Posted by Dinah on October 3, 2008, at 12:35:20
In reply to Re: Oops-- there goes the economy... » Sigismund, posted by Bobby on October 1, 2008, at 1:00:02
I've been fussing about this for years. Unfortunately, there is more than enough "blame" to go around. It's not just a few greedy superrich. People believed real estate was always safe. People may have been encouraged to borrow more and pay more for homes, but they did choose to do it. There are shows on "flipping houses". It's considered a good way to make money to borrow money to buy a house and resell it. People forgot the seventies. I can't understand that, because it was almost thirty years ago exactly. Not so very long.
Real estate is not always safe. No one should invest more in the stock market or in their home than they can afford to leave invested for the very long term. Being bullish is not always good. Being bearish is not always bad.
When there is a crisis, panic can make what's bad even worse in a market economy.
Leverage works both ways. It's like a teeter totter. The potential for gain is great. But every bump in the personal or national or global economy has the potential to be a disaster.
FDIC insurance rates are the same whether a bank invests conservatively or speculatively. They should be risk adjusted. If a financial institution is willing to take risks to get greater gains, they should have to bear the burden of the risks through higher premiums. High enough to actually negate the value of higher risks. Speculative ventures have no business being funded by financial institutions. They should be the purview of private individuals who are willing to personally shoulder the risk.
Deregulation is risky. The last time this happened was after the deregulation of the savings and loans. The deregulation (which started Pre-Reagan) came about for good reasons. The high interest rates savings and loans were paying out compared with the low interest rates on older home loans (not to mention the growing foreclosure rates as interest went up) led to looming disaster. So deregulation gave these entities a way to get higher rates of return to offset the low rates of return on older traditional mortgages. It was seen as a chance to survive. But savings and loans were skilled in being savings and loans. Not nearly as skilled at being banks. It's easy to think about it in terms of greed. But not all executive decisions have to do with greed. Some have to do with optimism and poor judgment. Others have to do with fear and poor judgment. Poor judgment, moreover, that masquerades as good judgment. Don't you feel darn stupid for putting your money in a low paying investment when higher paying investments are all around you and the recent past would indicate that they aren't all that risky?
We recently had the same situation. I don't know the particulars of it, admittedly. But I have heard enough from newly minted banks to know that suddenly other types of financial entities were becoming "banks". And I vaguely remember hearing something about laws being changed to allow that.
I told my son that in around thirty years, someone was going to try to convince him to buy a bigger home than he could afford. They'd tell him what an excellent investment real estate was. They'd make it seem like the most natural thing in the world. And when they did, he should remember that apparently thirty years is longer than people can remember.
Bubbles burst.
It's easy to point fingers. But doing so has the potential of shifting attention away from the lessons that people have to learn to prevent this happening again. Making it the fault of a few greedy supperrich minimizes the widespread nature of the problem. Awareness is key, and perhaps government monies would be well spent on public service announcements about basic economic theory for the foreseeable future. Do you know how many ridiculously expensive homes there are in my area? Do you know how few people make enough money to actually buy (with comfort and room for economic hiccups) homes that expensive? Believe me, in this area anyway it just doesn't match up.
This isn't a manufactured crisis. At least not manufactured as part of a conspiracy. It's been years in the making, and I have complained about it every step of the way. It was just a matter of time.
It seems to me that the important thing now is to restore confidence enough to prevent another 1929 (although it is highly unlikely to be quite on the same scope) and then enact laws to re-regulate. Maybe put in an explanation for the laws *into* the laws with stern reminders of what happens when the history is forgotten.
Just my opinion, of course. But I do remember the late seventies, early eighties. I remember the savings and loan bailout and the anger at the "greedy" individuals who were supposedly to blame. I also remember that it was a heck of a lot more complicated than that. A few people who got a lot of press did some bad things. But most others were just caught up in the market forces prevailing at the time.
People think of "Wall Street" as being the rich. Wall Street is anyone with money in a 401K or a mutual fund. I wish this crisis could easily be reduced to a late night TV joke, or a sound bite, or a political talking point. But it can't. I'm not given to panic at all. But this is a problem. A serious problem. And one we're doomed to live over and over and over again if we don't learn the lesson we should have learned thirty years ago.
The bailout is going to pass because it has to pass. They're arguing the particulars. And hopefully the cost will not be as great as it appears. This isn't a gimme. They're buying assets. Failing mortgages. Our mortgages. Those are backed by homes. Real homes. These aren't just pieces of paper. Should the government have to do this? Of course not. But why blame just the people who lent and ignore the people who borrowed? FNMA might not have been brilliantly run. But it failed because of the mortgage crisis. Not because of executive salaries.
poster:Dinah
thread:854180
URL: http://www.dr-bob.org/babble/poli/20081002/msgs/855508.html