Let Them Starve
So let me get this straight. For a few years now, the financial industry has made billions in risky subprime loans by essentially tricking people into believing they can borrow more than they’ll be able to pay back and now that this brilliant idea is going south, people are floating the idea of a government bailout. Well, screw ‘em. If you’re foolish enough to loan hundreds of thousands of dollars to people who can’t even balance their checkbooks, then you deserve to be as poor as your customers.
Then again, this is all assuming that these creditors were giving out loans in good faith in the first place. The way it looks to me is that these subprime loans were always about locking people into high interest loans for a few years until they went broke after which the banks would take back the house and any more money they can squeeze out of the debtors (thanks, bankruptcy reform!). Once they unload the house, which has almost certainly grown in value, they make a nice profit on top of the cash they gouged out of their now-homeless former customers.
The reason this has all come back to bite lenders in the ass is because they lacked the foresight to realize that when their customers were going broke, everybody else would be going broke as well, which would drive down the value of their repossessed houses and make them harder to unload to the next poor sucker who just wants to move out of an apartment.
In a truly free market economy, we’d be pointing these idiots towards the back of the line at the local soup kitchen, but these guys had a backup plan. They bribed (I mean, “lobbied”) every level of government that’s willing to cash their checks, insisting that if they pay the price for their moronic business practices, the entire economy will suffer. In short, they don’t need government bailouts to help themselves, but to help us.
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The government should buy them out, then at least the tax payers would get something for their money.
Comment by C.S.Strowbridge — August 7, 2007 @ 4:20 am
Greg – you’ve hit the nail on the head! Here in the Northeast, as I’ve seen property after property go into foreclosure, I’ve wondered when they would seriously start talking about a bailout. Just the fact that those of us with a basic concept of budgeting, that bought a house they could afford, and didn’t live high off the artificially low rate payments could end up helping these idiots out infuriates me.
The entire issue also plays into this ‘keeping up appearances’ that America has been obsessed with. In the middle of a economy draining war the interest seems to be to have it look as if everything is chugging along fine! No consequences from this kind of foolish spending (at least that you can see… has anyone visited a public school lately?)
Comment by Dave — August 7, 2007 @ 4:31 am
While I appreciate your argument Greg, I want to point out that it’s not just greedy tools that will be losing their jobs in the sub-prime mess. My father’s been denying approvals left and right on principle on shady loans that lending agents (my financial lingo is definitely lacking) have come to him with. But when the whole business goes under, he goes with it too. There are good people facing unemployment too, many of them approaching but not yet near retirement age, when it’s difficult to get hired elsewhere for what you’re worth.
Comment by michael — August 7, 2007 @ 5:59 am
Your premise not necessarily true. Banks and other financial institution just want your money, as trouble-free and steady as possible. They don’t want your house, especially after you’ve had to give up maintenance and let it run down.
Comment by mr.ed — August 7, 2007 @ 8:05 am
Transferring Risk and Debt from the Private to the Public.
In many ways, Privatizing Profits while Publicizing Debt is an old story. During the 1980’s and 1990’s, rich Western investors loaned money to rich Developing Country people in Mexico, Argentina, Malaysia, and Indonesia. These folks built large amounts of buildings/office space. For at time, both the Loaners and Investors made a large amount of Private Profit. However, when the bubble burst and the investments went belly up, did the Rich Western Investors pay for their indiscretion?
No. We did. The Developing countries assumed the debt of their investors, the US Govt loaned money to the Developing Countries, who then paid the Western Rich Investors.
And now, the Rich Western Investors are trying the same thing at home. When it works, they make money, and when it fails, they hold a gun at the American Economy’s head and say “Pay up or it dies.” Thus, the public is left holding the bag or it suffers.
Charles
Comment by Charles — August 7, 2007 @ 12:00 pm
The collapse also harms those who have the means to buy a home but now have to wait until all the various mortgage holders finish their squabble about who really owns the property desired. This causes the second (third?) part of the slow down as you soon won’t be able to buy a house even with cash up front because no one can make a decision.
Comment by Steve — August 7, 2007 @ 1:15 pm
“While I appreciate your argument Greg, I want to point out that it’s not just greedy tools that will be losing their jobs in the sub-prime mess.”
“The collapse also harms those who have the means to buy a home but now have to wait until…”
This is why you buy them out. If you are going to lose money cause they screwed up, you should at least try and find a way to profit from it. And the banking industry can make a lot of profit if run well.
Comment by C.S.Strowbridge — August 8, 2007 @ 12:03 am
If given to the poor, such a proposed government subsidy would be decried by many on the right as “socialism.”
Yet they have no problem with businesses receiving such a subsidy in the form of a bailout, all the while extolling the virtues of the “free market.”
Go figure.
Comment by Doobie — August 8, 2007 @ 1:42 am
Elizabeth Taylor’s words in the movie “Suddenly Last Summer”
“Avarice and greed.”
Comment by RAIN — August 8, 2007 @ 9:45 am
Actually, Charles, when you say
“No. We did. The Developing countries assumed the debt of their investors, the US Govt loaned money to the Developing Countries, who then paid the Western Rich Investors”
you forget that the US Treasury acutally made about $50 million on the loan guarentees. It was a good move by Clinton, in contrast, to, say…the S&L BAILOUT by Reagan…
“Having to comply with the recently signed NAFTA obligations, Mexico did not resort to the traditional Latin American policies in times of crisis of trade protection and capital controls (which might have prolonged the crisis), but introduced strict controls on monetary and fiscal policy, open trade, and devalued currency. The boom in exports that followed eased the recession which turned out to be a 10-month, short-lived recession. By 1996, the economy was already growing (and peaked at 7% growth in 1999). In 1997, Mexico repaid, ahead of schedule, all US Treasury loans.”
now the S&L Scandal was a real scandal much closer to what is happening now then the run on emerging market debt in the 1990s.
Comment by Kevin — August 8, 2007 @ 6:30 pm
Let’s just hope the payday loan people don’t go out of business! They just want to help people.
Comment by Greg's liberal mom in Oklahoma — August 8, 2007 @ 7:15 pm
You’re spot on that the banks were anticipating higher prices when they forclosed on the houses. Any idiot could see, despite the spin that plays on financial news, that the house prices were just being driven by the abundance of loans, however.
As for the former-homeowners? I experience schadenfreude as much as the next person. But, I also recognize that nobody is going to escape this firestorm without getting singed.
Google: petro-dollar
Comment by Matt — August 8, 2007 @ 8:40 pm
Great post, I think the good Dr. Ron Paul would agree with you on this, no government bailout for the subprime sharks!
Sleep Dog
Comment by Sleep Dog — August 10, 2007 @ 5:54 am