benchmark regulations.
unfortunately, the banks were buying these back .... and those that bought to much, got swamped and stomped.
C. The Housing market out grew supply by the availability of Cheap money (Low Interest rates) coupled with lower standards.
No documentation loans. You didn't have to prove income.
Stated Income. You told the bank your income level.
Trust in the credit rating.......well, any Joe schmo just need to get Auntie Mae to co-Sign your loan. Auntie HAD a great credit score.
This inflated the Price of houses, by increasing DEMAND for houses artificially.
The rug pulled on house value, price went down.
Interest rates rose, raising the rates on those loans locked into adjustable rates.
100% financed loans, adjustable rate loans, No-Doc/stated income loans got clobbered.
All the sub-prime lending.
Loans that defaulted no longer had the equity in the house to overcome the forclosure....the bank is left holding the property.
All in all, only 2% or so of loans defaulted, but it destroyed the "Perceived value" of those mortgage backed security bonds.
No one wanted to touch them.
The value of the bonds was lowered. The asset line is lowered. Less money to lend. OR WORSE, your under your alloted %, and you (the bank) must borrow or sell assets to get cash to get to the % you need to have on hand.....
snow balled.
Its not out of control ..... yet.
BW, you need to add some nuance to you blaming the (US) govt for the current crisis.
What the banks did was giving loans to people who can not pay back. The banks knew this but didn't care. Why? Because the loan was protected with a mortgage: If you can't pay this loan back, we get your house, we sell the house, we get our loan back. It seemed right.
BUT, then the housing market got worth ****. Prices plummeted. So, when a bank had to sell the house on which it had a mortgage, they did not get their invested money back. They lost billions.
The reason that this spread out is because mortgages are gathered in funds, and you can get a stock in these funds. Banks do this because the stock-value is (at selling time) of less value than the total interest gained with the mortgage, but the bank again has liquids at its disposal it can invest. So, the bank gains short term cash, the investor gains long term cash, everybody wins.
Problem now, the houses are worth **** so both the banks and the investors lose.
Now, why is this only happening in the US (and Northern Rock as an anomaly)? Because in the US, the mortgage went UP TILL 140% OF THE HOUSE VALUE! which is totally insane. The banks gave a loan of 1.4 times the value of the currently bought house (the house being worth only 1). The banks did this because, they assumed, the housing market will rise anyhow and we will be capable of reclaiming our 140%.
Here in Europe, on the other hand, banks aren't as insane. The generally accepted maximum is 70% of the house value. In Europe, even with all the booming housing prices, the banks still assume (out of safety) that they will gain less from their mortgage than the value of the house at the time of granting the loan.
I hope I was a bit clear, but it's difficult sometimes to explain these things in English.
And yes, I know, there are other factors that had influence as well, but they're more of a minor-factor. In the end it was the bank that granted the ****-loan and sold it to other banks / particulars for easy cash.
@ Gushdeva
Most home loans are Freddie or fannie backs, through HUD.
They set the regulatory standard.
THEY let, and even ENCOURAGED these loans.
Banks are not in the Real estate game. Banks dont want houses. Banks want a steady stream of predictable interest.
Sorry. Those are talking points, ..... dont fall into that trap.
Think on your own, dont parrot what you hear/see on Radio/TV.
Gush......I have no clue what you are talking about 140% of value, etc. only 70% in Europe.
30 year note at 6% you are paying well over 2X the amount you are borrowing. 220% or so.
Thats the price you pay, to live in the house, own the rights to the house, and sell if you with the house......LONG before the house is even paid off.
You, have your thinking wrong.
Its WAS the fault of the Govt. loosening the borrowing standards.
As well, the foreclosure rate is still very managable.....
Its the "FAITH" and then perceived "VALUE" of these mortgage bonds that are almost worthless.
There is no market for them. No one wants the bonds, no one wants to form the bonds. No one wants to buy/sell the bonds.
No money moves, it clogs the system.
The System clogs, it shuts down.
Week 2, and no depression
BW,
Actually, Democrats forced companies to lend to poor people and recent college grads. So you would get a low income family or family with bad credit with a house loan when they should really be living in apartments.
If anything, Democrats deserve most of the blame.
Any comment on the youtube link?
Black_Wing, you admit the government got us into this problem. So did you ever consider that it was the Federal Reserve's manipulation of interest rates that made all of these loans /appear/ less risky than they really were? Should not the /market/ determine interest rates? Why aren't you hounding the Federal Reserve as the conduit for economic crisis, if indeed you assign responsibility to the government? If the government made bad decisions, what makes you so sure it will make the right ones to get us out of it? If you honestly believe a boom-and-bust cycle is organic to free markets, then I simply can not help you. I believe it's time to let the government stand aside on this one, and allow the market to reassert itself.
Do you not remember the period between 2001 through 2004? The Federal Funds Rate Target was lowered from 6% to 1%, then starting around the summer of 2004 through this time last year, the rate target grew to some five and a quarter. It was not so much the mortgage-backed assets that were at the root of the problem, but the Fed's policies of aggressive credit expansion that made these bad loans so appealing (artifical interest rates distort risk tolerances).
So far, we have only seen the effects of this bubble in the real estate and financial sectors, and the answer to this problem is /not/ to let the Fed pump more money into the system. That is what has gotten us into this problem in the first place. The banks aren't going to expand their assets with the threat of taking on even /more/ bad assets, they are going to put the brakes on lending and concern themselves more with their networth as the threat of being bought out is very real to many institutions across the country.
Either way, it's very clear what is happening here: The US is marching ever so proudly into socialism, and nobody is blowing the whistle on this silent communist revolution. Instead, the people are asking, how will my government help to fix this crisis we all face? Hint: They won't, and that is the wrong question to be asking.
But equity interest IS taxpayer protection! <snicker>
It's not socialism. It's unAmerican but it's not socialism...
"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power."
"All within the state, nothing outside the state, nothing against the state."
Benito Mussolini
"
Fascism is socialism.
i think you mean Socialism is Fascism.
It's all statism to me. 
Imagine if the Govt owned 50% of Mac AND Microsoft! That would benefit the taxpayer no end! Equity interests from all, for each!
Fascismo
"Fascism is socialism."
You've got to be a clueless American to come out with crap like that
Funny how socialists have a history of fighting facists while the right wing support them
Yeah like when that capitalist swine Stalin propped up Hitler in Poland and Lithuania
There's very little difference to Americans, Selur since both systems are very statist and ignore basic American liberties
Socialism does turn into fascism remarkably quickly though 
Capitalism is like playing hide and seek. It's fun until you take a wrong step and drown in the shitswamp.
@ Acolyte.
Federal Reserve controls the money supply and short-term market forces through money supply, and the funds rate.
The US Govt. through the Legislature manipulates the free-markets through policy.
This Mortgage stimulated crisis traces back to the loosening of lending policy by the Legislatures control of banking.
As I said, You will see no "Congressional Investigations" here.
It all leads back to them.
So, to answer your question....or your view. No. It wasnt the Fed. Infact, it was the Fed that was raising the red flag all along.
They were the ones saying, these Mortgage backed securities are NOT looking good at all.
If Anything, the Fed, by keeping the rates low, in the face of inflationary pressure, the deflation of the dollar, injection of funds, and increasing unemployment......have done their best to keep this problem contained.
The actions of the Fed, just cant get us over the hump, and now it takes the Govt to step in, with the full faith of govt. backing to loan out to clear the securities.
I, in this case, think its a good move for the Central govt. to do.
The sooner, the better.
Socialism, and Nationalist Socialism, is still socialism........by the way.
As Yell stated, and I agree......
Is no difference between a Nazi and a Marxist/Leninist/Stalinist..... In my Opinion.
What backs up the govt if the economy is so stupid? Govt only preys on the private sector you KNOW that, it cant guarantee the private sector
Hmmm, I wonder if this bailout is really socialism? I do not think this is 'socialism' as such, even though it resembles practices close to it.
The case when another country (just recently - Venezuala) wants to take a stake in a company, it goes up to the company and says: "We've got you. Now you are ours. No ifs, buts" The goverment officials dictate the terms and no negotiation is necessery. Which screws the company in the long run.
In our current particular situation, some companies are already screwed and they wants to sell themselves - and one possible buyer is the goverment. And now, it is negotiations time.
The *negotiation* - in one form or another - is the biggest distinction between socialistic and democratic countries in my opinion; less so than the political terms of 'goverment involvment.' Thus, as long as the free speecih allows people to talk about it and the population is kept informed, it is just goverment involvment - and it is just one form of public investment. Be it a good or bad investment, the socialistic sentiments are not a major factor, I'd think.
But the goverment might start going around and bossing what to do more easily afterwards - then it's real bad. And then it'd be too late.
Yell.
Agreed. But only the Govt. can get us out of this.....since they got us into it.
It looks like a long line of "lending" to companies in trouble.
As well, the govt. will buy a chunk of these Mortgage bonds.....and hold them.
Its a start.
BW, I see your point, but if you take it in a broader view, this is about the urge of increasing the consumer market, and the housing problem is just part of that economic need.
In that sense, sure the government [blobbed] up but they were basically answering lobbyists needs, the goal was not to allow everybody a home just for the beauty of it.
In the end, it's coming back to a pattern where banks started to loan money to the rich, then the middle class, then the poor, and now the system implodes. House are coming first and directly pointing the finger at the government but other sectors should follow.
In my opinion, the rythm of the general economy just became too high to accept anything but golden years to survive, it needs to come back to earth.
Imperial Forum → Politics → The "Rescue Plan" as its being portrayed by the US.
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