I agree. Although it was reported that Pres. Clinton and some leading Democrats pressured the lending houses to lessen their standards so that anyone could get a home loan (subprime loans), the CEOs reaped millions of dollars on the deal. So I think it was done cooporatively.See, that's the part I just don't get.
Sure, a bunch of banks are losing a lot of money, because they made loans they shouldn't have (Actually, because they bought debt they shouldn't have)
But no money-man is so stupid that he can't tell the difference between some yahoo that bought twice as much house as he could afford, and a legitimate business that uses credit as part of its day-to-day operations.
I should hope that the banker would think twice about lending to the yahoo again, but to refuse a loan to the legit business would only shut down the bank's own business.
I can see the banks getting pickier about making loans (and god knows they need to be!) but it would be self-defeating for them to stop all transactions cold.
I think the whole thing is a rotten attempt to over-hype the situation, to avoid the consequences of their bad decisions.
But what do I know...
Robert
Regardless, people are still spending money, getting loans, etc. Banks already follow standards when making loans to people & businesses. That's why responsible clients can still get loans easily. Without the scare-mongering, the most damage will be a temporary hiccup on affected investments and, depending on location, a drop in home values. The market needed to correct itself anyway.
As for Wallstreet, those who will benefit from the bailout aren't moving because they hope the fed money will provide more pennies on the dollar than what creditors will pay.
Whether the bailout is socialism or not, that money will be made up in higher taxes that most of us will end up paying one way or another. Not for me.
By the way, here's Dave Ramsey's plan, which he suggests everyone send to the their Senators and Representatives:
Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:
Common Sense Plan.
I. INSURANCE
A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
B. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
C. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.