Regulatory Reform: The New Geithner Plan 31 comments
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Among the problems that crop up with the innumerable proposals for reregulating the banks on the blogosphere and in the MSM is that they too often ignore the political realities that have to be factored into any workable plan. Not that many don’t have merit, just that they are practically impossible.
The administration and Treasury Secretary, Tim Geithner, in particular don’t have that luxury. They have to come up with something that will get through Congress, that won’t attempt to reconfigure an entire financial system in a year or less and that dovetails with the regulatory schemes of other countries.
In that vein, Geithner has introduced his proposal for regulatory reform:
1) capital requirements that are designed to protect the stability of the financial system and individual banks. In other words, reduce the ability of banks to “accumulate” risk during boom times by requiring them to hold more capital during boom times.
2) all banks to hold more capital and the biggest banks to hold even more capital than that. No large financial companies should be able to evade these limits.
3) a greater emphasis on the quality of capital. Higher quality capital means it is better able to absorb losses. Voting common equity should represent a large majority of a bank’s tier 1 capital.
4) risk-based capital requirements that reflect the risk of a bank’s exposures. Reduce the reliance on a bank’s internal models to dictate what their capital requirements should be. Regulatory capital ratios should reflect more accurate information about the health of a bank.
5) a way of addressing the huge problem caused by procyclicality, which essentially means that banks have little capital to spare when times are bad because they were able to hold less capital when times are good. This has been a huge issue that policy makers have struggled with for years, and Mr. Geithner has several pages worth of ideas on this front.
6) a “simple, non-risk-based leverage constraint.” G-20 leaders have agreed to this in principle, but it has not yet been implemented. It would make it harder for banks to game risk-based capital standards because there would be a capital floor they couldn’t fall below.
7) a conservative and explicit liquidity standard. This is something regulators have been emphasizing in the last year and many consider as important as capital standards.
8) ensuring that tougher capital requirements don’t allow firms to migrate to places where such capital requirements don’t exist. In other words, keep the playing field balanced and don’t allow huge risks to buildup in the system outside of regulation.
There seems to me to be a lot to like in these proposals. Focusing on capital and liquidity get to the nub of the problem we’re fighting through right now. The banks were undercapitalized and they fundamentally didn’t understand the extent of the risks that they had assumed. When the quality of their assets was revealed to be much less than they assumed, their balance sheets weren’t able to withstand the hits needed in order to recognize the quality of their assets.
Geithner is, I think, going about this in the right way. There is no magic bullet that is going to ensure that banks don’t again misjudge risk. There in the business of taking it and, inevitably, will make bad decisions in the future. Key to preventing a recurrence of this last episode is to make sure they have the capital to absorb their mistakes.
Now all this looks good on paper but the key is going to getting enough people on board to implement meaningful capital requirements. The industry will go to the barricades to fight against anything that amounts to a more than a token increase in the amount of capital they required to maintain as it strikes at the heart of their profitability. Their Congressional enablers can be expected to line up behind them and even the Europeans are looking a bit shaky.
The French, German and British authorities are focusing their attention on salaries and bonuses. While it plays well to their political constituencies, excessive compensation was not, no matter how reprehensible it may seem, the cause of the financial crisis. The crisis was not born of bankers who chased bonuses at all costs and practically destroyed their industry in the process, rather it arose from incompetent risk assessment.
Curbing bonuses is not going to prevent the next panic and more importantly it is not going to prepare the industry to cope with the next panic. Geithner’s plan has elements that will give us a better shot at doing just that.
Moreover, Geithner’s plan carries elements that could well force the banks via market forces to back off on compensation. As I wrote in a post several weeks ago if you increase capital requirements, the banks are going to have to renegotiate with their shareholders the split of profits. A larger capital requirement implies lower profitability. Since bank investors are going to continue to demand a certain return on their investment, any diminution in overall profitability should cause the banks to have a smaller bucket from which to pay bonuses. They can try and maintain the bonus pool but at least that discussion will take place in the private market and not come down as dictates from some political Mount Olympus.
It’s important for the politicians to get this one right. I don’t place a lot of faith in that coming to pass.
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This article has 31 comments:
Banks will continue to use securitization (more of a covered bond model with clear, formal reps and warranties) as a balance-sheet optimization tool.
We will see a (Fed and Treasury sanctioned) evolution towards 5-10 large banks with virtually total market share.
These banks will be almost beyond profitable--in a very low risk sense.
The economies of scale they will enjoy will allow spread lending to sustain profits WITHOUT excessive leverage.
Credit velocity in the general economy will suffer (relative to the 2006 orgy-years) as a result, making equities of all kinds a less favorable asset class.
Banks will be the one exception; in a sense they will be taxing the rest of the economy for many years to come.
These regulations make much of this both clear and inevitable.
Buy the biggest banks and avoid all other stocks over tyhe medium to long term.
On Sep 05 04:29 PM Stimpy wrote:
> We are on a path towards a utility model of banking. Banks will emerge
> (as credit is re-privatised) as the central intermediary structure
> in our economy, replacing the non-bank securitizing model.
>
> Banks will continue to use securitization (more of a covered bond
> model with clear, formal reps and warranties) as a balance-sheet
> optimization tool.
>
> We will see a (Fed and Treasury sanctioned) evolution towards 5-10
> large banks with virtually total market share.
>
> These banks will be almost beyond profitable--in a very low risk
> sense.
>
> The economies of scale they will enjoy will allow spread lending
> to sustain profits WITHOUT excessive leverage.
>
> Credit velocity in the general economy will suffer (relative to the
> 2006 orgy-years) as a result, making equities of all kinds a less
> favorable asset class.
>
> Banks will be the one exception; in a sense they will be taxing the
> rest of the economy for many years to come.
>
> These regulations make much of this both clear and inevitable.<br/>
>
> Buy the biggest banks and avoid all other stocks over tyhe medium
> to long term.
If "Off Balance Sheet Assets" are allowed, then capital reserves will ALWAYS be insufficient.
"...the repeal of the Gramm-Leach Bliley bill, and the reinstatement of the Glass-Steagall bill." - daveddawg
I Concur Whole Heatedly => There Must Be A "Separation Of Casinos And Holds" Or The Populous Will Never Have Safe Haven. From Rampant Speculation.
No Off Balance Sheet Assets And Rigid Accounting Would Curtail The "Too Big To Fail" (or at least give warning and lessen the extent of the impact).
If the Lobbyists "Paying For Legislation" through "Campaign Contributions" and "Favors" is not addressed Nothing Of Real Long Term Value Will Come Out Of This Crisis.
Notice that the rhetoric is about "Cash On Hand" and not about "Nefarious Action".
Root Cause And Corrective Action Involves Study Of Structure And Failure Modes. Aftermath Analysis Is Less Telling Of Causes.
I would disagree. These folk are not incompetent, and their risk assessments were accurate.
It is just that they were judging risks to themselves, not the institutions they were looting.
The fundamental problem would seem to me to not just lie with the bonus system, but with the many exemptions officers of corporations enjoy which a private individual does not.
There companies even pay for legal charges arising from any action for their incompetence.
These are individuals who are skirting on the very edge of the law to enrich themselves, and apparently often going over the boundary, not poor helpless people who have made misjudgements.
Contracts written for the express purpose of evading reasonable accountability should be declared void ab initio, and the most vigorous efforts made to bring prosecutions and to confiscate assets for lack of fiduciary responsibility and in many cases charges for criminal conspiracy under the Rico laws.
We really don’t have that many banks acting like banks in the traditional or original meaning of the phrase and set up and that’s something that needs to change or they may just as well be worth as much as the credit and paycheck huts that have popped up all over the country.
I also must add that I find it incredibly pathetic that this is what so many of our business groups and industries have become.
What good is any regulation if the Geithner and the rest of the clowns go out in the street outside the casino and shake down the hapless passer's by to give the bankers at the craps table more chips to blow and cash for booze and hookers?
What regulation matters if they aren't enforced and the SEC and law enforcement in general is told to go get doughnuts and coffee for Timmy and Ben and Dodd and Barney Flippin' Frank instead of do their job?
Am I the only one that is disgusted with this parade of equivocating money grubbers and apparatchik's and outright clowns?
I was done with Geithner when they appointed him even though he had tried to cheat on his taxes to the tune of the median wage of the average citizen.
> 'The crisis was not born of bankers who chased bonuses at all costs
> and practically destroyed their industry in the process, rather it
> arose from incompetent risk assessment.'
>
> I would disagree. These folk are not incompetent, and their risk
> assessments were accurate.
> It is just that they were judging risks to themselves, not the institutions
> they were looting.
>
> The fundamental problem would seem to me to not just lie with the
> bonus system, but with the many exemptions officers of corporations
> enjoy which a private individual does not.
> There companies even pay for legal charges arising from any action
> for their incompetence.
>
> These are individuals who are skirting on the very edge of the law
> to enrich themselves, and apparently often going over the boundary,
> not poor helpless people who have made misjudgements.
>
> Contracts written for the express purpose of evading reasonable accountability
> should be declared void ab initio, and the most vigorous efforts
> made to bring prosecutions and to confiscate assets for lack of fiduciary
> responsibility and in many cases charges for criminal conspiracy
> under the Rico laws.
AMEN !!!
Anti-Trust Might Be Another Avenue To Removing Power From the "Few" With "Too Much Sway". (Decentralization; Unconsolidation)
When you can influence the market at the "Whim Or Fear" of a "Governing Body" because of "Shear Magnitude" => "Too Big To Fail" Should Be Called "Too Big to Operate".
I do not believe there was "Ignorance In Action" for much.
Agreements For Legalized Skimming More To The Point => It does not seem to be that hard if one has access to "OTHER PEOPLES MONEY" and 3 or more participants in the "Money Shuffle".
> From my perspective, the fundamental problem we have is that there
> are too many non-producers in our society using politics to get rich,
> ie, lawyers, politicians, bureaucrats and the like. Real wealth is
> in the productive sector, ie, steel making, oil drilling, lumber,
> computers, etc. and not in the regulation of such industries. Bankers
> provide a service to the productive segment but when there is little
> production, they resort to creating marginal securities to supplement
> real goods. With only 10% of our work force in manufacturing where
> real wealth is created is it any wonder our country is floundering
> financially?
Well Said dorv562.
The True Wealth Lies In => Making Something, Growing Something, Or Providing A Service That Supports The Previous Two.
Shuffling "Because I Say So SECURITIES" Is A Bastardization Of "Service" At This Point. (do Not confuse this with the process of "Raising Capital for Prospect"; as is the original intent of Any Market.) It now appears to serve only those "Skimming Fees".
Reduction of burden in "Money Taken" and "Time Given" for "Compliance In Fees And Bureaucracy" must be undertaken by Governments or => The "Engine" Of Individual/Small Business May Have Trouble Reigniting.
I do not believe that "Credit Unions" are illegal under Glass-Steagal.
The main purpose of this "Original Legislation" was to separate "Investment" Banking and "Regular" Banking.
I prefer Credit Unions as well => More The "Mutually Beneficial Arrangement".
On Sep 06 01:01 AM Jade Queen wrote:
> You can check capitalization rates on BankRate.com, for credit unions
> as well as banks. I am happy with my credit union, but I don't take
> it for granted. I find the fact that the same people are there over
> time a good thing. I periodically check the ratings. I'm not sure
> about a reinstatement of Glass-Steagall because I like knowing who
> I am dealing with and feeling good about my beneficiary being able
> to go in and get stuff if I check out. I'm libertarian (small L)
> in many respects, but I'm off banks. If it doesn't intend to hang
> on to its paper and stay close to collateral, I don't like it. I
> don't find banks to be as transparent and accessible, and unless
> something radical changes, I'm gone from them. Transparency is sort
> of illusive, but I am opaqueness-averse. I got burned, and now I
> would not touch a bank stock with latex gloves. They operate where
> the sun don't shine--not good.
''The crisis was born of bankers who chased bonuses at all costs
and practically destroyed their industry in the process.'
Further, the bankers cost taxpayers trillions of dollars and millions of jobs. Best I can tell, they are back at it and will push the world economy over the cliff again unless major reforms are undertaken. Bankers must bet back to the business of banking and exit the casino operations.
On Sep 05 06:50 PM Davewmart wrote:
> 'The crisis was not born of bankers who chased bonuses at all costs
> and practically destroyed their industry in the process, rather it
> arose from incompetent risk assessment.'
>
> I would disagree. These folk are not incompetent, and their risk
> assessments were accurate.
> It is just that they were judging risks to themselves, not the institutions
> they were looting.
>
> The fundamental problem would seem to me to not just lie with the
> bonus system, but with the many exemptions officers of corporations
> enjoy which a private individual does not.
> There companies even pay for legal charges arising from any action
> for their incompetence.
>
> These are individuals who are skirting on the very edge of the law
> to enrich themselves, and apparently often going over the boundary,
> not poor helpless people who have made misjudgements.
>
> Contracts written for the express purpose of evading reasonable accountability
> should be declared void ab initio, and the most vigorous efforts
> made to bring prosecutions and to confiscate assets for lack of fiduciary
> responsibility and in many cases charges for criminal conspiracy
> under the Rico laws.
No.
So , as this British regulator advocates , we must re-instate and enact by G-20 agreement a financial transactions tax . This would begin to curb speculation and HF trading and can be used for reducing deficits,or other public pursposes. Credit default swaps can be re-classified as gamblng and turned over to Gaming Commissions or else banned entirely.
We also need financial risk insurance pools, so that financial players pay into a pool , like the FDIC , to mitigate their risks they create for the real economy . Premiums can rise as their leverage and bonuses increase. And yes, bring back and update Glass Steagal , repeal Gramm-Leach-Bliley and deal with " too big to fail" by forcing higher and higher capital reserve ratios , by a new, more sensible Basel III global agreement.
Lastly , Obama needs to fire Larry Summers and send him and Geithner back to Wall Street. Even Larry Summers wrote a paper in 1989 advocating a financial transactions tax
( see my Building A Win Win World 1996 and HazelHenderson.com click on FXTRS ) ! If Obama had begun his administration by agressive reform of Wall Street and the financial sectors including insurance , he would have had an across the board coalition of all those who were shocked and angry at Bush and Paulson and Geithner's bailouts . The healthcare debate is not really about healthcare , but about the shocking unfairness of the bailouts.
Peking with their new world reserve currency are not buying into any more of our debt and Tokyo new poitical platform is not a penny more no not even for the Los Angeles welfare state.
And Geithmer will do more regulating.
As it stood in 2008, the banks were well aware of the risks they were taking, but they were certain they could simply seek rent from the taxpayers in the event of a collapse, and that is what came to pass.
I know I don't agree with a laissez faire banking system (which would get totally out of hand) but if we refuse to bailout any bank ever again, capitalization ratios will likely rise as a natural consequence of the risk involved.
Also, kudos to Stimpy for an interesting insight above.
On Sep 05 11:13 PM ebworthen wrote:
> What do regulations matter if they don't let gamblers fail?
>
> What good is any regulation if the Geithner and the rest of the clowns
> go out in the street outside the casino and shake down the hapless
> passer's by to give the bankers at the craps table more chips to
> blow and cash for booze and hookers?
>
> What regulation matters if they aren't enforced and the SEC and law
> enforcement in general is told to go get doughnuts and coffee for
> Timmy and Ben and Dodd and Barney Flippin' Frank instead of do their
> job?
>
> Am I the only one that is disgusted with this parade of equivocating
> money grubbers and apparatchik's and outright clowns?
>
> I was done with Geithner when they appointed him even though he had
> tried to cheat on his taxes to the tune of the median wage of the
> average citizen.
That said I'm going to stick my neck out and let people who post here who are much smarter about these things than I am bludgeon my solution to the banking problems.
1. "To Big to Fail" is no longer an option.....you screw it up, you lose it all.
2. Dissolve Fannie and Freddie.....Their cooked books were largely responsible for this entire mess.....Truth be told they have become as much a political tool for the Democrats (affordable housing nonsense) as they were a lending apparatus.
3. Disallow the packaging and reselling of loans.....A bank makes the loan, then they are stuck with it.....
4. In the event of a failure the depositors are covered under FDIC to the limits set forth currently, everything else gets sold at auction to the highest bidder.....right down to the styrofoam coffee cups in the mail room.....to try to recover for the depositors who had money beyond FDIC limits and other debt holders.
5. NON-brick and mortar institutions who want to deal with high risk clients (Lending Tree et al.) do so at their own peril. They are held to the same accountability rules for loans as traditional banks.
6. Get the Government out of the banks via their social engineering BS like affordable housing. If people want to own a home or a car they should do it the old fashioned way.....work hard, save a down payment, then buy the items that are in their price range. Owning a home and having stuff is a reward and a privilege not a right.
Short version.....Banks should be just that, banks. We only hear about the failures, what we never hear about are the hundreds, if not thousands of institutions (credit unions and banks alike) all over this country who are doing just fine BECAUSE they stuck to their traditional business, they knew their customers, and they followed a model of risk aversion. It's not glamourous, there is no waterfall of money when times are booming, but when the bubbles burst (and they always do) they aren't going hat-in-hand to the den of corruption that is DC looking for a hand out.
One other thing to note.....IF banks were forced to again become banks I think the need for Credit Default Swaps would evaporate. To my way of thinking CDS's were nothing more than a game of "Hot Potato" with huge amounts of debt.....the problem (as we have seen).....is that when the wheels fell off EVERYONE who was playing the game was left holding some really big Idaho Spuds.....
(my apologies to the Famous Potato state)
Like so many problems we face the solutions are far less complicated than the politicos would have us believe, they just aren't politically palatible or expedient. We started sliding down this slope long ago, and now we are beginning to see just how slimy the slope is.
National public office is supposed to be about SERVING America and all of it's citizens. Instead it has devolved into a self-serving game of and avarice, hubris, and idolitry, where the citizenry is nothing more than an necessary inconvenience which fuels the furnace with tax dollars.
I apologize for the last two paragraphs which have nothing to do with banking.....I'm just pissed off and disgusted with politicians at all levels and now I feel a little better for spouting off.....
Good Day!
The "bipartisan" boys/girls. Since there are two (2) parties and we (the parties want only two) then we (the parties) approve the term "bipartisan" as an acceptable replacement for nonpartisan.
Now reflect on how many times you have seen bipartisanship in action.
VERY BAD decision 106th Congress. Ref:The Commodity Futures Modernation Act of 2000
See www.govtrack.us/congre...
and
www.govtrack.us/congre...
For Party first/Country last and public not considered I vote the Congress of the United States as the winner and I am not just considering the 106th
Lest we forget again, Regulation is necessary and no amount of money should be allowed to influence those limited rosters presented to the voters so that "you the voters select those you wish to administer the business of the United States of America.
The parties with their selections and the ratio of Stallions to Geldings diminishing for the promotion of PARTY POWER, is the most destructive common denominator in this nation.
If we do not focus on this aspect of how we got to where we are then "Welcome to the Third World."
On Sep 05 06:50 PM Davewmart wrote:
> "Contracts written for the express purpose of evading reasonable accountability should be declared void ab initio, ....."
The major problem that created the bubble is that the initial lendors that were making the profits off of writing the loans then sold loans into secondary market without recourse (i.e. without risk). Thus, they had no "skin in the game", and when people can make bunches of money without having any risk exposure themselves, it creates an enviroment that leads to irresponsble behavior.
I second that. The points all sound good and as you say, they have to be practical, i.e. no sweeping overhauls.
That being said, what happened to good old fashioned antitrust law to reduce the TBTF megabanks to something that can't waive the systemic collapse red flag every time they hear something they don't like.
Also, regarding point 8, "migrate to places" could mean emigrate to places or move to unregulated sectors of the economy. The first requires a level playing field and tax laws. The second requires either prescience that nobody has or pre-approval for any changes to SOP.
Have you thought this through?
All these banks are tied together. In fact, most of the regional banks have deposits with the big New York banks.
Let Bank of American and Citicorp go under and rest will fall ....
In fact, given the large number of regional US banks being shut down, it doesn't look like they could assume the vacuum created by the failure of the money center banks.
On Sep 05 11:13 PM ebworthen wrote:
> What do regulations matter if they don't let gamblers fail?
>
> What good is any regulation if the Geithner and the rest of the clowns
> go out in the street outside the casino and shake down the hapless
> passer's by to give the bankers at the craps table more chips to
> blow and cash for booze and hookers?
>
> What regulation matters if they aren't enforced and the SEC and law
> enforcement in general is told to go get doughnuts and coffee for
> Timmy and Ben and Dodd and Barney Flippin' Frank instead of do their
> job?
>
> Am I the only one that is disgusted with this parade of equivocating
> money grubbers and apparatchik's and outright clowns?
>
> I was done with Geithner when they appointed him even though he had
> tried to cheat on his taxes to the tune of the median wage of the
> average citizen.
> If you let the gamblers fail, then you are letting the banking collapse.
>
>
> Have you thought this through?
>
> All these banks are tied together. In fact, most of the regional
> banks have deposits with the big New York banks.
>
> Let Bank of American and Citicorp go under and rest will fall ....
>
>
> In fact, given the large number of regional US banks being shut down,
> it doesn't look like they could assume the vacuum created by the
> failure of the money center banks.
I have "Thought" your proposed scenario through and found it to be "Painful Yet Not Fatal".
Yes, Big portions would fail => It is a result of "Centralization Into Too Big To Fail".
The Structure Would Be "More Homogeneous" Rather Than "More Heterogeneous" and thus, Be Less Prone To => Too Big To Fail => After Time..
People Are Resilient.
Commerce Would Continue.
Things "Would Reinitialize" and "Information Would Be Exposed" Resulting In "Less Consolidation Of Power"=> Financial and Political.
I have "No Empathy Nor Sympathy For Nefarious Undertaking"; Remedy and Repentance is always availabl but all "Action Of Ill Intent" must have "Lugubrious Task" or "Uncomfortabillity".
It is unfortunate that we have spent "Trillions On High Class Shysters" all because of "Complexity" in the "Unregulated Off Balance Sheet Instruments".
Those Who Have Failed Must Fail => or nothing can be "Built Of Their Resources". "Mark To Myth" Is Not Accounting !!!
<<< If ROI is reduced, who will supply the equity?>>>
If we go back to traditional banking models the millions of depositors like myself with traditional savings accounts or CD's supply the equity. I find it hard to believe that with hundreds of billions on deposit that there is a capital problem if banks go back to making loans only to people who are credit worthy. There is no shame in renting until you can afford to buy, and there is no shame in waiting an extra year to buy a car.....There's no shame in saving for a few months to buy the big screen TV....The problem is we have far to many people who will but the $1,000 TV on plastic and make minimum monthly payments until it's paid off. Effectively paying $4,000 for the $1,000 TV......If people paid with cash the economy would be far better off. Yes right now there would be a short term slump while people paid off debt, but in the long run there would be a larger portion of our collective income going for purchases instead of being pissed away to the financial institutions in interest charges......and think of how much extra money would be in the banks on deposit if people used their savings accounts to accrue money for big ticket purchases......
The problem in our society is that no one seems willing to wait for their hard work to pay dividends. Most people would rather incur debt up to their eyeballs and hope that everything will turn out okay.
Life rarely works that smoothly.....
My father was saying that years ago. He tried in vain to teach me, it took me much of my adult life to learn that lesson. I don't think my wife has learned it yet.
The rampant deregulation totally removed 'common sense' lending like there used to be. You know, you went to the bank because you needed a mortgage. If you had any problems with your credit, you got to explain them, and the bank looked at that, your income, the value of the house you were trying to buy, etc. and they believed in you or they didn't. Mostly, you'd just get a little higher rate if you had more of a risky past. Fair enough. The bank knew you, probably your parents, and would most likely be holding on to the loan for its lifetime. If you got a little behind during a hard winter, they'd usually work with you and you could get back on track. All this safety mechanism went away, replaced by ruthless ARM loans, predatory brokerage firms, slick sales pitches and woeful treatment of any borrower who got behind-even if they sincerely wanted to get caught up again and were willing to work for that. The options became: Bankruptcy, or Foreclosure. Period. I've personally been through this hell.
Subprime lending set people up, en masse, to fail. Some borrowed irresponsibly that's true, but most just wanted the same shot their parents got-a reasonable mortgage that they could hope to pay off in their lifetimes. This isn't because of 'affordable housing' regulations either-those predated the current subprime debacle by decades. Affordable housing used to mean FHA loans on beat up old houses-like the one my father was able to pay off a decade early on the house I grew up in.
So far all my hard work has gone into paying literally twice the mortgage interest that I would have paid if given a real mortgage-with no equity in my home to show for it. No, I didn't cash out or pay off my credit cards with it-no HELOC lines of credit, nothing. No dubs for the Escalade, no cocaine. (all our cars are old, and paid for with cash.) Just plain old getting shafted. Because I didn't want my kids to grow up in the ghetto. And because I didn't have a 700 credit score.
People made poor choices because the good ones were taken away-leaving only bad or worse. It should never have been allowed to happen.
The bottom line is borrowers got screwed, lenders made a fortune, and when it all fell down investors got saved-and the borrower's taxes were used to pay for it all.
The real economy has melted down for most of us anyway. The banks should have just been allowed to fail, come what may. Americans are resilient, we would have gotten by. We would have ended up much stronger anyway, rather than continuing to be coddled by the present system, itself failing under its own weight.