please explain the gov't bailout actions to me.

[dd74]

Originally Posted by Rick Lee

That's fine if French voters want it that way. Here, for a little longer at least, the gov't. doesn't tell investors they can't make bad decisions. Some risky decisions by investors actually pay off handsomely while making home ownership possible to people who would never qualify under French rules, but who, nonetheless, will probably turn out to be responsible homeowners. Government loans here are still far looser than the guidelines you mention in France and that has a political aspect to it. In this country, if FHA, VA and Fannie/Freddie were to adopt those French rules, there'd be howls of racism and discrimination from all corners. I'm not saying I agree with it. But the Americans here know that's how it would go. So we let the private sector run the show, while the gov't. guarantees certain types of loans designed to help those most likely to belong to a government-favored demographic - aka poor credit risk, low earner, minority, immigrant.

We did let the private sector run the show, at least with very little oversight. And look what happened! Even McCain calls the system "corrupt."

[Porsche-O-Phile]

A system that rewards the smart, savvy and bold will always be superior to one that rewards (or guarantees) equal wealth, return and privilege to people who are dumb, lazy and timid.

One system makes us stronger over time, the other makes us weaker and drags us collectively down. Think of it as economic Darwinism.

Nobody's saying that we should eliminate ALL programs (although that's an interesting debate too), rather that the "guarantees" should be minimal and special case - help those with disabilities, that are really in disadvantaged situations, victims of crimes, casualties of layoffs to get back on their feet, etc. All I'm saying is that the standard should be low and the government shouldn't see it as its NannyState duty to provide everything for everyone - which is ultimately where this stuff leads.

This is really just another one of a countless number of discussions trying to answer the question "what should be the role of government?" My response is "as little as possible, limited to the very narrow and specific roles outlined by the framers of our Constitution". We've gotten way, way, way too far removed from that.

How "...establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty..." has become misinterpreted to mean "give handouts to illegals, guarantee half-million-dollar luxury houses to $8-an-hour WalMart cashiers, allow 22-year-old waitresses to drive $40,000 SUVs and bail out any business we like with taxpayer money" is a mystery to me. It's a real reach and it's way far removed from the intentions of our framers.

Back to basics.

[Rick Lee]

Originally Posted by dd74

We did let the private sector run the show, at least with very little oversight. And look what happened! Even McCain calls the system "corrupt."

McCain wouldn't know the first thing about any kind of mortgage. Anyone running for office ain't the voice of reason when it comes to fixing financial problems. But fine, let the government get back into the game and regulate everything. Sure, it'll prevent another bubble, but will also kill homeownership growth. And you know the gov't. will then start making all kinds of exceptions for the grievance group members, while our tax dollars insure those loans.

[Zeke]

Guys, you are sliding down the political slippery slope. Read my question again each time before you reply or send this into the P&R deal. I'm looking for the economic side of this, not who to wag a finger at. (OK wag your finger at the economists )

As much as it is a PITA, this is either a quasi intellectual discussion or just more mud slinging. I guess we can't have both.

[dd74]

Originally Posted by Rick Lee

McCain wouldn't know the first thing about any kind of mortgage. Anyone running for office ain't the voice of reason when it comes to fixing financial problems. But fine, let the government get back into the game and regulate everything. Sure, it'll prevent another bubble, but will also kill homeownership growth. And you know the gov't. will then start making all kinds of exceptions for the grievance group members, while our tax dollars insure those loans.

Well, the same that were making millions off the bubbles, and are now broke, will become the indigent when regulation helps get them into a home. What comes around goes around, I guess...

[dd74]

In the case of AIG, they're huge. At one point, 1.1 trillion in assets. Insuring the subprime mortgages was what killed them as they had to pay out billions of defaults. The reason for the 85B loan from the U.S. Govt, was because no one else wanted to buy AIG's assets. Plus AIG was interwoven in almost every American investment imaginable. All those would have gone belly up if the government didn't come in to basically cover Joe Blow's portfolio.

[widebody911]

[RPKESQ]

Originally Posted by Rick Lee

That's fine if French voters want it that way. Here, for a little longer at least, the gov't. doesn't tell investors they can't make bad decisions. Some risky decisions by investors actually pay off handsomely while making home ownership possible to people who would never qualify under French rules, but who, nonetheless, will probably turn out to be responsible homeowners. Government loans here are still far looser than the guidelines you mention in France and that has a political aspect to it. In this country, if FHA, VA and Fannie/Freddie were to adopt those French rules, there'd be howls of racism and discrimination from all corners. I'm not saying I agree with it. But the Americans here know that's how it would go. So we let the private sector run the show, while the gov't. guarantees certain types of loans designed to help those most likely to belong to a government-favored demographic - aka poor credit risk, low earner, minority, immigrant.

Their will always be the howls of racism and discrimination from some sector. But a comprehensive policy of mandating small low income houses mixed with more upscale houses in every city has had very good success where it has been tried. Mixed race, mixed income housing is a solution that goes begging. Why? Is it possiblly based on the racism and discrimination that sounds like just an excuse from those excluded?

And I am very familar with the US policy of VA, FHA and FM/FM loan parameters. That is part and parcel of the problem that our elected government officals have built for us. This "promise them anything and give them nothing" is in its totallity a failing policy, the last 25 years illustrate that quite well. It is all politics and very little critical thinking and honesty.

I do agree with POP as to the accountability aspect. It is lacking in the US from the top down. Here is an example of personal accountability in France: You can pay for anything anywhere in France with a personal check (no ID required!). There is very, very little bounced check fraud in France. Why? Two reasons, 1) check fraud is severely punished by jail time, and 2) if you bounce a check in France your bank account is closed and you cannot open a bank account anywhere in any French based bank for 5 years. This too is a socialist type of control. But it is not bad.

In short, I am not saying the US is all bad and somewhere else is all good. Far from it. But I feel the US is much much better than the last 25 years have provided. We can do so much better than we have.

[911pcars]

Deregulation has allowed some market sectors to promote risky programs to sell the consumer. If the consumer is not savvy, their investment is at risk (e.g. typical banking and savings customer). This is where adequate consumer laws can prevent fraud and/or deception.

Deregulation, or the lack of adequate limits, combined with economic variables has resulted in this latest fiasco in the mortgage finance industry. The govt., in response to its effect on such a massive scale, steps in to limit the damage to the rest of the economy. The result; the govt. is now bailing out some of these lending institutions. In other case, institutions are bought out by larger fish. Meanwhile, consumers and investors are left with less than what they started with.

This cycle will repeat itself unless someone (the govt.?) places limits (regulations) on these companies. In other times, regulations were called laws and policy. Those that promote deregulation only have self-interest agendas in mind (maximum profit) - there's a fine line to keep both corporations and consumers safe and happy, but that line has to be drawn by neither of those parties. That leaves the govt. who is supposed to watch both their backs for the welfare of the country.

As long as the govt. provides bailouts, risk to these companies is minimized, especially for CEOs and CFOs who are allowed golden parachutes in spite of ignoring their fiduciary duties. I'd suggest jail time as suitable reimbursement. They use to do this when they held those responsible accountable for their actions or inactions.

Here's a list of govt. depts. whose responsibilities relate to the financial stability of this country. One would expect, with this number, they'd generate enough signals and alerts to congress and the administration. Maybe they did and were ignored.

http://www.answers.com/topic/public-finance-taxation-and-monetary-policy

<<
ORGANIZATION AND STRUCTURE
The organizations responsible for public finance, taxation, and monetary policy can be divided into two categories: government agencies and legislative committees. The various agencies and departments are primarily responsible for implementing policy measures.

The most important agencies are the Commerce Department, the Congressional Budget Office, the Council of Economic Advisors, the Federal Reserve System, the Internal Revenue Service, the Office of Management and Budget, Small Business Administration, the Treasury Department, and the U.S. Trade Representative. The most important legislative committees ......
>>

The Commerce Department.
The Congressional Budget Office.
The Council of Economic Advisors.
The Federal Reserve System.
The Internal Revenue Service.
The Office of Management and Budget.
The Small Business Administration.
The Treasury Department.
The U.S. Trade Representative.

The various legislative committees are responsible for setting economic policy through legislation. A brief discussion of each of the committees follows:

The House Banking, Finance, and Urban Affairs Committee.
The House Budget Committee.
The House Ways and Means Committee.
The Joint Economic Committee.
The Joint Taxation Committee.
The Senate Banking, Housing, and Urban Affairs Committee.
The Senate Budget Committee.
The Senate Finance Committee.

(Dept. description and responsibilities deleted for brevity. See the website for more info)

Sherwood