We've raised a generation of people who don't believe they can help themselves. This turn to Western European values makes me sick to my stomach.
To quote McCain, this financial crisis was due to the greed on wall street. If they had regualted the industry better rather than let "the market forces" regualte it, we wouldn't be in this situation. The philosophy is more, leave us alone and let us do it our way. And if we don't do it right, you better bail us out of the whole economy is going to fail.
McCain has it completely wrong. The real issue was too much government interference rather than not enough.
I'm going to greatly oversimplify the mortgage industry for sake of conversation... Imagine that the government was completely removed from the mortgage industry. Let's say that a bank was 100% responsible for any loan they made, for the life of the loan. Do you think we would have had a sub-prime lending problem? Most predatory lending would be eliminated because it would NOT be in the lender's best interest to con a borrower into a mortgage that they might default on. The lender would be extremely concerned with the risk of default, and would be forced to complete their due diligence before they loaned any money. As it is now, the government has made pushes and incentives for lenders to loan to borrowers that should not be purchasing a home, and this is how the sub-prime issue snowballed. Where is the government regulation needed in this case? IMO, the solution is holding investors, lenders, wall street, etc to be 100% responsible for their actions, not getting the government involved with regulations that can then serve as a crutch or fallback for the investors.
This is all true, as far as it goes. Where government enters the picture is the division between conservative and progressive philosophy. In your scenario, banks become so conservative about making loans, that a great deal of people who can afford mortgages but can't establish strong credit ratings, often due to the issues of poverty in their past, are unable to secure loans. The government established Fannie Mae and Freddie Mac as a recourse for such people, offering to guarantee their loans so that banks would lend to them. However, such guarantees start to tip things the other way...banks are less at risk, so are more interested in offering loans, even to people who can't really afford mortgages. And thus you get predatory banking, which government oversight may be needed to combat. It's absolutely true that things take care of themselves and are simpler if government stays entirely out of it. However, it also leaves a lot of people out in the cold...and these aren't people who can't afford home ownership and are being granted it anyway, as though it is a right...these are people who started poor but have worked hard to become economically strong enough to be able to afford home ownership. So, it boils down to whether leaving such people out in the cold is an acceptable cost to making the system simpler and more "natural" (i.e. free of government's influence). I know that plenty of conservatives believe it is. Many progressives, including me, don't believe it is.
I dunno, it seems to me that laissez-faire capitalism is always extraordinarily volatile. You get booming upswings (when nobody complains or wants regulation) and then you get disastrous crashes (when all of a sudden everyone wants regulation and insists they always have wanted it). This has been going on since at least 1819 in the US. It's just a trade-off: more regulation = lower peaks, shallower valleys = France, apparently? (There is a long regulatory/mixed-state tradition in American politics as well, you know...) Or: less regulation = higher highs, lower lows = greater ideological coherence, probably I guess I just get frustrated when people are huge boosters of the free market when things are good and then suddenly become socialists when times are bad. Privatizing profits and socializing loss = bullshit in my book. Stepping Razor PS Glad I found you guys again...
I guess I am a believer that IF a person can truly afford a home, they will be able to secure the loan, even without the government involved. Credit rating isn't the only aspect of qualifying for a loan, and if there was sufficient evidence that they could afford the loan, some lender would make it. For every piece of real-estate I have bought, a pretty complete check of my assets and income has been done. I feel that this approach has a much better chance of meeting the "correct" number of homeowners. I just don't see that the getting the government involved would help. I am very far from believing that the government would be able to better decide who can and can't afford homes than an entire market of independent lenders.
Hey SR, glad you made it over. I actually don't see a problem with "booming upswings" and "disasterous crashes". You mention that we have seen them since at least 1819. Seems to me that this kind of shows the robustness of such a market, considering the long-term average growth for the last 200 years. I wonder if the experience of "booming upswings" is somewhat responsible for keeping people inspired and innovative, trying for the next one.
Credit rating, to my knowledge, is one of the biggest aspects in terms of the bank's risk-assessment of a loan. Independent lenders will do the best at maximizing the efficiency of their institutions. Some amount of that efficiency is turning down risk. There are a great number of people who may profile as risk, but can afford the house. Giving them the chance may not be maximally efficient, as some risks really will burn you, but is more compassionate as society. So, really, I'm not arguing that government does risk-assessment "better." I'm saying government provides some measure of tax-payer assistance to those who are deserving of some help, and I agree with that aid.
Yeah, as I said, it's just a tradeoff. I think you're clearly right that booming upswings are one motivator of innovation and growth. (I myself am working like mad at a Silicon Valley startup, dreaming of stock options turning into gold, so I certainly see that.) I don't think that booms (or, more pejoratively, bubbles) are the only driver of innovation and growth, though. Almost all major technological advances in American history -- from the Erie Canal to the railroads to major medical breakthroughs to the internet -- have been underwritten, to a large degree, by the government. (France again?) Although of course the private sector has always been instrumental in improving and monetizing those advances. So anyways, I don't necessarily object to the boom/bust cycle. (Although I think if you look at American history you will see that the busts in laissez-faire periods really end up being intolerable, and almost everyone alive during those periods -- ordinary folks and major businesspeople alike -- ends up clamoring for government intervention into the economy, in one form or another... Karl Marx was wrong about pretty much everything *except* that laissez-faire really does tend to destroy itself.) I just object to people wanting to have their cake and eat it too... you can have dizzying booms/bubbles or you can have stability, but you really can't have both. For me, privatizing profit and socializing loss is both moral hazard and class warfare waged by the privileged against the less privileged. It also tends to end up as the present robbing the future through the government assumption of ridiculous amounts of debt. I'm not sure even the French would do that SR
I don't know claim to know hey the bank's characterize the risk. But, I do know that when I bought my first piece of real estate, I had only gotten my first credit card about 1 month before, and I could not get a cell phone plan without pre-paying the first 6 months. I had almost zero credit history, but since I could prove my assets and income, and was putting about 45% down, I didn't have too much trouble getting a loan. Gotcha. Well, not much hope in agreeing on a philosophical difference of opinion.
I'm not going to pretend I know this area, clearly many posters have a much better understanding of this issue than me. I do love SR's comment: Privatizing profits and socializing loss = bullshit in my book. (Agreed) So my contribution is a phrase we used before this whole mortgage thing exploded. I used to joke: the only people who can get a loan are the ones who don't need a loan. Maybe I shuoldn't have been so cynical about that idea.
The dismal state of affairs that these huge busts created (and create) led directly to Marx's critique of capitalism and indirectly led to much of the strife in the twentieth century. Where do you think most of Dickens' works drew their inspiration from? Fact of the matter is that Adam Smith's conception of political economy rested on the notion of perfect competition where the holders of capital and laborers operate on a somewhat level playing field and exert pressure on each other to create equilibrium. The reason the system has never quite worked out the way envisioned by Smith is that in times of downturn the holder's of capital are encouraged to shutter plants, layoff workers, and weather the storm; the problem is that an individual capitalist usually has far more reserves in terms of savings to rely on, while the labor market does not exist as a monolith, and each indvidual in the labor force has far less power to weather these downturns. So take your "long-term, average growth" and tell that to a depression era laborer "buck up and put on a happy face, because good times are only six months to a year away, you'll be able to feed your family and pay your rent then." I'm not a socialist, by any stretch of the imagination and I do think that of all the ways to organize an economy, capitalism is by far the best system people have been able to come up with yet in terms of efficiency -- as that's the real promise of free markets, the efficient distribution of resources, as for equitable distribution of resources, free market economics is still working on that.
