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Thread: unintended (but predicted) consequences of 'bailout' plan

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    Default unintended (but predicted) consequences of 'bailout' plan

    (snip)"Bailout Plan Drives Up Mortgage Rates


    As we have noted often, in tightly coupled systems like our modern financial regime, efforts to contain risk typically make matters worse. As Richard Bookstaber explained in his Demon of Our Own Design, there are two reasons for this phenomenon. First is that processes move through a series of steps that cannot be interrupted, so certain interventions are impossible short of shutting down the entire system (or a fundamental redesign). Second is that any intervention cannot be localized. It inevitably produces other effects that are at best unintended, and generally not neutral.

    The latest illustration: one of the big motivations behind the latest "let's save the banks" initiative was (first) to get interbank lending going, but a second, important goal was to facilitate mortgage lending, with the hope that volumes would improve, and even better yet, rates.

    Unfortunately, in another example of unintended consequences, the improvement in interbank lending in occurring at a glacial pace, while mortgage rates went in the wrong direction, and quickly to boot.

    From the Financial Times:

    US mortgage rates have soared this week in an unexpected reaction to the latest Treasury financial rescue plan, which has prompted investors to buy bank debt and sell bonds backed by home loans.

    Interest rates on 30-year fixed-rate mortgages, as measured by Bankrate.com, rose to 6.38 per cent on Thursday from 5.87 per cent last week - before the Treasury said on Tuesday that it would take equity stakes in banks and guarantee new bank debt.

    Investors responded to the new guarantee by buying existing bank debt, reckoning it could be refinanced with the new government-supported bonds. As they did so, they sold lower-yielding paper issued by Fannie Mae and Freddie Mac, the mortgage companies put into government conservatorship last month....

    Fannie and Freddie had been taken into conservatorship by their regulator to help keep mortgage rates low and – it was hoped – revive the housing market.

    However, the opposite is now happening, making it more difficult for struggling homeowners to refinance their mortgages and for prospective homebuyers to get financing. As a result, house prices may fall further before they find a bottom...
    (snip)

    from

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    yeap, so much for the "homeowner bailout".

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    well the 'irresponsible' homeowners who already bought houses that they could not afford WILL get bailed out ... at the expense of both US taxpayers and future US home buyers. This arguably constitutes a double whammy on hopeful homeowners though ... especially those who are self-employed or are otherwise earning money by methods that are difficult to prove.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    An interesting aside to this is the lack of thawing of lending between banks due to
    a fear of the credit card defaults sure to hit them within a few months. Plus, of course, the yet to be felt Alt A instruments which will reset heavily the first part of
    '09.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    ^^^ well, so far at least, there have been no discussions about 'bailing out' people with huge and unpayable credit card balances, with huge and unpayable 'jumbo' Alt-A mortgages on McMansions etc.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    Please, please, please. I really hope that the government doesn't try to bail out credit card owners. My family is the perfect example of why the government should just let some people sink. After the 3rd bankruptcy, my mother applied for 3 more credit cards, which she uses for "emergencies" (like christmas). Anywho, people need to be held accountable for their decisions. If we (the taxpayers) have to keep bailing out those who make poor financial decisions, what will we have left to show for all of our hard work? As a small business owner, I already pay over 30% in taxes. And that's not including the 8% sales tax that I'm responsible for.

    Has anyone read Atlas Shrugged, by Ayn Rand? If not, it's long, but a great read.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    I have made several posts regarding Ayn Rand's political-socio-economic viewpoints ... which are best illustrated by her books 'Atlas Shrugged' and 'The Fountainhead'. However, that sort of content arguably fails the 50% direct economic content test for posting in Dollar Den - thus such posts can be found in the Member's Area.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    The intitial housing bubble was caused by mortgage interest rates that were too low. This led to run-away build/buy/invest incentives for the market. Then the financial houses started finding ways, including untested ones, to profit from this with minimizing their individual risks.

    In the long run 'somone' will have to pay for the lost market values.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: unintended (but predicted) consequences of 'bailout' plan

    Quote Originally Posted by Butrcup98 View Post
    ...people need to be held accountable for their decisions. If we (the taxpayers) have to keep bailing out those who make poor financial decisions, what will we have left to show for all of our hard work? As a small business owner, I already pay over 30% in taxes. And that's not including the 8% sales tax that I'm responsible for.
    I agree that those responsible for this mess should pay the most for their 'mistakes.' Eventually.

    I liken this to a ship where you have been shanghied and it develops a big leak. Well, maybe the kidnappers who shanghied you and their ship should be punished, maybe even sunk. But you are still on it and you have have to help save the ship before you drown too. Let's get to port before you scuttle their ship!

    BTW, (non-proprietorship) business taxes at 30% are generally under personal tax rates. Mine is typically around 40% state and fed combined. Fortunately fort you state sales taxes are pass-thru and you, as an agent of the state, are obligated to collect them from your customers; they are not part of your income in any way.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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