I have to wonder if Middle America is sleeping through this economic disaster. Considering the amount of Americans who have been facing foreclosure, lost jobs, are finding it difficult to get credit, you’d think there would be more outrage. I would also have hoped that more women would start to get engaged – why aren’t they protecting themselves, their families?
The Republican administration is offering a bailout to Wall Street because the market for these “toxic assets” has dried up. They’ve become illiquid, there are no buyers. So, we taxpayers are going to step in and buy them. Paulson would have you think that it’s a good idea because we can sit on them and eventually sell them and maybe, maybe, make a profit. This is the most ridiculous thing I’ve ever heard.
As much as others on Wall Street and Paulson will disagree with me, these are not real assets. They are “instruments” that were created by bundling up loans – some risky and some solid. They were graded and given a credit rating (the credit rating was total joke) and sold to investors. They were marketed as if they were as safe as cash when clearly they weren’t. I can’t claim to explain how you create these instruments (this complexity should have alerted regulators, by the way) but when you think about it they’re just fabricated. They were a creative way for investment banks to make more money.
At least our assets are real. Your house is a physical, quantifiable, tangible asset. The loan on your house is a real income stream to the lender so that can be bought and sold, too. You and I could sit down, do the math, and figure out if we should buy a loan from a mortgage company. We would look at the credit rating of the borrower, the interest rate (i.e., how much we’ll get paid every month), the price of the loan (how much of a discount are we getting) and make a decision. A simple risk/return equation. This happens all the time. If we were buying these loans (with the homes as collateral) it would make more sense to me.
I would argue that the housing market has been somewhat illiquid for quite awhile. That in some markets you can’t find buyers who will buy your house for what you paid for it or even sell it at a loss. What would happen if that $700 billion had been applied to the housing market a year ago? If, instead of perpetuating the trickledown theory (money to the rich eventually gets to the poor), we applied these funds to the working class people that needed help to stay in their homes?
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3 comments:
My random theory is maybe some people don't feel the financial crisis because it is so easy to buy on credit. All that "Buy Now No Payment Till 2011" crap. Many are very comfortable living in four and five figure credit card debt.
And I am shocked at the number of credit card loan checks that show up in my (our) mailbox. I haven't worked for years and I get them. How easy it would be to use those checks. Also, I think the mainstream media is not doing a very good job disseminating the complex financial info. Everyone seems to know what a golden parachute is, but 9 out of 10, I bet, can't explain a toxic asset. The difference is, stories and coverage tend to focus on what others are getting (parachutes...) instead of what everyone else is getting stuck with (those toxic assets...).
another problem to consider, when you're trying to make a contribution to the flailing economy (and various neighborhoods in your city) by taking on additional investment properties (totally crazy of us), the lending community (fannie mae) is making it impossible. with a credit score in the 800's, assets and income several times the value of the loan i am applying for, they want to stick me with THREE points because it's an investment property. i get the risk proposition that they're up against in this market, but what investor is going to be motivated to borrow when the loan is so damn expensive. this is totally a case of dog chasing tale and i see no end in site to the disaster that is real estate...
I really don't think the average American "gets it." I think the thinking is that it won't really effect them. The entire proposition is unbelievable. First we spend trillions of dollars on a "war" that doesn't need fighting now we are going to bail out the rich. It makes me sick, knowing I will see plenty of people in the ER this week who cannot afford basic medications. 20 dollars is a lot to those people but we spend unimaginable amounts on what? I can't believe this can happen.
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