Bankruptcy expert Wilbur Ross says the attempt to stop the financial meltdown is not addressing the problem of people who can't afford their mortgages.
"The reason I think it will take that long is that none of these actions that have just been taken make it any easier for Middle America to meet their mortgage payments -- it doesn't address that whole problem, and that problem is what really caused this to begin with."
But that is not a solvable problem, at least not in any way that Washington DC politicians would try to sell. Why? Because Americans are living beyond their means. There's no way to get from where we are to financial sanity without millions of people losing their homes that they can not afford. The financial crisis can't end until housing prices correct downward and people who can't afford their homes step down to cheaper dwellings.
Ross at least recognizes that it takes two to tango: both borrowers and lenders had to be irresponsible to get us into this crisis.
Ross said that in some ways, the financial crisis could be blamed on the American consumer for wanting to improve their standard of living without having the wages and means to do so.
"In one sense, the American consumer is the victim; but on the other hand, the perpetrator of it," he said.
But the borrowers and lenders are not the only actors on the stage. Or perhaps they are but puppeteers hover above them pulling strings. At the behest of Congressional Democrats (who wanted to lift up poor people - but ended up dragging them down) Fannie Mae and Freddie Mac bought the subprime loans that Countrywide and other failed lenders created. Chinese central bankers bought the Fannie/Freddie bonds because the Congress made Fannie and Freddie appear like no risk bets. The Chinese central bankers were buying the bonds in order to lower the value of China's currency so that Americans would live further beyond their means and buy more Chinese goods.
The lower IQ poor people who took out unaffordable loans are the victims of the political party that sought to help them. Being of lower IQ they had less capacity to judge the deals they were agreeing to. The smart people in Congress, at the top of Fannie Mae and Freddie Mac, and in charge of assorted mortgage banks are more culpable because they are more capable. Though I wonder whether Congressman Barney Frank is capable of understanding how his own actions contributed to this disaster.
A disaster this big requires many willing participants. Unluckily many willing participants were available. Now even those not foolish enough to play will have to pay.
| Share | | By Randall Parker at 2008 September 22 09:17 PM Economics Human Weakness |
There's no way to get from where we are to financial sanity without millions of people losing their homes that they can not afford.
Yes there is but it will require replacing the current ruling rascals.
Here's an interesting little tidbit:
Fannie Mae and Freddie Mac have also strategically given more contributions to lawmakers currently sitting on committees that primarily regulate their industry. Fifteen of the 25 lawmakers who have received the most from the two companies combined since the 1990 election sit on either the House Financial Services Committee; the Senate Banking, Housing & Urban Affairs Committee; or the Senate Finance Committee. The others have seats on the powerful Appropriations or Ways & Means committees, are members of the congressional leadership or have run for president. Sen. Chris Dodd (D-Conn.), chairman of the Senate banking committee, has received the most from Fannie and Freddie's PACs and employees ($133,900 since 1989). Rep. Paul Kanjorski (D-Pa.) has received $65,500. Kanjorski chairs the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, and Freddie Mac and Fannie Mae are government-sponsored enterprises, or GSEs.
Top Recipients of Fannie Mae and Freddie Mac
Campaign Contributions, 1989-2008
Name
Office
Party/State
Total
1. Dodd, Christopher J
S
D-CT
$133,900
2. Kerry, John
S
D-MA
$111,000
3. Obama, Barack
S
D-IL
$105,849
4. Clinton, Hillary
S
D-NY
$75,550
5. Kanjorski, Paul E
H
D-PA
$65,500
6. Bennett, Robert F
S
R-UT
$61,499
7. Johnson, Tim
S
D-SD
$61,000
8. Conrad, Kent
S
D-ND
$58,991
9. Davis, Tom
H
R-VA
$55,499
10. Bond, Christopher S 'Kit'
S
R-MO
$55,400
11. Bachus, Spencer
H
R-AL
$55,300
12. Shelby, Richard C
S
R-AL
$55,000
13. Emanuel, Rahm
H
D-IL
$51,750
14. Reed, Jack
S
D-RI
$50,750
15. Carper, Tom
S
D-DE
$44,389
16. Frank, Barney
H
D-MA
$40,100
17. Maloney, Carolyn B
H
D-NY
$38,750
18. Bean, Melissa
H
D-IL
$37,249
19. Blunt, Roy
H
R-MO
$36,500
20. Pryce, Deborah
H
R-OH
$34,750
21. Miller, Gary
H
R-CA
$33,000
22. Pelosi, Nancy
H
D-CA
$32,750
23. Reynolds, Tom
H
R-NY
$32,700
24. Hoyer, Steny H
H
D-MD
$30,500
25. Hooley, Darlene
H
D-OR
$28,750
http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html
I have a friend who has tried to buy some of these CDOs and other mortgage securities. He say he cannot buy any because the banks and other financial institutions are holding on to them. Also, there are several guys over on Steve Sailor's website who say they have tried to buy bank-owned properties and have found out that the banks refuse to sell them.
It sounds to me that there really is no financial crisis at all. The finance industry is simply trying to "socialize" its losses in order to improve their profits.
I think there is no need for any kind of bail out. Besides, any business that requires continuous infusions of "credit" is badly mismanaged and should be allowed to fail anyways.
I think we are being sold a bill of goods by the finance industry.
"The smart people in Congress, at the top of Fannie Mae and Freddie Mac, and in charge of assorted mortgage banks are more culpable because they are more capable."
Exactly!
Great post.
The process described in your third-from-bottom paragraph including the Chinese was made possible, by, you got it: the break with Bretton Woods thanks to Dick Nixon.
casusbelli,
With all due respect, the gold standard would have done nothing whatsoever to prevent what happened. One can lend the same dollar any number of times regardless whether it is backed by gold.