I agree with you - the govt. created the same crisis they are now pretending to be the saviors of. The Community Redevelopment Act (I know that's not what it's called) passed in the 90's lowered (some would say forcibly) the standards of lending. Of course, it seemed like a good idea for a long time. It was almost a decade in the making. And to be sure, that while Clinton may have passed the original legislation to make the lending rules looser, NO ONE ever expected the govt. to bail out Bear Sterns. There was never a reason to. "Too big to fail" is obscene and absurd. Whatever happened to Monopoly busting?
Now, from what I understand of the situation, this was far less a bank bail-out than a Wall Street bail out. The securities market doesn't reside in the banks - they're traded on the floor of the stock exchange. And the securities are what brought the house of cards down. Despite being hedged with many prime mortgages, the actual value of homes - whether the loan was prime or not - were simply not in line with their price.
That being said, I have to wonder if this whole thing is even a tenth as complex as they make it out be. Had they let the free market do what it would, things would have corrected themselves by 2010. So says leading economist John Sullivan ;-) Really though, this isn't rocket science: housing prices should roughly follow inflation. It's very easy to graph out inflation and home values side by side and I've seen websites do it. So all you have to extrapolate the two lines starting from 1981 (our last recession). What we would have seen is that housing prices would have dipped BELOW the inflation line. These would have been all of the foreclosed homes and their resulting impact on other home prices. After the foreclosure dust settled, we would have seen a normalization in home prices.
I mean, really - we have THOUSANDS of first time home buyers flooding the market, driving up prices. People take advantage and speculate. AND they make money hand-over-fist. This is the "greed" that everyone complained about. It wasn't greed, people, it was smart. You don't pass up opportunities like that because you think it will create a systemic failure. The idea would have been laughed at in 2005 and should still have been laughed at in 2008.
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Well said! Maybe letting Bear Sterns fail would have been the right thing. I really believe letting AIG fail would have been the best thing ever. if there ever was a government sponsored scam, insurance would be it. Surely we need insurance, but the amount of money put in is not anywhere equal to the amount of money paid out. RIP OFF!!!!
ReplyDeleteas far as the housing goes... really who the hell takes out a 500K mortgage without the money to make the payments.... and who the hell approves that? Really we need a whole new system of money management in this country.