I don't see how regulation could have stopped the current housing meltdown.
Joe Street goes to GreedyBank to borrow money for a home.
GreedyBank fakes paperwork and qualifies Joe beyond his means. To put icing on the cake, GreedyBank lets Joe get away with a 0% down, interest-only option ARM. Joe plunges in, the prospect of owning his dream home blinding him to financial caution.
GreedyBank sells its loans to BiggerGreedyBank. BiggerGreedyBank plunges in, the prospect of profit blinding them to the shaky loan documentation. The loans are sliced, diced, and combined with others, some also faked, others actually decent. Either way, it all becomes part of a giant financial soup.
House values fall, the ARM resets, costs rise, Joe can no longer make his payments.
Multiply across the country.
GreedyBank goes out of business.
BiggerGreedyBank goes out of business.
So where does government regulation come into play here? There are already credit rules and all banks have a risk policy. Sure, you could impose additional leverage ratios, liquidity percentages, all sorts of requirements. But it doesn't matter how good your rules and policies are, if they get broken all the time. What we need is enforcement of existing regulation. And this enforcement is already starting to happen. Investors are wary, lenders are stricter, borrowers are skeptical. It's painful, but it's the economy fixing itself.
In the end, a whole series of bad decisions led to this crisis. No regulation has ever stopped those before.
September 18, 2008
September 15, 2008
That Loud Sucking Sound...
...is the US financial sector. I'm reminded of Joan D. Vinge's The Snow Queen, where "May you live in interesting times" is actually a curse on one of the worlds.
It's amazing how these legendary firms are collapsing. The big commercial banks are getting bigger, and I'm sure right now, everyone is glad they are around to pick up the pieces. But I wonder what will happen once all the consolidation is over and we're stuck with these enormous entities and their hands in everyone's cookie jar?
Definitely interesting times.
It's amazing how these legendary firms are collapsing. The big commercial banks are getting bigger, and I'm sure right now, everyone is glad they are around to pick up the pieces. But I wonder what will happen once all the consolidation is over and we're stuck with these enormous entities and their hands in everyone's cookie jar?
Definitely interesting times.
September 7, 2008
Guess Who Owns Your Mortgage?!
Finally, the Treasury does something intelligent. Dismissing the top executives at Fannie and Freddie. Suspension of dividends. Demotion of current stock to junior status. Reduction of mortgage backed holdings in the next 10 years. Infusion of cash to maintain liquidity.
It's a start. As long as lenders return to the high credit standards they should have been using all along (example guidelines shown here in painful detail), I don't even mind spending my precious tax dollars to help someone buy a home. There are plenty of hard working, deserving people who should be homeowners, if only to reduce my share of property taxes :-P
But seriously, one needs to finish what is started. This should be run as vigorously and relentlessly as a Chap 11 Reorg. Cuts need to be made, heads have to roll, and ultimately, the key lies with a single question: should these enterprises become completely nationalized or should the assets be sold to private investors? Either way, it's pretty clear the old framework is dead. I just hope our government is able to carry out a proper burial.
It's a start. As long as lenders return to the high credit standards they should have been using all along (example guidelines shown here in painful detail), I don't even mind spending my precious tax dollars to help someone buy a home. There are plenty of hard working, deserving people who should be homeowners, if only to reduce my share of property taxes :-P
But seriously, one needs to finish what is started. This should be run as vigorously and relentlessly as a Chap 11 Reorg. Cuts need to be made, heads have to roll, and ultimately, the key lies with a single question: should these enterprises become completely nationalized or should the assets be sold to private investors? Either way, it's pretty clear the old framework is dead. I just hope our government is able to carry out a proper burial.
September 5, 2008
No Day But Today
Rent is leaving broadway. This weekend will be final curtain call in the Nederlander for Mark, Roger, Mimi and company.
After 12 years, the show inevitably became outdated. But I'm still amazingly fond of the music and characters, and some themes like hope and rebellion will never grow old. Just look at Spring Awakening picking up where Rent left off. Despite closing on broadway, I think it will continue to tour and be produced all over the world.
There's always a candle somewhere that needs lighting :)
After 12 years, the show inevitably became outdated. But I'm still amazingly fond of the music and characters, and some themes like hope and rebellion will never grow old. Just look at Spring Awakening picking up where Rent left off. Despite closing on broadway, I think it will continue to tour and be produced all over the world.
There's always a candle somewhere that needs lighting :)
September 1, 2008
Penguins Can't Fly!
Went to the New England Aquarium in Boston this weekend. I confirmed that penguins are still cute, jellyfish are still creepy, and looking a shark in the eye is still awesome.
Speaking of awesome, the CBLDF identified this for me:
It's by Ken Knudsen, who writes a book from the perspective of a disgruntled monkey. The monkey is male, but is named Jennifer. There are some anger issues.
Speaking of awesome, the CBLDF identified this for me:
It's by Ken Knudsen, who writes a book from the perspective of a disgruntled monkey. The monkey is male, but is named Jennifer. There are some anger issues.
Subscribe to:
Posts (Atom)