![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Is Congress crazy?
Problem: A lot of banks, insurance companies, and other financial institutions are in trouble, and if a bunch of them fail the economy will suffer severely. They're in trouble through a chain of stuff that starts with a lot more mortgages failing than were expected, and a bad housing market. When someone can't make their mortgage payments they may be forced to sell the house, but in a bad housing market, their house may not be worth enough anymore to pay off the mortgage by selling it, so they can't do that. Glossing over a lot of the stuff in between, and ignoring for a moment the legal changes that let this happen, that's basically where the problem begins at the moment, yes?
Now, assuming that we decide that we can't afford to let all these financial institutions fail, and assuming we decide it's worth spending several hundred billion dollars on it right now - rather than argue the merit of those two points, let's take them as a given - assuming all of that... why would Congress even consider using that money to bail out the financial institutions directly?????
We could take the same money and spend it on bailing out homeowners who can't make their mortgage payments.
We could get more bang for the buck at first pass because we wouldn't have to buy all of the "bad" debt, only enough to make it possible for each homeowner to keep on paying, perhaps with lower payments over a longer period of time. Banks would be stronger simply because all this debt would no longer be poised to fail, and confidence in the banks would recover as soon as the plan was passed, even before actual homeownwers were bailed out, because people would know that a lot of these loans would no longer fail completely, because they'd qualify for the bailout plan. Not only would we save banks, but we'd save jobs, neighborhoods, and families. By preventing mass dislocation of people we'd be saving lots of other pieces of the economy at no extra cost.
I've heard some arguments against the "moral hazard" of bailing out people who took risks that didn't work out... every single one of those arguments applies to a much greater extent to bailing out financial institutions who took vast amounts of irresponsible risk, who risked not just themselves but everyone around them, who were paid to understand finance and to know better than to do this, who lobbied for laws to make it easier for them to do this...
In what bizarre reality does it make any sense to even consider bailing out the financial institutions instead of the homeowners in trouble?
I'm going to call my members of the House and Senate and I hope you call yours.
[ Also on dailykos - if you have an account there, please recommend. ]
Now, assuming that we decide that we can't afford to let all these financial institutions fail, and assuming we decide it's worth spending several hundred billion dollars on it right now - rather than argue the merit of those two points, let's take them as a given - assuming all of that... why would Congress even consider using that money to bail out the financial institutions directly?????
We could take the same money and spend it on bailing out homeowners who can't make their mortgage payments.
We could get more bang for the buck at first pass because we wouldn't have to buy all of the "bad" debt, only enough to make it possible for each homeowner to keep on paying, perhaps with lower payments over a longer period of time. Banks would be stronger simply because all this debt would no longer be poised to fail, and confidence in the banks would recover as soon as the plan was passed, even before actual homeownwers were bailed out, because people would know that a lot of these loans would no longer fail completely, because they'd qualify for the bailout plan. Not only would we save banks, but we'd save jobs, neighborhoods, and families. By preventing mass dislocation of people we'd be saving lots of other pieces of the economy at no extra cost.
I've heard some arguments against the "moral hazard" of bailing out people who took risks that didn't work out... every single one of those arguments applies to a much greater extent to bailing out financial institutions who took vast amounts of irresponsible risk, who risked not just themselves but everyone around them, who were paid to understand finance and to know better than to do this, who lobbied for laws to make it easier for them to do this...
In what bizarre reality does it make any sense to even consider bailing out the financial institutions instead of the homeowners in trouble?
I'm going to call my members of the House and Senate and I hope you call yours.
[ Also on dailykos - if you have an account there, please recommend. ]
no subject
Oh, and just one question on your question: is it the case that we could actually rescue anything by bailing out the homeowners? Lots of them have been foreclosed already, so there are lots of houses sitting around empty and losing value rapidly, that the banks need to get some sort of value out of or they'll lose even more money. Would a homeowner bailout be too late at this point? I don't actually know, I'm just curious.
no subject
Bankers figure out they could take more risks and make more profits if they get some laws change, so they lobby to change the laws, and take lots and lots of risk and make huge profits. Risks fail and now they're in trouble, so they go back to the government and get the money. They got to keep the profits, of course - those are long spent or invested in other things, or paid to individuals.
A homeowner bailout would make the value of existing mortgages more certain. That would definitely be enough to stave off this financial meltdown. It wouldn't save banks from the stuff they've already lost, but nobody's talking about doing that anyway AFAIK. If they are, that's even crazier.
no subject
The "value" of the existing mortgages is already known. It's the value of the mortgage-backed securities that's at issue. Of course, if you can guarantee there'll be no defaults, you can probably guarantee the total value of the mortgage-backed securities too, but the scope for abuse there is mind-boggling.