It seems so strange that this IndyMac Bank problem has caused so much concern in the marketplace. Why is it so difficult to understand the failure of a financial institution that was a very aggressive lender to homeowners at precisely the wrong time in the housing cycle?
This leads to why it is important to understand our economic mess in the most simple of terms. People used too much debt to buy things (ie. homes, commercial properties, and companies) at the wrong time in the economic cycle and lenders have been too lax in their lending standards. This has all changed because it should. In short, risk has been repriced.
Over the past 7 or 8 years, the US economy has benefited from an ability to borrow -- against your home, to buy a commercial property, or to buy a company. The ability to borrow more than is prudent at rates below what should have been charged by borrowers that were not credit worthy have now come to a screeching end. An individual, company or investment firm that benefited from borrowing too much at below market rates has or will feel the financial pain.
There is no quick fix our country can introduce, but there are many smaller adjustments we will (and have already begun) to make:
1. We are borrowing more prudently.
2. Financial institutions will lend more conservatively with better expected returns, and eventually....
3. We will grow more confident in the "surviving" financial institutions, despite the mistakes of the recent past and our economy will strengthen as a result of our increase in confidence.
My point is we have a crisis of confidence, and confidence will be restored as our financial institutions convince the market that they have returned to sound lending practices. Most already have.
There are many culprits in this mess; the naïve individual borrower, the misleading lender, the often incompetent rating agency, and the greedy investor all share blame and therefore should expect financial pain. The key is to rebuild confidence in the system by acknowledging the cause and addressing its excess. I believe this process has already begun.
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Because of all the corrupt, greedy white old people also known as the Rethugs. From Raygun to present.
I think that people have got to understand that the "MARKET" is a SOCIAL institution first and foremost. A lot of conservatives and economists try to paint a sacred picture of the economic marketplace. They are misleading because prices are based not only on supply and demand but also on the VALUE that certain goods and services hold in a given society.
For instance why are IPODS $200.00 plus? They are not integral to the survival of humanity, yet people value them because of marketing and individual preferences.
The point I am making is that so much of the Wall- Street blather about the "Market" as almost a seperate entity from the rest of society is false and misleading. Humans determine how the market operates not "outside market forces"
Blaming the whiners. Its a tough stretch, but okay.
People here in San Diego were buying 800 sq.ft. shacks a year ago for a million dollars. Now they're a-cryin' about their oh-my-god-you-have-to-be-kidding stupidity. Do I feel bad for them, exponents of this fictional free market economy they keep blathering on about? Not at all. Funny that when this "free market" turns on them, how they all start crying for help, when a year ago they were shouting for the end of welfare of any kind (save the corporate variety, of course)....
Hypocrites, the lot of 'em.
As for bottoming out, well, folks, that ain't gonna happen. Peak Oil is here, and downsizing is now mandatory, brought about not by some fictional free market, but by reality itself. Those of us who for years tried warning folks and were labeled communists, traitors, unpatriotic, who were told to move out of this "free market economy," are now sitting back and watching the chaos and shaking our heads knowingly. What else are we gonna do? Laugh?
I have a much easier time forgiving a "naive borrower" than I do greedy lenders and cultist deregulators who should have known better. Blithely stating that "everyone is to blame" merely diffuses the bulk of the accountability, IMO.
You are whistling past the graveyard. This is debt deflation coupled with inflation for necessary goods.
This is going to end very badly. I hope you have seatbelts and a parachute.
In 1974 we were lining up to get gas. The speed limits were 70 on the interstates. We were driving hemis and gas guzzlers.
Fast forward and here we are again. Now was it the President who made us do it? No. We the consumers wanted things right now instead of saving. We wanted the SUV. We bought houses on a variable interest rate and wished it never to change. We ate too much. Consumed too much. And wonder what went wrong.
If you overindulge, you end up regurgitating. Even the old Romans knew that. Why don't we?
Cryptic & MEANINGLESS.
We all can take a bit of blame. Easy line of credit of house, builders going wild and creating jobs, banks loaning money making quick cash, cities and counties making extra cash on real estate taxes,we all got a bit. Now we can bend over and get the rest where it hurts. What are we doing now, not much but the government is fighting terriorist. The National attention is security from terrioists and the greatest threat to the National Security is the National Debt not terrioists not Iran but our own government.The National debt going unchecked will destroy the country far more effectively than all of the terriorists in the world. Funny thing the terriorists understand this and we don't. They did it to Russia and they are doing the same to us. It is time to make the NationalDebt the number one prioity for this election.
How does public confidence in lending practices return when there is so little demand for capital? It doesn't mean much to adopt responsible lending rules when you no longer have candidates for credit. The graft and the resultant bailouts serve to shift wealth upward, devalue middle class assets and hang the millstone of inflation around everyone's neck. Re-pricing risk now is closing the barn door after...
Bush.
Raygun
The free market deregulators sold the people of this nation a lie, a fantasy, and they even encouraged people to buy homes they could not afford. Those same people are the ones who don't believe in building a health care system that actually works, claiming that Americans know best what to do with their money, as if the business of medicine and saving lives were the same as all other businesses, which fits right in with their M.O of Disaster Capitalism. They are Lucy holding the football, and the regular citizens are Charlie Brown, always getting had. Hmmm - I never thought of Lucy as being a Fascist before. But, now that I am on that line of thought, it all makes perfect sense. Now, we have the latest disaster for them to exploit - the economic disaster they helped create. Beware, all, the coming policies that further undo our Constitution, as we are hanging by a thread as it is!
I agree with these folks that seem to believe this credit crisis was intentional. After working in the banking industry for almost six years during the 80's and 90's, I left the industry with a deep suspicion about the honesty of bankers and their holding companies. These are not stupid people. B.A., B.S., MBA and PhD's dominate the higher echelons of every bank. They know risky policies when they see them. So, how did the credit crisis come about? Out of the dark?; I just don't believe it. It's my belief that they knew what they were doing with this subprime loan business and some wealthy investors are reaping the benefits while home owners and the federal government are now ringing their hands unsure what to do! I lost faith in the banking industry while working as an account rep on a car loan portfolio. Without even giving a former car (loan) owner adequate time to redeem a repossessed vehicle, the bank would sell the vehicle from its resale lot. Local car dealers were routinely contacted the same day vehicles were towed into the lot. Sweetheart deals were in the making, I felt (not knowing the inside facts, personally, i.e.). Those dealers got vehicles for a fraction of the outstanding loan debt and the former owner was sued in court (if necessary) to pay off the difference. The whole affair sickened my stomach. My intuition tells me something similar is happening, here.
I agree.
Yes, individuals were not as conservative with their finances as they should have been. But, this article ignores the obvious. Bush/Cheney cut taxes (mostly for the wealthy) while also ballooning government spending. Were the flock simply ignorantly following their leaders?
Bush/Cheney mad eit worse with huge deficits each year in addition to the cost of the Iraq debacle. This balloned the debt, lowered the value of the dollar, and contributed to the increase in cost of gasoline.
Hey, it was the fastest way of transferring wealth from the middle class to the greedy, old white guys.
If they sold people a lie, the people swallowed it hook, line, sinker, hull, steam engine and steam boat captain.
In other words: it takes two for a con job. And the people were just too eager to play the second part.
So one who falls prey to a scam artist, is defrauded, or stolen from should expect to have no recourse, as it takes two participants for the scenario to play out?
Why then are there laws on the books that address these situations from both civil and criminal perspectives?
Does it stand to reason that if no gun was used in a robbery, the (dare I say) victim has only themselves to blame, for say, having been foolish enough to live in a state where crimes of that nature had been committed previously?
We are now firmly ensconced in the gimmick economy. Folks just don't understand what the heck they are investing in. Be it; derivatives, hedge funds, subprime etc.etc.. Just as long as there is a short-term windfall profit potential. What we have, as others have stated, is a huge transfer of wealth to the insiders of the financial game. When these robber barons fail, what happens........ the tax payers bail them out. The "get rich quick" scam keeps getting replayed over and over again. We just don't learn. A couple of dictums come to mind; "If anything sounds too good to be true, it is and "there is a sucker born every minute". Oh well, live and don't learn. Alas, Sgt. Lucifer was right- "see you in another 20yrs..
I believe that pretty much every regulated investment comes with a disclaimer that essentially says you should not invest in it if you don't understand what it does. Am I wrong, folks? Or you just never read the fine print?
(part 2 of 2)
the real villains in all this mess are the unscrupulous speculators in the marketplace who saw a chance to hornswaggle a bunch of people into handing over all their hard-earned money from a lower middle class job to a snake oil salesman. yes, the borrower has a responsibility to manage their funds, but what are they supposed to do when those whom they are told to go to for instruction see them as nothing but prey and have a vested interest in lying?
(part 1 of 2)
well, ktm, william rehnquist was confirmed to be the chief justice of the united states after claiming with a straight face to congress that he had no knowledge of a clause in the contract for the sale of his fashionable "summer home" that strictly forbade its sale to jews. he saw nothing wrong with that, and excused himself by claiming that he paid his title company to read his contracts for him. he was richly rewarded for being either a liar or incompetent. who in their right mind would ever hire a lawyer who doesn't read contracts before they sign them?
and clarence thomas also claimed to congress, with a straight face, claimed he graduated from the yale school of law having never read the supreme court brief for roe vs. wade. he too was richly rewarded for his either having lied or proven his incompetence with a position of great power and prestige for the rest of his life.
you talk about individual responsibility as though it should be greater for an average family who simply wanted to own their own home through any way they thought they could, who made the mistake of not assuming that a lot of their jobs would be disappearing, and believing a lender whom they trusted to tell them at least a semblance of truth as to what they were getting into with things like "balloon mortgages."
A whole lot of the reason "we are where we are" is that hideous "bankruptcy reform" law which basically makes it impossible for the individual to take bankruptcy. The corporations can take bankruptcy but you and I can't.
Alot of people still don't know this. Plus, if they do file for "bankruptcy" and get let off from any of their debts because they simply don't have anything to pay them with, the IRS comes after you for income taxes + penalties. They get you coming and going here.
I agree. This was one of the most insidious things that happened when the republicans controlled all of the government. When the majority of people have a legal way to default on their debts then everyone offering credit has to consider if they are throwing their money away by extending this credit. This put all of the responsibility on the consumer. This was one of the checks and balances that was necessary in a free market economy.The people that offer financial products or investment products have a huge advantage on the average person and rules and products change so fast that only experts really understand. How can you ask or expect your average consumer to understand?
Can you imagine what would happen if Americans would have bankruptcy protection? They would borrow, borrow, borrow until the house comes down, then declare bankruptcy and then continue to borrow, borrow, borrow, again. And there would be plenty of banks to finance even that.
As far as corporations go, professional investors know that they are not insured and act accordingly. A corporation is a professional entity run by and for people who know what they are doing when they are putting their money into it. Just because you don't does not mean that we need to change the rules. It just means that you should not invest in corporations.
donald trump, with plenty of money in the bank, filed bankruptcy simply because he didn't want to pay the debts he had run up on ill-advised real estate deals. that seems to be okay with you.
and just exactly how large a sector of the population do you think has the knowledge of a "professional investor/" do you think EVERYONE is supposed to be held accountable for the fact they are not chairman of goldman sachs?
Abe Lincoln filed for bankruptcy 6 times before becoming President, and Grant filed Twice. Bankruptcy is just giving people a clean start to fix their financial problems. 10 years on a credit report is the price you pay bankruptcy, and a judge can sort out what you can and can not pay. Well it used to be that way before the American People got sold out by the Dems and Repubs with the new bankruptcy bill that makes almost impossible to file.
Several things I notice here, and have noticed throughout my life.
1) We have believed the lie that the market rise over the past 25 years was economic progress, yet never considered the pace at which it grew, despite major corporations having economic troubles, shady accounting (i.e. Enron) and a market no longer truly based production companies but either retail sales or service industries. Did anyone not realize if you produce only intangibles, the wealth you measure is in itself intangible?
2) The rise of the market was too big and too fast. How many years did it take to break the 3000 point margin? Then from there how many years did it take to break the 12000 pt margin. Something has always been wrong, and with each economic trouble spot all the experts predicted further market adjustments, but shut up when they didn't arrive.
3) Remember what caused the great stock market crask of 1929? Seems to be it was the same thing then as happened here. We bought things on credit and when the bill came due.........funny how history repeats itself.
4) Finally I cannot blame this entirely on "preditory lenders". All of us hold an equal blame. The most basic in this blame game is the consumer. Anyone who makes 75K a year, and all the sudden believes they can afford a 750K home has not only been smoking some whacky tobacky, but truly living in a world Timothy Leary only dreamed of. .
The average growth was probably around 4-5% annually. If you made investments that were supposed to return more than that, you simply increased your risk of losing money at the chance of making more. If you think otherwise, it tells me that you never took economics 205.
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Posted July 16, 2008 | 08:36 PM (EST)