Posted by: L | August 11, 2007

Financial flings: No Fannie bail-out

Fox‘s Cavuto Report, Saturday morning, on the late news from Friday — no bail out of homeowners by Fannie Mae.

As usual, critics are muddying this with all sorts of irrelevant criteria — i.e. corporate tax cuts. Not that I think anyone should be cutting taxes for anyone — since we are weighed down with debt. But I don’t know the details about that issue — only that it is irrelevant to the bailout question unless you like class warfare in principle and think taxcutting is the same thing as debt forgiveness. It’s not. But don’t hold your breath for actual thinking. The demagogues will jump out on both sides.

A bunch of people (middle and upperclass for the most part, many quite young), acting in groups, who speculated in second homes leveraged to the hilt and bought on spec to flip, who were so greedy they couldn’t quit doing it when every paper in the country was screaming bubble, are now crying, ‘cos, hey, their Miami condo bought with no money down and a 50 year mortgage which they hoped would triple in value before the builders had finished, is not selling like they hoped it would.

Tough. Go get some real work.

On the other hand, I didn’t notice any weeping for the past two decades for people who scrimped and saved on small salaries, who owned no plastic and stuck their savings in the bank, hoping to be free some day to do the things they loved — only to find that thanks to money creation and almost nothing in interest, while the rest of the country lived high on the hog on faux (borrowed) money and speculation, their real savings had eroded steadily. That theft from the work-and-save classes by the borrow- and- don’t-pay- back classes (runs the gamut of the rich, the middleclass, the poor, banks, corporations and the government) is the real financial crime of the past decade…

Still, I agree, there were a lot of naive and ignorant people (e.g. single mothers without the time to follow the news) who panicked because they thought they were going to be priced out of the market and were scared into buying by unethical sellers and bankers.

I feel for them.

Caveat emptor doesn’t mean that you can’t hold people to professional standards of ethics.

But a government bail out with taxpayer money by Fannie isn’t the solution. That would be penalizing good decision-makers for bad decision making and rotten ethics on the part of subprime lenders. This may be framed in public as a bailout out of pitiful poor homeowners…. but.the reality is that bailing out the mortgage holders is simply a way of bailing out the banks which loaned the money. And created mortgage-backed securities, then sliced, diced and repackaged them with the risk so separated from the reward that no one had any idea what the derived securities really represented. These MBSs were then spread out from Hong Kong to San Francisco in bonds held by mutual funds, pension funds, hedge name it…..and they were given mighty high falutin’ ratings by the rating companies — Triple A, in fact.

Now, the Triple A turns out to have been junk a la Michael Milkin….

So, the bail out of the mortgage holders ultimately ends up being a bail out of guess who?

Banks and hedge funds…..who certainly knew better.

Sounds to me like a rerun of the bail out of investors in the Mexican crisis…or the bail out of bond holders in Russia….or the bail out of banks in the Asian crisis….or….it goes on and on..

My view: Bring out the lawyers. Encourage people who were actually snookered to join class-action suits against the exact institutions responsible (no socializing of the costs of this speculation spree via Fanny, please).

A bunch of institutions broke long-standing professional standards to turn into loan sharks. A little surgery to put risk and reward back together is in order. So, penalize the banks, brokers, newspapers, government officials and middlemen who cheered this on knowingly.

They’re crooks.

If the borrowers did wrong themselves, i.e. lied on their loan documents, though, they really should have known better. They’re crooks, too, petty crooks.

Sorry – you can’t blame that on naivety or Ben Bernanke.

And then, let’s get a public hearing about money creation at the Federal Reserve, and just how the Fed Reserve, Treasury, and the big banks work together.. …

Little crooks and bigger crooks — let them all go down together.



  1. If the bewildered working stiffs who were played for fools by much better educated bankers, brokers, lawyers, & realtors are more bewildered and bankrupted than ever, they have powerful legal resources and rights. They can join class action lawsuits engineered by caring and benevolent elitist lawyers. These class actions will be held in public courtrooms (paid by public funds). It will undo the horrendous wrongs perpetrated by the original bamboozling elitists. QED.

  2. No all lawyers are elitist.
    There are plenty of public interest lawyers.
    Penalties could apply to.

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