WSJ: A Frightening Indictment of Our Society 22 comments
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The Wall Street Journal published something on its Real Time Economics Blog that we found to be extremely disturbing. Call us naive, but somehow we can’t help but feel that things are far worse than imagined after reading it.
Secretary Paulson clashed with members of the House Financial Services Committee during his testimony on Tuesday morning. He’s against using TARP funds to purchase troubled mortgage assets from the banks and Representatives are, somewhat justifiably, feeling as if Mr. Paulson is not following through on the intent of the legislation.
But that isn’t what’s troubling us because we believe Mr. Paulson is acting with the best intentions at heart and we also believe that members of Congress who voted for the TARP in good faith (and went to great pains to convince others to do so) are justified in grilling the Secretary pretty hard on why tactics appeared to have changed in mid-stream.
The problem lies with the reason Mr. Paulson is reluctant to use the funds in this manner, which he of course did not allude to during his testimony.
According to the WSJ:
Within the Treasury there’s a view that if the government is going to cover half the loss, banks will modify the terms of a loan for weak borrowers they know can’t make their payments, then foreclose and get the government to make up half the loss.
In other words, the Treasury feels that the reason it can’t use the funds in the manner Congress intended is because it believes the banks would act in an unscrupulous manner in order to subvert the intentions of the United States government at a time when the economy is facing its worst crisis since the Great Depression?
If the WSJ is correct this really is a terrible indictment on our society and out of all the things which have gone wrong since the crisis started in the summer of 2007, this has to rank as one of the worst. Is there no end to the greed?
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This article has 22 comments:
Some things will fail
I am a believer that the stock market behaves far more like a complex adaptive system than a simple mechanical system. It has the ability to leran in its parts and as a whole. It cannot be coerced. Market sentiment is an emergent property. And action top-down and from the centre is likely to have unintended and generally unwelcome consequences.
But how do you manage beasts like this?
Obama’s management style is the only way – listening, eliciting, working to know people better and to help them develop their own solutions, pulling not pushing, seducing not coercing.
A less glaring example of this would be not passing on interest rate reductions and availability of reserves freed by the Fed loaning against marginal mortgages, when that was specifically the intention of the generosity of the Treasury/Fed.
Clearly, the banking system is now a less useful instrument of monetary policy, and congress should investigate the possibility of revoking the guarantee of deposits, which is noting more that a big subsidy for the banking industry.
you can't pay for universal health care, rebates to 40% of non-tax paying americans...oh and bail out the financial and automotive sectors, by mere seduction unless the hand that one feels in their pocket is doing more than picking it...
it's the ultimate fruition of Tom Wolfe's "Me Generation," my own generation, now fully of age. another gen is up at last. pray they do better.
If we're going to FIX a problem, let's fix it, not just throw a bunch of money away on a temporary bandaid.
On Nov 19 09:23 AM ttown wrote:
> Sadly we still miss what the issue is and why Americans distrust
> politicians in general. Obama won because 1/2 of Americans were sick
> of the bush policies. If politicians would listen to the voters they
> might understand. We don't mind the bailouts. What we have issues
> with is leaving the same incompetent managers in place. Bailout the
> big 3 automakers? It is doomed to fail unless you remove the problem.
> Yes we need to clean house in America of our "good old boy" CEO's.
> I have never heard of an employee causing a business to fail. Only
> the failure of management can cause that.
When does government examine the bank executives for their highly questionable dealings and strongly prosecute and fine those found guilty?
To me, a derivative is no more than a bet (gamble), on a bet, on a bet.
Where were the bank examiners, the CPA auditing firms, and internal auditors when these type tranactions were taking place. Investing in derivatives means the bank(s) have two much excess cash and feel they can gamble for high risk returns to justify P & L performance on which they can drive up stock prices, ie increase their compensation, bonus, and options profits. The past top executives of Fannie and Freddie should be held responsible for their "dealings". There were many tip offs to the horrendous situation there but ignored by Frank, Dodd, Ried, and Pelosi. The government needs to hold these people responsible much less the outside CPA auditing firm.
The banks don't seem interested in modifiying loans based on the article below, the folks holding the sub prime loans aren't interested since they will be made whole "they hope" through Credit Default Swaps, and the majority of people in trouble can't be helped because they have multiple credit issues weighing them down, and now the 250,000 plus people per month losing their jobs can't be helped because they can't even pay a modified mortgage. The very slight segment that could benefit from loan modification, will not help prevent house prices from falling another 24%, and if that happens,
GAME OVER!!!!!!
someone famous said it's your duty to pay as little tax as possible. when the govt is handing out free money, isn't it your duty to try and get some.
these are both reasons for the govt to step back from direct involvement. they can only make matters worse. their indirect involvement of a virtual zero Fed funds rate and turbo-charging the printing presses is going to be hard enough to figure out and fix down the road.
On Nov 19 04:26 PM henarl wrote:
> Lets see, our economy can be run by greedy and corrupt CEOs and
> hedge fund managers - or - it can be run by stupid and corrupt politicians
> and bureaucrats - or - by a combination of the two. Don't worry
> about how the country is run - that's hopeless. Instead, worry about
> how your own personal economy is run - it's your only hope!
Interestingly, Susan Hockfield, the President of MIT, sent a letter to all its alumni about the current financial environment and the effect on the Institute. There are many interesting things about this email.
First, how seriously the Institute takes the present recession:
"The global economic contraction will likely compromise all of the Institute's major revenue streams."
Next, the recognition of the impossibility of forecasting:
"The continuing uncertainty about the length and depth of the economic downturn makes accurate predictions impossible."
Then, while not mandating budget cuts, the importance placed on immediate reductions:
"Achieving significant savings this year can help prevent more painful future choices; early savings will compound, so that a dollar saved today gives greater long-term budget relief than one saved a year from now."
Above all, the emphasis on working together to develop a long-term approach:
"We will set in place a broad, deliberate, inclusive process, in which all branches of the Institute will work together in the coming year to reassess our priorities and the use of our resources."
But why send this to all the alumni, unless of course it carries the broader message... and these thoughts could be appropriate to "your own personal economy", too