Race To Demagogue the Subprime Meltdown
The politicians are now stepping overthemselves to the get to the front of the line to demagogue the subprime lending reckoning that is unfolding in the capital markets. Typical of the annoying rhetoric is this from, go figure, Sausage Factory Worker Christopher Dodd: ``Our nation's financial regulators were supposed to be the cops on the beat, protecting hard-working Americans from unscrupulous financial actors".
Maybe. Surely there were some bad actors among the lenders involved, but they're not sitting on a beach earning 20%. Many are bankrupt and many will soon be. The stocks of these companies have been decimated and the wave of lawsuits is gathering out at sea but will surely reach land in short order. In other words, the dumb decision (maybe even the unsavory purposeful ensnarement) to lend of money to those unable to handle it, is meeting its comeuppance.
But what of the other side of the ledger, the borrower? What of their culpability? You will hear no condemnations from the politicians of the rampant greed that fueled the more speculative real estate markets. From 2002 to 2005, we had the real estate equivilent of the prototype stock bubble where hairdressers and janitors are playing the market. The guy who keeps my townhouse development's boiler running was a mini-real estate lord with 11 properties, all probably levered over 95%. Was he just a closeted entrepreneur kept out of the game for too long? Did people who make $1800/month really think that the world had changed and that a loan of $800,000 was now perfectly sensible whereas previously it was an imposibility? No, there was a mania, fueled by people's greed and abetted by speculative lenders. These lenders were irresponsible in lending their capital, just as borrowers were irresponsible in taking on too much debt and doing insanely stupid things like choosing ARM loans when rates had no place else to go but up.
Credit counseling is pervasive in this country, provided by non-profits and all manner of community groups and 'empowerment' gurus. There is no reason why any person in a position to borrow a large sum of money shouldn't know what level of debt they can handle. So why did this happen? Greed. And whatever Christopher Dodd and the Great Sausage Factory do to address it ex post facto, it will happen again (it might even be happening now, seen any commercials touting gold and other metals as an investment...?).
Seems to me that both sides got exactly the outcome that was most likely as sad as the results are. The system worked.
Maybe. Surely there were some bad actors among the lenders involved, but they're not sitting on a beach earning 20%. Many are bankrupt and many will soon be. The stocks of these companies have been decimated and the wave of lawsuits is gathering out at sea but will surely reach land in short order. In other words, the dumb decision (maybe even the unsavory purposeful ensnarement) to lend of money to those unable to handle it, is meeting its comeuppance.
But what of the other side of the ledger, the borrower? What of their culpability? You will hear no condemnations from the politicians of the rampant greed that fueled the more speculative real estate markets. From 2002 to 2005, we had the real estate equivilent of the prototype stock bubble where hairdressers and janitors are playing the market. The guy who keeps my townhouse development's boiler running was a mini-real estate lord with 11 properties, all probably levered over 95%. Was he just a closeted entrepreneur kept out of the game for too long? Did people who make $1800/month really think that the world had changed and that a loan of $800,000 was now perfectly sensible whereas previously it was an imposibility? No, there was a mania, fueled by people's greed and abetted by speculative lenders. These lenders were irresponsible in lending their capital, just as borrowers were irresponsible in taking on too much debt and doing insanely stupid things like choosing ARM loans when rates had no place else to go but up.
Credit counseling is pervasive in this country, provided by non-profits and all manner of community groups and 'empowerment' gurus. There is no reason why any person in a position to borrow a large sum of money shouldn't know what level of debt they can handle. So why did this happen? Greed. And whatever Christopher Dodd and the Great Sausage Factory do to address it ex post facto, it will happen again (it might even be happening now, seen any commercials touting gold and other metals as an investment...?).
Seems to me that both sides got exactly the outcome that was most likely as sad as the results are. The system worked.
posted by Donny Baseball at 11:25 AM
1 Comments:
That may be the most intillegent piece done on the entire subject.
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