Log in

View Full Version : WEhat Triggered this Whole Economic Mess?



Pages : 1 [2]

Melonie
11-29-2008, 03:56 PM
And you indirectly raise an even more important question : What was the government doing in the mortgage business in the first place ?

'well intentioned' social engineering at the (indirect) expense of the US taxpayer ... i.e. substituting the implied guarantee of the US gov'ts credit rating (via Fannie and Freddie) to provide below market subsidized interest rates for 'risky' borrowers, whose own credit ratings would have rendered loan approval impossible or would have at least resulted in an interest rate being offered that was commesurate with the loan's elevated risk of default. Well guess what taxpayers, it's now time to make good on those guarantees !



I make this prediction: Obama will try harder than Bush ever did or could.

When the government 'tries harder' that's reason to worry. The perennial problem is that the gov't starts out with supposedly 'well intentioned' reasons for meddling in the economy. In the process the gov't creates moral hazards and free market distortions. The private sector then adapts to take advantage of those moral hazards and free market distortions. And you wind up with a real world economic situation which is far different than that which the gov't meddlers originally intended.

Obama has already gone on record advocating more such moral hazards and free market distortions be created.

threlayer
11-29-2008, 09:18 PM
'Social Engineering' also is what the finance companies were doing by making loans available to people who were taking very big risks. And being stupid is what those people were doing by following the Pied Pipers; I'll bet that most of them were pretty well ignorant of what traps they were walking into. (Not talkling about the flippers who knew they were taking risks in their investments.) 'Social Engineering' also applies to all the finance people who were inventing these risky games. They got rewarded for it anbd now we all have to pay for their quasi-criminal activity. Many people are to blame, not just the government.

Melonie
11-29-2008, 10:11 PM
'Social Engineering' also is what the finance companies were doing by making loans available to people who were taking very big risks

perhaps they were acting as agents of 'social engineering' ... by fronting for Fannie and Freddie. But as independent businesses, there is simply no way that finance companies would have made these 'risky' loans without gov't policy having provided a ready means for them to 'pass on the risk' while keeping the profit. A wonderful example of gov't created moral hazard. If you wish to explore further 'proof' just look at the loan criteria which existed prior to the HUD mandate and Fannie / Freddie openly soliciting low income inner city mortgage loans for resale.

threlayer
11-30-2008, 11:13 AM
^^ These businesses likely had people at the helm who were more interested in their own wealth than corporate responsibility, so they encouraged their companies to follow policies that increased their own bottom line and yet somehow the apparent risk was made acceptable to their boards. I believe the whole lot of them were borderline crooks. I know you'd rather believe the government was the crook, but, Republicanism aside, the people making these risky casino games with company assets were the business leaders.

Melonie
11-30-2008, 01:04 PM
^^^ then why didn't those same financial institutions choose to make such 'risky' loans BEFORE the Clinton administration HUD directive that Fannie and Freddie must start 'buying' mortgages, despite their 'risky' nature, in order to increase the percentage of low income / minority home ownership ? The same profitability would have been there, but the 'risk' would have had to have been borne by the financial institutions themselves and not the federal government via Freddie and Fannie !

threlayer
12-01-2008, 01:19 PM
Because they used that as an opportunity to find new ways to exploit. Eventually the risk amelioration proved not to be so predictable as they had hoped.