Comments on: Can We Have an Economy without Losers?

By: FV

FV — Tue, 17 Mar 2009 04:32:24 +0000

@ MasterPo: I am sorry but I will have to strongly disagree with you; the main culprit for the housing/credit bubble of 2001-2007 is not the US government but the “great flow of cheap capital from Asia to the US which financed US deficit spending”. Don’t take that from me – the quote belongs to Niall Ferguson, Harvard history and business professor. You can find his whole interview in the April 2009 issue of Money magazin.
Ben Bernake strikes a similar note in his recent interview on CBS 60 Minutes: “(BERNANKE) Well, a lot of mistakes got made. No question about it.
But, you know, this was a much bigger thing than any single firm or
any single—individual over the last– dozen years or so, enormous
amounts of savings has flowed into the United States, and some other
industrial countries. That savings has come from China and East Asia.
It’s come from oil producers. And it has– and hundreds of billions of
dollars, it has come into our financial system. And, you know, that
would be great if we took that money and invested it wisely, and got a
high return. But instead, our financial system– didn’t– didn’t do a
good job. We had a regulatory system that was like a sandcastle on the
beach. When you had little small waves just lapping up against the
sand castle, everything looked good. But when you had a big breaker
come in, suddenly it– the system wasn’t strong enough to deal with
it.”
That’s pretty much the gist of NPR’s “The Great Pool of Money”
The Wall Street, mortgage brokers and banks could not resist the temptation for big profits and that’s how the subprime mortgage mess came to be. Here’s a 2007 article from Business Week about the CEO of WMC Mortgage, the sixth largest nonprime wholesale lender in the country in 2003 (and one of the lenders featured in “The Great Pool of Money”): http://www.businessweek.com/magazine/content/07_44/b4056074.htm. The article starts with: “Way back in 2004, when subprime mortgages were a can’t-miss proposition, Amy Brandt was a superstar. Her success in turning a struggling wholesale lender into a powerhouse that generated more than $1.5 billion in home loans a month caught the eye of executives at General Electric (GE ).”

Boy, she must have been really scared by the possibility of being sued…

By: MasterPo

MasterPo — Mon, 16 Mar 2009 03:41:38 +0000

FV – TML is correct. With all the gov programs out there to make houses “affordable” to anyone who could sign their name if a banker refused an application he/she personally could be sued along with the bank for discrimination.

By: Tom

Tom — Sat, 07 Mar 2009 07:20:20 +0000

We live in a ‘zero sum’ world.
Someone’s profit is another person’s loss.

By: Matt Keegan

Matt Keegan — Sat, 28 Feb 2009 00:31:32 +0000

GM and Chrysler are so very sunk, but Ford is doing okay even positioned to thrive thanks to some very good new product and technology coming out beginning this Spring.

If you don’t have what people want, they’ll go elsewhere. Plain and simple. GM and Chrysler will probably go bankrupt but not liquidate which would be fine with me.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Thu, 26 Feb 2009 05:00:26 +0000

Ahead of the curve: I feel bad for your bother but his problem is radically different from those who cannot make their payments. Too many people treat their homes like investments then freak out when the value drops. Your home is not an investment. It is an asset in which the primary value is providing you shelter. If you are living there and making payments, what does it matter that the value drops? You are still receiving the shelter benefits. Sure, if you want to move but you have negative equity, that’s a problem. But it is not a problem that entitles anyone to government help.

By: Ahead of the curve?

Ahead of the curve? — Wed, 25 Feb 2009 16:16:04 +0000

Mr. TML, I think the mortgage problem also be illustrated (casting doubt on your “red-line” theory of this housing/banking crash) in the vast seas of new housing developments in California’s central valley and Florida that are now worth maybe 50-75% of what they were at the peak. My brother bought a house outside of Sacramento in January 2007 for $430,000. He says his house is worth maybe $250,000, now. Multiply this appropriately. He’s a solidly middle class guy in his late 40s. No hinky loan–but he’s wondering if it makes sense to just walk away.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Tue, 24 Feb 2009 22:08:19 +0000

Rick: I am not letting the banks, the syndicators, or the ratings agencies off the hook on this. My point is that the government played a significant and blameworthy role in the mess we are in.

FV: For every anecdote I am sure you heard on the NPR piece, I have read or heard a similar anecdote from a banker who claims that they were threatened with government retaliation if they did not become more aggressive in making sub-prime loans with lower underwriting standards in low income communities. I am not – repeat – am not excusing the greed on behalf of the lending community that decided to go with the flow and exploit the situation. My point is that the flow was at least encouraged if not initiated by government policy.

As for Obama, I do not dislike him. But it seems that the markets dislike him immensely. It is unfortunate that none of his skills – which are impressive – are useful in this economic crisis we are in. Regardless of your political inclinations, you must recognize that Obama’s background could not have prepared him for where he now finds himself. John McCain would also be out of his element. This is when I wish Mitt Romney could have run as a Democrat and gotten himself elected. His skills would have been useful now and the markets would be responding to that in a favorable way. Thanks for your comment. I appreciate your views.