Financial Catastrophe

[ELD]

In all of the discussion, I find it curious that perhaps the simplest point is not being addressed.  The Federal Government, who is pretending to have such deep pockets, is more broke than anyone.  If it were a business, it would have failed in spectacular fashion a long time ago.  People discuss the morality or principle of the government getting involved, but really, in reality, they don't have the funds to do what they are doing.  The repercussions of this astronomical debt are being felt, with more on their way.  When everyone starts to deal with that fact, then things are going to get very very interesting.  We certainly do live in interesting times

[Grand Inquisitor]

http://finance.yahoo.com/banking-budgeting/article/105782/How-We-Got-Here-It-Is-Housing-Stupid
The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.

But in the end, it all comes back to one issue - housing.

Scott, I don't agree with this.  The more recent problems threatening financial security are housing related.  However, the system is rotten from the inside out.  The financial practices allowed by corporations and the behaviour of the Fed defy what most people think of is 'sound' economics.

If people become less wealthy, that is bad for everyone.

I know this isn't the framework you're working in, Steve, but I don't agree here either.  Especially in this country, people have a very odd relationship between their consumption behavior and their 'need'.  A nice strong global depression could be very rehabilitating for this country's character.

[Smmenen]

http://finance.yahoo.com/banking-budgeting/article/105782/How-We-Got-Here-It-Is-Housing-Stupid
The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.

But in the end, it all comes back to one issue - housing.

Scott, I don't agree with this.  The more recent problems threatening financial security are housing related.  However, the system is rotten from the inside out.  The financial practices allowed by corporations and the behaviour of the Fed defy what most people think of is 'sound' economics.

If people become less wealthy, that is bad for everyone.

I know this isn't the framework you're working in, Steve, but I don't agree here either.  Especially in this country, people have a very odd relationship between their consumption behavior and their 'need'.  A nice strong global depression could be very rehabilitating for this country's character.

 I understand that US consumers do not save enough, and that our low, if not negative savings rate, has implications for our economic good.  But implying that a nice depression, where people lose jobs, lose their homes, go hungry, and dig into their retirement and savings would 'improve our character' is like saying that poverty is good for the soul.   People suffering is never a good thing, nor is it good for our 'character.'

[EnialisLiadon]

I understand that US consumers do not save enough, and that our low, if not negative savings rate, has implications for our economic good.  But implying that a nice depression, where people lose jobs, lose their homes, go hungry, and dig into their retirement and savings would 'improve our character' is like saying that poverty is good for the soul.   People suffering is never a good thing, nor is it good for our 'character.'

This.

It's unfortunate that people don't save at all, and that if everyone did save 10%-15% of their income the economy would nearly collapse...but a depression isn't good for anybody.

@Dr. Sylvan:  I also dislike Bernanke.  He slashed interest rates way too much.  They also were poorly timed--there wasn't much econonomic growth that stemmed from them since people are borrowing less money to buy cool things and instead using their money to buy boring things like food and gas.  Further devaluing the currency (interest rates = price of money) for no real gain is kind of lame.

[Grand Inquisitor]

People suffering is never a good thing, nor is it good for our 'character.'

a depression isn't good for anybody.

You guys are taking a really narrow view.  Plenty of people are suffering already; a margin more or less because stocks are down 10% is inconsequential.  In some pockets of the world (including the US) they've known nothing but suffering and poverty.  I don't want to play violins here, but it's easy for people in this country to become overly comfortable with the recent status quo.  The 'US' has exploited a number of global dynamics for some time now and created a culture overly dependent on hyperbolic behavior.

When I say a depression would be 'good', what I mean is that it has potential to change peoples' focus from things like plasma television to things like discernable human rights, good governing, sustainable (not talking environment here) economies, and having a healthy interest in how your neighbor's well-being is related to your own.

A lot of this is pie-in-the-sky shit, but for me, it'd be nice if, as a country, we woke up from this snow job we've been suffering under and reevaluate.

This may be getting a little far afield from the original topic, but I'm crossing my fingers on this one.

[Moxlotus]

I understand what you're saying GI.  A big economic downturn would be harmful in the immediate, but would be the only thing that could propel the US into a long-term stable growing economy.

[Grand Inquisitor]

I understand what you're saying GI

It sounds like you do.  However, one of the things on my wish list is for people to be more careful about equating growth with health when taking about economy.

[Elric]

In all of the discussion, I find it curious that perhaps the simplest point is not being addressed.  The Federal Government, who is pretending to have such deep pockets, is more broke than anyone.  If it were a business, it would have failed in spectacular fashion a long time ago.  People discuss the morality or principle of the government getting involved, but really, in reality, they don't have the funds to do what they are doing.  The repercussions of this astronomical debt are being felt, with more on their way.  When everyone starts to deal with that fact, then things are going to get very very interesting.  We certainly do live in interesting times

The US government has an enormous debt, and deficit spending can have negative effects on the economy (e.g., crowding out investment).  However, the Federal Government is in no way broke because coupled with its enormous debt is a great ability to repay that debt.

As of 2007, the US national debt was 61% of GDP, placing the US higher than most countries but lower than several other rich countries e.g., France, Germany, Canada and Norway.  Due to the recent financial crisis, the cost for credit default swaps to guarantee US government bonds is higher than before, but the US has a AAA credit rating and at $26,000 to insure $10 million of government debt clearly investors believe that the US government has a very low probability of defaulting on its debt (though since the national debt is in US dollars, the government could pay the debt through rapid printing of money, which would lead to rampant inflation, but wouldn't count as defaulting). 

[Scott_Limoges]

http://finance.yahoo.com/banking-budgeting/article/105782/How-We-Got-Here-It-Is-Housing-Stupid
The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.

But in the end, it all comes back to one issue - housing.

Scott, I don't agree with this.  The more recent problems threatening financial security are housing related.  However, the system is rotten from the inside out.  The financial practices allowed by corporations and the behaviour of the Fed defy what most people think of is 'sound' economics.

If people become less wealthy, that is bad for everyone.

I agree and disagree.    I would change this "If people become less wealthy, that is bad for everyone". to this If people become less educated about money, that is bad for everyone

To build my point I'll give some background.

The issue's blatantly obvious, there’s a huge conflict of interest between the governments beliefs and it's practices.  The government preaches capitalism to its people by encouraging corporations and passing business friendly tax laws.  The government actually discourages against being middle class by taxing them the highest (the poor isn't far behind).  The problem is the middle class just accepts it because they don't understand money.  A typical middle class person works from January - May for the government in a calendar year before they receive any money, every year.  However, the government practices financial democracy which is similar to how the middle class is treated financially - they punish themselves. This is compounded by the issue that the average taxpayer doesn't know how money works.  The government will spend taxpayer’s money according to what the taxpayers say.   This is the root cause of our situation right now.

Corporations are successful if they are efficient in using their resources frugally, like money and labor.  A dime saved today, is a quarter tomorrow.  In contrast, the government is rewarded for spending money and magically creating extra, most times, unneeded jobs - or spending according to the taxpayer.  The government doesn't follow their own system for success that they created!  We can understand why the government is in debt just like most of our middle class, foreclosed families.  (and I do feel bad for these families).

Now comes government intervention in a capitalist corporation society.  The Gov bails out Fannie Mae and Freddie Mac. Another post said it best "...let Fannie Mae and Freddie Mac fall just like Ma Bell..."  What the government did was encouraged inefficient business practice by hand holding.  Hand holding does nothing more than teach a child that it's OK to be (financially) immature.  They treated Fannie Mae and Freddie Mac like the poor/middle class by giving them money and saying it's OK.  Who will Freddie Mac and Fannie Mae come to during the next recession? Where did that government money come from...the middle class.  Rinse and repeat.

[Godder]

If government offers voters the choice via referendum of increasing taxes to pay for everything, or decreasing services elsewhere to make up for the new expenditure, and the voters choose the latter, the government will likely get booted from office later because the decrease in services will annoy voters, and no amount of telling the voters "this is your own fault" will save the government. Rationality is not commonplace, unfortunately.

It's all in how it's portrayed.  "this is your own fault" can easily be rephrased as "followed the will of the people and let you keep money in your pockets."

Yeah right . No matter how it's portrayed, the opposition will make sure that "the truth" comes out with something along the lines of "they're just trying to duck the real issue here - their incompetence!".

On the human aspect of this whole thing, here's a quote from a user of another board I frequent:

If it's any consolation saving AIG from going belly-up saved hundreds of thousands of small investors -- my mom among them -- who had their retirement savings in AIG products like annuities. Her $40,000 annuity won't bankrupt the country but it sure would make a difference in her monthly income if it was entirely wiped out.
The problem is a lot of conscientious people tried to save and plan for their retirement by investing in IRAs, 401Ks, CD, and annuities through REPUTABLE, SOLID companies (we thought solid!) like AIG -- and now folks like my mom are in a panic. At 83, she needs peace of mind not sleepless nights. She already lived through a depression where her folks lost their home -- and she and her 10 siblings and parents were out on the street.

[Smmenen]

People suffering is never a good thing, nor is it good for our 'character.'

a depression isn't good for anybody.

You guys are taking a really narrow view.  Plenty of people are suffering already; a margin more or less because stocks are down 10% is inconsequential. 

I flat out disagree.

You said a nice, strong global depression would be good for our character.   
A depression, as six quarters of negative economic growth, would be utterly devastating and nothing like what we have right now.   In the last depression, unemployment rose as high as 25%.   Right now, unemployment is 6.1%. 

To say that a 'nice, strong, depression' would be "inconsequential" compared to the suffering people experience now is, frankly, ridiculous.   A 'nice, strong depression' would make the suffering going on now look like paradise. 

 

[Moxlotus]

A  depression, as six quarters of negative economic growth, would be utterly devastating and nothing like what we have right now.   In the last depression, unemployment rose as high as 25%.   Right now, unemployment is 6.1%. 

To say that a 'nice, strong, depression' would be "inconsequential" compared to the suffering people experience now is, frankly, ridiculous.   A 'nice, strong depression' would make the suffering going on now look like paradise. 

Because all depressions automatically have unemployment rates at 25%?  We've had 1 depression.  We have no idea what the unemployment rate would be in a new one.  A depression could only end up at an unemployment rate at 8% theoretically, it would just be everybody w ould be making less money to account for the 6 quarters of negative economic growth.

[Dr. Sylvan]

While I fully support the various at-fault parties in this mess taking a sharp kick in the fiscal groin, as they by and large are, when we use the word "depression", we are talking about misery for everyone. An economy-spanning disaster will not just purify the fiscally imprudent by reseting their worldly desires to a reasonable level. Even the least painful depression imaginable would mean mass layoffs throughout the country, by which I mean millions of people out of their jobs, many of whom are just your archetypal hard-working folks. Americans may frequently live up to the stereotype of egregious materialism, but expressing a desire for an economic depression is preposterous.

Scott: The government is, indeed, a ridiculous and contorted system, where the incentives are perversely to always spend more money. I think you have some misconceptions about the tax burden on the middle class, though. Taking myself as an example, I make ~$33K, well below the US median household income, and have no special deductions or ways to lower my taxes. Less than 20% of my paycheck is withheld for taxes, and especially from the feds, I will get some of that back next spring. This is a far cry from the January-May stat you cite. Even if you include sales taxes, and indirect taxes that affect prices like the property taxes paid by my landlord or the corporate income taxes that raise prices of goods I buy, I doubt that it would go past a third.

Income tax policy is actually quite progressive in this country, though obviously it's not perfect. Most of the damage done to the middle class by the government is through the institutions that serve interest groups rather than citizens (e.g., schools serve teachers' unions; health care policy serves Big Pharma and private insurance companies, etc.).

If it's any consolation saving AIG from going belly-up saved hundreds of thousands of small investors -- my mom among them -- who had their retirement savings in AIG products like annuities. Her $40,000 annuity won't bankrupt the country but it sure would make a difference in her monthly income if it was entirely wiped out.
The problem is a lot of conscientious people tried to save and plan for their retirement by investing in IRAs, 401Ks, CD, and annuities through REPUTABLE, SOLID companies (we thought solid!) like AIG -- and now folks like my mom are in a panic. At 83, she needs peace of mind not sleepless nights. She already lived through a depression where her folks lost their home -- and she and her 10 siblings and parents were out on the street.

Annuities are backed by pools of funds controlled by the tightly state-regulated subsidiary companies. The failure was at the "corporate mothership" level. This Tuesday excerpt from TIME.com clarifies sorta how this would work:

If you have a fixed-rate annuity, or a life insurance policy, the ruling regulator is the state where you bought the policy. This is a little trickier. The payout AIG has promised you comes from assets it holds in its general account. If the state insurance commission believes AIG can't meet its obligations to policyholders — and a bankruptcy filing might be an indication of that — the insurance commission can step in. If that happens, there's a chance you won't immediately be able to cash out your policies, at least not without incurring a penalty. That's a tactic regulators might use to prevent everyone trying to cash out at one time — like a run on the bank, says Dave Evans, a CFP and senior vice president, Independent Insurance Agents & Brokers of America.

If worse comes to worse, the goal of regulators is going to be to move AIG policies to other insurance companies. That's worked in the past, but it's never been attempted with a firm of AIG's size.

So let's assume, repeat, assume, a bankruptcy that leads to liquidation. AIG would pay off as many of its claims as it could. (The good news is that as a policyholder, you're ahead of almost everyone else in line to get paid, including bondholders) If AIG's assets don't cover everything, then state guarantee funds would kick in.

IRAs & 401(k)s are not affected by the bankruptcy of, say, the broker that holds the account, except insofar as the account owner invested in a failed company's stock. CDs are FDIC insured up to $100K per account holder per bank.

[Scott_Limoges]

Philip, did you include medicare deductions?  How about adding social security dedecutions?  Both are government programs primarily funded by the middle class to help the middle class.  But know this - each program will be dead in 30 years because of financial mismanagement, just like a foreclosure.

The average middle class household income is around 60,000?  If so, approximately half or $30,000 is taxed at 25% off the top.  Then deducted medicare and social security at an additional 8% off the top again.  The middle class now has 66% of this money (the 30,000) to take home but as you said, taxes don't stop.  Whenever money is spend deduct an average of 5% for consumer, food, and entertainment tax.  The middle class family also owns a house and two cars - we have residential tax and yearly car taxes.  Gas tax to fill a car is over 20%.

Are these programs/taxes really helping the people who pay/need them?

[Grand Inquisitor]

expressing a desire for an economic depression is preposterous

Sure.  Let me clarify.  We all understand that the Great Depression was bad.  What I'm suggesting is that the gap between what people in this country want for a legal-economic system should be and what we have (never mind what they understand we have) is system-critical.  My hope is that regardless of the magnitude of the collapse (it's going to happen regardless) there's a real possibility that the hardships will force an awareness which will lead to the better things I stated above.  If you will, it's a CB analysis.  Even though we've had good times in this country for almost sixty years, much of the support for this was unwarranted, especially recently.  There's a middle ground between standard of living apocalypse and the limitless (liquidity fueled) buoyancy of the last two decades.  It's as much a political question as an economic one because this iterate shell game is running out one way or another.

As for numbers:

In the last depression, unemployment rose as high as 25%.

Ok.  So, assuming a participation rate of roughly 2/3rds (granted, a declining trend), we have a labor force of about 200 M.  A 25% rate would mean 50 M people out of work, given current population.

Right now, unemployment is 6.1%.

I guess it depends:

http://www.shadowstats.com/alternate_data

At 6.1% unemployment is at 12 million and change.  With the adjusted rate of unemployment (from shadowstats) at about 15% we're talking 30 M unemployed (a consequential difference of 18 million hungry people).  Too much Scotch means I can't get my compound annual growth models to work, but it's even worse if you look at the CPI.  If you consider the real changes in unemployment and the erosion of wage levels, and compare to our prosperity during the 'good times', do we exactly make it to the 50 M unemployed in the Great Depression scenario?  Maybe not, but it's close; we've already been depressed as a country.
 
Just because a convenient set of circumstances causes the Fed, Chinese, and bankers to prop it up for now, doesn't mean that the damage isn't already done.  I'm saying let's do a trust fall while we're not at a fatal height.

[Vegeta2711]

I highly doubt anything good is going to come from the majority of financial institutions being short-sold into oblivion over the next couple of years. To think otherwise seems incredibly idealistic at best.

[Grand Inquisitor]

I highly doubt anything good is going to come from the majority of financial institutions being short-sold into oblivion over the next couple of years. To think otherwise seems incredibly idealistic at best.

Really?  I think my aims are idealistic, but I'd say history shows some examples where progress follows catastrophe.  Good regulations came about due to the crashes in '29, '73, and '89.  The other thing I see is that our economy has never been so interconnected before and this crash is going to happen within the context of a global power shift.  The world may move from a US consumer driven economy to something else.  It's really hard to predict, but I don't think there's any more basis to say the long term results are going to be bad versus good.  Yes, the topic here is Financial Catastrophy, but I'm focusing on what happens after "man, I've lost 25% of my portfolio...".

[Dr. Sylvan]

Philip, did you include medicare deductions?  How about adding social security dedecutions? [...] But know this - each program will be dead in 30 years because of financial mismanagement, [...]

I did include OASDI/FICA (technically, I pay into Illinois' State Universities Retirement System instead of Social Security at a rate of 8% instead of 6.2%; Medicare is still 1.45%).

The average middle class household income is around 60,000? If so, approximately half or $30,000 is taxed at 25% off the top.  Then deducted medicare and social security at an additional 8% off the top again.  The middle class now has 66% of this money (the 30,000) to take home but as you said, taxes don't stop.  Whenever money is spend deduct an average of 5% for consumer, food, and entertainment tax.  The middle class family also owns a house and two cars - we have residential tax and yearly car taxes.  Gas tax to fill a car is over 20%.

Are these programs/taxes really helping the people who pay/need them?

Median US household income for 2007 was $50,233. In 2005 (the most recently released data), 32.6% of all tax returns had total income tax <=$0. Of the 67.4% of filers with tax >$0, those in the $30-50K bracket paid an average tax rate of 7.5%. You won't get any argument from me that the feds waste trillions in the people's wealth for often-questionable or outright frivolous purposes, but let's be clear about the nature of the revenue.

State sales/income taxes vary. As an example, Illinois in FY2007 spent half its $28.6 billion through the just Board of Education, Teachers Retirement, and Medicaid. Local property taxes almost entirely fund police/fire departments plus public schools. Arguably, the latter is doing badly enough that it's harming kids, but the point is that the dollars aren't simply expropriated to serve fat cats.

I go into this detail, not to defend government as benevolent or to correct anyone's beliefs about tax structure, but to support the point that everything is more complex than we may at first believe. Several posters in this thread have suggested that the bailouts (our original topic) should not have happened, because the companies should reap the consequences of their actions. My earlier post tried to explain why those consequences would not be limited to those who deserved it, and that the bailouts do preserve the pain that will lead to a lesson learned.

Tax policy is sort of a broader version of the same issue, and brings us onto the razor's edge of TMD anti-political posting rules, but it serves the same point about complexity. It's better to assume positive intent than to risk outrage fatigue.

[Demonic Attorney]

The federal government is now poised to invest $700B to acquire the bad debt that has damaged Wall Street.  Lobbyists for the financial sector and members of Congress are clashing over whether that should be done by means of a "clean bill" (that is, just giving the money without any provisos or add-ons), versus imposing conditions on the payout, like salary caps on CEO pay; for a long time, executive salaries have been criticized as ostentatiously excessive.

[MadManiac21]

GS and MS are now traditional banks - thoughts?

I'm surprised there hasn't been a swing (either up/down) so far as a response, albeit I think this is partially due to Microsoft's 40$ billion buyback.

[Juggernaut GO]

The federal government is now poised to invest $700B to acquire the bad debt that has damaged Wall Street.  Lobbyists for the financial sector and members of Congress are clashing over whether that should be done by means of a "clean bill" (that is, just giving the money without any provisos or add-ons), versus imposing conditions on the payout, like salary caps on CEO pay; for a long time, executive salaries have been criticized as ostentatiously excessive.

If these companies are going to be taking my tax dollars with this plan, you can sure as shit guarantee that I wouldn't want some jackoff ceo walking away with 26 million of it as a severence payment.  The whole idea of this really sickens me but it may be because my priciples aren't exactly in line with the rest of the american public.

1. Don't spend (or gamble) money you can't afford.  Don't buy a house when you know your going to default on it within a year.

2. Insurance is the largest ripoff in the history of man's existence and corporations are raking in trillions of our dollars every year because of it.  "What, I have to pay you in case something bad happens?  So, I get my money back at the end of my life when nothing bad ended up happening to me right?    WRONG!!"

3. AM radio/cable news personalitys are not the proper authority to get your news from.  These people make their living spouting horseshit to keep you in line and not asking questions and working.   War is Peace; Freedom is Slavery; Ignorance is Strength.

[Outlaw]

3. AM radio/cable news personalitys are not the proper authority to get your news from.  These people make their living spouting horseshit to keep you in line and not asking questions and working.   War is Peace; Freedom is Slavery; Ignorance is Strength.

Bitches.

[LotusHead]

2. Insurance is the largest ripoff in the history of man's existence and corporations are raking in trillions of our dollars every year because of it.  "What, I have to pay you in case something bad happens?  So, I get my money back at the end of my life when nothing bad ended up happening to me right?    WRONG!!"

I agree, but I have no problem with voluntary small scale insurance.  Namely, I like having "insurance" on my cell phone!

[Scott_Limoges]

2. Insurance is the largest ripoff in the history of man's existence and corporations are raking in trillions of our dollars every year because of it.  "What, I have to pay you in case something bad happens?  So, I get my money back at the end of my life when nothing bad ended up happening to me right?    WRONG!!"

I agree, but I have no problem with voluntary small scale insurance.  Namely, I like having "insurance" on my cell phone!

IMO, Whole life insurance is an extreme niche product that insurance companies market to everyone.  This type of insurance was born in the late 70s, about the time when insurance company skyscrapers were errected.

Just think, how many other insurances are an investment tool too?

Term insurance is the way to go for 95% of the population.

[Godder]

Old-school mutual insurance schemes are fine (as are old-school credit unions, for that matter). Raking big bucks profit from either might be questionable, but the intent is a legitimate risk-limitation exercise, which sounds like good gambling strategy to me.

[Matt]

If these companies are going to be taking my tax dollars with this plan, you can sure as shit guarantee that I wouldn't want some jackoff ceo walking away with 26 million of it as a severence payment.  The whole idea of this really sickens me but it may be because my priciples aren't exactly in line with the rest of the american public.

What principles are those, exactly? "The American Public" seems to basically agree that golden parachutes and no or minimal future regulation ought not be part of any deal.

However, The American Public != people who actually will decide how this shakes out.

1. Don't spend (or gamble) money you can't afford.  Don't buy a house when you know your going to default on it within a year.

Where did you get this line from, Kudlow? It's trash.

Some young family walks into a bank, wanting to know if they can afford to buy their first home. The loan officer reviews their financial status, performs the necessary checks, and evaluates how much money the bank can risk on them, and at what interest rate. It is hardly the family's fault that, due to a complete lack of oversight and lax regulation enforcement, the loan officer's boss has changed the approval process to "Do they have a pulse? Then sure, loan away! Loans for everybody! Whee!"

Getting a home loan is something that most people have to do once, maybe twice in their lifetimes. But the guy in charge of evaluating and approving loans - it's that guy's job to do this, and to do it dozens of times per day. If you're going to go handing out Blame Certificates, the only sensible (not to mention humane) way to do it is to put the lion's share with the loaners, not the borrowers. And really, you'd want to start with the people who pushed for the removal of the rules that used to prevent handing out bad loans like candy.

I'll give you two guesses as to who that might be.

And that's before you even get into what turned this from a large, but still much smaller problem, into Big Shitpile, which is the aggregation, repackaging, and furious trading of bundles of these bad loans back-and-forth as securities.

2. Insurance is the largest ripoff in the history of man's existence and corporations are raking in trillions of our dollars every year because of it.  "What, I have to pay you in case something bad happens?  So, I get my money back at the end of my life when nothing bad ended up happening to me right?    WRONG!!"

I don't think you understand what insurance is (supposed to be/do).

"Insurance", as a concept, is not a problem. Insurance-for-profit, in a situation which incentivizes the maximization of profits to the exclusion of all else, is.

3. AM radio/cable news personalitys are not the proper authority to get your news from.  These people make their living spouting horseshit to keep you in line and not asking questions and working.   War is Peace; Freedom is Slavery; Ignorance is Strength.

100% agreed.

[Moxlotus]

Getting a home loan is something that most people have to do once, maybe twice in their lifetimes. But the guy in charge of evaluating and approving loans - it's that guy's job to do this, and to do it dozens of times per day. If you're going to go handing out Blame Certificates, the only sensible (not to mention humane) way to do it is to put the lion's share with the loaners, not the borrowers. And really, you'd want to start with the people who pushed for the removal of the rules that used to prevent handing out bad loans like candy. 

If you're about to make the most important financial decision in your life, I'd expect that person to have an idea on what they can afford.  Books exist.  I'd wager there is a "home buying for dummies" out there somewhere for $14.99.

[Juggernaut GO]

Insurance as a concept in it's entirety is just another way for the rich to get richer in the country.  There is a reason that you don't just get insurance from a guy on a street corner selling it.  All the corporations have the backing of every financial institution to guarantee(sometimes) insurance payouts.

There is a direct relationship between the cost of health care and the cost of health insurance.  Most blue collar jobs in the country do not offer free health care in its entirety, not for the family or even for the actual worker.  Additional money must be paid by the employee to get basic coverage just for himself.  As more and more people have gotten health insurance, the price of healthcare has also increased radically because its free money to the caregivers.

Pharmaceutical companies are making billions and billions of dollars and are able to overprice their drugs so much because insurance companies continue to raise coverage prices to include prescriptions(on top of all that you STILL have a co pay.)  The corporations want to squeeze as many dollars out of our pockets as they can in every way possible.  

This works because people are so scared they will get cancer or they will get into a car accident with an empty bank account.  They continue to buy coverage that they will not likely ever need and that money is in fact thrown away to just another greedy company so their board of directors can buy hookers and blow on the next company trip to vegas.

The continued greed will never stop until people stand up and say "fuck you, I am not paying out my ass for this horseshit any more." The ironic part is that people are doing exactly that with the 700 billion in bad debt the government so wisely decided to buy.

But where does the blame really belong?
1: With the people getting the ridiculous loans when they knew they couldn't afford them
2: With the corporations that approved the loans because they knew they could just skirt regulations and sell the note to any thousands of debt buyers/hedge funds that exist in the world.  

The answer is both.  Both parties are equally irresponsible.  The buyer because they knew they would never be able to afford the loan, and the company for lending it then selling it off as soon as the ink was fresh on the contract which brings me to my next point:

What would you say if I told you my mothers mortgage has been transferred to 5 different companies in 6 years?  She got it at a local bank with only a few branches in connecticut, has an impeccable credit rating, and the note was sold a little over a month after signing on.  There was never a risk of default, the bank sold it to make a profit on the expected interest over the duration of the loan.  The next 4 institutions did the same exact thing.

This is exactly whats happening to all the loans in the united states.  At some point, theres no more profit to squeeze out and the last company is holding the bill with no one to pay the piper.  Financial institutions run the most sophisticated ponzi scheme ever, and it will continue to go on until the money runs out.

By paying this 700 billion dollars, the federal government is just the next jackhole investor looking to make a quick buck on the interest of the money put in(the bail out program is said to continue 1 full year.)   Where is the payback supposed to come from?  We are paying this money with no realistic way of ever getting it back.  If the corporations can't collect on the loans now, how are they magically going to come up with 700 billion dollars + interest in 1 calendar year.

I rambled long enough I have so much to say on the subject and this forum is not really the place to do it effectivly.

[Matt]

But where does the blame really belong?
1: With the people getting the ridiculous loans when they knew they couldn't afford them
2: With the corporations that approved the loans because they knew they could just skirt regulations and sell the note to any thousands of debt buyers/hedge funds that exist in the world. 

The answer is both.  Both parties are equally irresponsible.

What you're missing is that #1 doesn't exist*. Lenders who knew better were telling prospective homeowners that Yes, You Too Can Qualify For A Home Loan! when they never should have, with the strategy that they could then sell these timebombs before the eventual explosion. The lenders lied to the borrowers about whether they could afford them, then lied to the groups to whom they sold the resulting bundles of bad debt. That is far from "equally" sharing responsibility.


*or is only a very minor fraction of the total, which is close enough for these purposes.

[Smmenen]

But where does the blame really belong?
1: With the people getting the ridiculous loans when they knew they couldn't afford them
2: With the corporations that approved the loans because they knew they could just skirt regulations and sell the note to any thousands of debt buyers/hedge funds that exist in the world. 

The answer is both.  Both parties are equally irresponsible.

What you're missing is that #1 doesn't exist*. Lenders who knew better were telling prospective homeowners that Yes, You Too Can Qualify For A Home Loan! when they never should have, with the strategy that they could then sell these timebombs before the eventual explosion. The lenders lied to the borrowers about whether they could afford them, then lied to the groups to whom they sold the resulting bundles of bad debt. That is far from "equally" sharing responsibility.


*or is only a very minor fraction of the total, which is close enough for these purposes.

More importantly, the lenders didn't care if borrowers could afford the loans, because they were to be sold downstream almost as soon as the loan was originated.   They got origination fees out of the deal and passed the buck to the securitizers, and other downstream banks.