President Obama was thrown softballs tonight from his predetermined list of questioners that included Politico, Ebony, and the French Press Association, but excluded such prominent papers as the NY Times, Wall Street Journal, or Washington Post as well as all other economic journals or newspapers. Do you think he was afraid of a question from the experts? He also compared peace in Ireland to hope for the Middle East and in my estimation is no better a speaker than President Bush was in an unscripted setting.
I also promised a description of how we got into our present problem. In our complex society their is no simple answer to the whole question. But one very large chunk of the mess came from sub-prime mortgages, which were handed out to unqualified individuals so that they could own homes for the sake of fairness. The federal governmnet forced mortgage companies to dispense these loans and now is using taxpayer money to attempt to fix the problem. They are also wagering that these bad mortgages will go up in value, but if not then it will the taxpayer that will have lost out by having their money spent in vain. Nor does it solve the basic problem of the government being the cause of the present recession. Government officials need to learn that they have more often then not been the cause of economic disaster, while in times when cooler heads prevailed, such as 1921, the government left a recession alone and the result was a decade of some of the greatest prosperity in American history.
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The Fed gov didn't force mortgage companies to dispense the sub-prime loans. It pressured them to not use race as an indicator for loan acceptance.
ReplyDeleteMaybe the mortgage companies knee-jerked and started handing out loans to unworthy customers... or maybe the mortgage companies understood they could increase their on-the-book assets by a wide margin, therefore increasing their worth as a company... I think it's probably a little of both.
Mortgage companies, I believe beginning with Fannie and Freddie, had to meet certain quotas for minorities or face federal fines. The problem was that there were not enough minorities that were credit worthy and so they had to lower the standards in order to meet the government's requirement.
ReplyDeleteIt didn't seem as if companies were jumping at the bit to hand out high risk loans, but I think you are right in that the companies took the risk of jumping in head long once they had to do it. So I still think that this is a problem that wouldn't have occurred without government intervention and now they are using our money to fix a problem they started.
Just an additional comment to add here. I found out today that the specific way the government pushed the banks into sub-prime mortgages was by threatening not to approve mergers, buyouts, the opening of new branches, etc. if banks did not show equal lending without regard to income, neighborhood, race, etc.
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