Government Economic Policies: Ready, Fire, Aim

Tuesday, April 14, 2009

I’ve been railing on Obama’s and Bush’s responses to the economic crisis. Thanks to recent events, there are a few stories out there that I felt were eye raising. The links are on the side bar dated 4/13. They reminded me that I had been meaning to do a piece on who is responsible for the current crisis and who is benefiting.

I felt like doing a little finger pointing today. I used to have a job assigning blame so here are the winners, losers, the innocent and the guilty in the housing bubble.

1) Loan originators – Despite everyone’s hatred for the evil big banks and their predatory lending, most of these predatory loans were originated by someone else. Most loans these days originate with a group of companies who specialize in originating loans (think Quicken Loans), then sell them off to banks. When I worked with Citimortgage, almost all loans originated through these origination specialists. Guilty! They had no trouble lending to whomever because they were not the one receiving payments for the loans, just the origination fees paid at closing. Winner! They made a ton of money and no one seems to be concerned with how they made it.

2) Big Banks – They are one of the few that are innocent, guilty, winners, and losers all in one. Innocent Was greed involved? Yes! Are they getting bailed out? Yes! Are they mostly responsible? Yes and No. A Little Guilty! They bought these toxic assets from loan originators and bought up a lot of other banks loans that were toxic as well. The motivation was to make the company a behemoth instead of making smart business decisions. Citibank, Chase, and Wells Fargo were in a giant race to see who could hold more mortgages. The bit about predatory lending is ridiculous here (that falls on the loan originators). No, these banks were just stupid. Loser! Like hot potato, they were stuck holding the potato when the music stopped. They deserved it of course. They were acquiring loans to build their kingdoms, not to make money for their shareholders. Winner! Thanks to Bush and Obama, one does not need to live with poor decision making, they can get a bailout.

3) Borrowers with Unconventional Mortgages - Guilty! There are all kinds of interesting stories on these people. There was the heart sobbing story of the women with an $80k conventional mortgage who was tricked into a $400k refinance that she couldn’t afford. Now she’s being threatened with foreclosure. Why is no one asking where the $320k she received from the refinance went? There is an article on the side bar on how street gangs were making profits on these. Even those who are now underwater got a taste of the high life if only for a while, living in a house they could not afford. Winners! They got the house they wanted and the attention of President Obama, who is going to help them pay those evil mortgages. They are able to live in their house payment free twice as long as usual. I believe they should also be bigger winners too, because banks should be writing down the principle due on these mortgages. This may not make sense to you, but being in accounting I believe in having balance sheets reflecting what the value of an asset is. This means writing down the mortgage principles in my opinion. However, these mortgage holders should not get government help or special treatment. If they still can’t make the payments they should be kicked out.

4) People in foreclosure because they lost their jobs - Innocent They did everything right. Had the money needed and had a job. They made their payments and were responsible with their loans. Losers There’s nothing in the Obama plan for these people because they are probably not underwater. Surprisingly, it is these folks most likely to be in foreclosure according to AP (see the article on the side bar).

5) The Presidents Bush and Obama - Guilty! They have horribly assessed the situation above and made sinners and saints out of the wrong people. Obama continues to miss what needs to be done to make serious changes to avoid this occurring again. Winners! They both got to enjoy new executive power all without any of the trappings of the crisis. They even managed to reach out and rescue the wrong parties without scrutiny from the media. It’s not likely they will lose their homes or suffer in any way from the harm of this crisis. It’s nice when a President says they feel the pain of the people. It would be another thing if they actually did feel the pain of the people. Politicians 2 – Citizens 0 in this crisis.

6) The American Tax Payer - Innocent The average person played by the rules and did not get caught up in the bubble. Losers We’ve paid for all the stupidity and then some. Our retirements were hit hard and our national debt is going sky high.

Do you still feel like Obama is doing a great job here? Common sense says that when there is a problem you try and fix it. That usually includes not punishing the innocent and fixing the problem. When you make it all about the greed of the banks, you miss the big picture.


The Law said...

Interesting take, and I think there are some points here that everyone can agree with. However, what your assestment seems to lack is accountability.

The stinker of the whole economic problem is that most everything that was done was perfectly legal, via loophole, or an actual law that permits some of this mess to happen. Still, somewhere along the line, someone had to say "something about this isn't sitting right with me." Thus there is (or at least should have been) an inverse relationship between integrity and greed, which was seriously lacking during these last few years when subprime lending reached its apex. Technically you can drive your car at 55mph in a blizzard and still be the speed limit. So when the car crashes, isn't the driver accountable for the injuries sustained in accident from spinning out on a patch of ice? (and at least in NY, there is a common sense clause that states if you're driving faster than what is safe for the weather, you are still consider speeding if you're under the posyed limit - hence the reason why we need more regulation!)

So yes the originators have a lot to answer for, but where was the common sense from the banks? Big banks are not innocent in whole or in part. If they were more concerned with whats good for business than what's good for the stock portfolio, perhaps then the situation would be different.

April 15, 2009 at 1:15 AM

Good post. My point with the big banks was that they were stupid. That was their role in this. I feel they are disproportionately blamed and rescued. It's been made all about banks.

April 15, 2009 at 3:23 AM
Devrim said...

What about China who keeps their currency weak against the $ so companies keep shipping jobs over there ?

Would we be in such a bad condition if there were 500.000 more manufacturing jobs in the US before the crisis began ? China 3v1L !!!

April 15, 2009 at 8:47 PM

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