Are Banks to Blame for the Financial Crisis?

The following is a rant on the banks that helped to cause the mortgage crisis resulting in the TARP debacle and my reply to the rant. It is a reply to a comment I made and one other made on a Facebook post. I have not included the previous comments and have replied to this one point by point. My comments are in italics and red.

The deregulation started with Reagan and continued, YES, through Clinton and Bush.  (LOVE LOVE LOVE that you tried to leave Bush’s 8 destructive years out of that equation!)

Generality: no substance to back up the claim of 8 destructive years. Though many on the so-called right were not happy about the Republican congress and the President taking spending to new levels.

They wanted families who didn’t have much money to have a chance at the American dream. Their political pockets were also being lined by (as were Obama’s) the Wall Street ghouls who went lower than even the gov’t thought they could go by giving out gigantic aka “toxic” loans for enormous bonuses.

You’re reading too many left-wing Blogs. I remember the banks being accused of “red lining”. I remember congressional hearing by these well-intentioned politicos (and I do believe the general notion of getting people into homes was, at least in it’s inception…well intentioned.) The trouble is, statists are not willing to leave markets alone and cannot resist tampering with them. Banks were made the enemy and pilloried by the politicos for not giving loans to people who could not afford them.

The gov’t wanted to make acquiring a loan easier for middle and lower income people.

There is NO enumerated power for the government to do this and government tampering with markets ALWAYS has calamitous consequences.

Since there was no cap on how MUCH those people could borrow, and the bankers got bonuses based on how big the loans were, with NO blow-back for foreclosures when the people realized they couldn’t afford it OR weren’t aware they’d been given a sub-prime nightmare (stupid, I agree), the unregulated industry went mad lending money they didn’t have a prayer of getting back.

It was much worse than that. The politicos made it EASY for the banks to do this and encouraged them to do it.

In prior times a bank kept their loans in-house and serviced them (collected the payments and up dated the paperwork). In this way the banks had every incentive to only loan out money to those they had confidence would pay it back. But this was too slow for the politicians. Fanny Mae and Freddy Mac were tasked to buy these loans and have the banks service them. In this way the money could again be loaned out. (The executives of these quasi-government entities also took millions in bonuses for their part in this fiasco) It also took away ANY responsibility the bank had to ensure that they were loaning to responsible people. Once this ball got rolling, there was no stopping it. The politicians were getting what they wanted. Warnings from the Bush administration were ignored by Dodd and Frank who were over the committees that were supposed to provide oversight of these programs. Franks was still in denial on the dangers of this free-for-all right up to the time it all came crashing down. 

Why should they care when they knew they were “too big” for the feds to allow them to fail? This is NOT about housing “cycles” or a fickle market. The housing crisis was induced by greed, pure and simple.

I don’t disagree with the above paragraph BUT this would not and could not have happened had the free market been allowed to function. It was (again) government intrusion into this market, no matter how well intentioned (and I use that term advisedly as this turned into another way for government to buy votes of lower-income people.) The banks may be greedy for money but the politicians are greedy for votes and protecting their cushy jobs.

See my essay https://politicallyempowered.wordpress.com/2011/01/06/statist-theory-%E2%80%9Cvice-is-nice-but-political-incest-is-best%E2%80%9D/

See also: https://politicallyempowered.wordpress.com/2012/01/11/wrong-whys-and-universal-laws/

What the gov’t did was well-intentioned.

Damn government and their “good intentions”.  The road to hell is paved with them.

What the lenders did was soulless. If there had been regulation in place, for instance a specific percentage a borrower had to pay down and a SANE loan amount that jived with that, the housing market wouldn’t have gone off a cliff. Of COURSE housing prices rise and fall.

I addressed this above but that is the trouble with the government interfering into a market; they then have to anticipate every unanticipated consequence, which is IMPOSSIBLE TO DO. They then turn into micro-managers and eventually kill off the market completely. As for the bankers, they were doing exactly what was asked of them. They would have again been pilloried by congress had they not.

But what happened here, what happened on Bush’s watch, was catastrophic, and a direct result of financial insatiability. And NO, I do not put the blame on Dubya. Many presidents and congressmen should have seen the problem with allowing the banks to make their own rules on this. But when we, the people, put them in the position to have to raise such ungodly amounts of money to get elected, AND we allow our supreme court to put NO restrictions on how much corps can donate to campaigns… this is all inevitable.

The above statement is getting into another area but I will go ahead and address it. Like most statists your cause and effect is inverted. The federal government power is limited by the Constitution. Or at least it was supposed to be. What you have now is the congress and executive branch can and will do just about anything they want under the guise of the commerce clause and to a lesser extent “providing for the general welfare”.

If the feds would stick to their enumerated powers as given in the Constitution, there would mostly be no need for lobbyist and generous donations to politicians. I would point out that unions have not had any restrictions on their donations to politicos resulting in very favorable legislation in favor of unions over the years which is, by the way, another area they have no business legislating in.

And WE have allowed it. And judging from the corporate medias reaction to the protesters and their message, WE are going to keep allowing it.

And ANOTHER thing – I’m tired of hearing that we need to protect the profits these people. The sale of luxury items is greater than it has EVER been in the this country while we hover at 9% unemployment.

The Olson twins sell a purse that costs $38,000 — and it sells out every time they make more. Mitt Romney just gutted a $12 million dollar home to EXPAND its size four times larger. It is a LIE that these people are suffering under gov’t rules and that that’s what’s keeping them from hiring more employees.

Again cause and effect is inverted. The rich will not give up their life style because of government regulation. Many however, will cut back on those things that may not be that important to them. Take for example the brilliant idea to put a luxury tax on yachts. Sounds good, extra revenue Whoohoo! Except those who might have bought a boat didn’t, resulting in Yacht Company’s market slowing down and who then had to lay off workers. And, oh yeah, revenue did not increase to the government. Who suffered?

Other of the rich will cut back on investments; starving corporations of capital, slowing the economy further… increasing unemployment. Who suffers?

What do you think is done with corporate profits? Much of this is paid to shareholders as dividends. Churches, retired people, people saving for their kids college. The rest goes into expanding their business, which results in more employment and making the “pie” bigger (for those who are productive) to share in. Despite the millions paid to executives in bonuses, this is a miniscule amount by comparison.

They have worked to get the public so desperate for jobs that we are all wearing 5 hats for less pay, and that’s IF they haven’t moved our job to China or India where they can basically have slaves. This makes me boil.

“They?” They work to get the public so desperate? As if corporation lay off workers with a maniacal laugh. That being said however, it should make you boil. But that wrath is directed at the wrong target.

Why would anyone want to move jobs to China or India? Corporations have a fiduciary duty to their shareholders. They do NOT exist to provide jobs! They exist to produce products to sell at profit and increase value to their shareholder.

If it is more profitable to have work outsourced to India or China that is what they will do. Corporations are not evil for doing this. It is not malicious and they are not trying to do in the workingman.

The main reasons companies outsource jobs overseas is:
1. Income and other taxes
2. Regulations

Both are the provinces of government. If taxes are lowered and regulations made less onerous that will flood jobs back to the country in voluminous amounts.

And YES, my president should do hurt ’em and hurt ’em hard.

Ah…the true statist heart and intention. Stalinist even.

“Squeeze’em until they bleed. Make them pay for providing jobs, make them pay for taking them away. Make them pay until they go out of business” (and then moan that the unemployment rate is 10%, 15%, 20%.) “How dare these dirty businesses do that to our poor working men. Let’s squeeze the others more, more, more to provide for those that are unemployed.”

I know this rebuttal will have no effect on a statist…they are bullies by nature. A statist believes the government is the answer and the more control government has the better. This is where the real evil is: belief that the government is omniscient and omnipotent and is the source of productive endeavor — even though this flies in the face of all American history. Before government can give anything, it must first take it from someone who produced it.

For additional reading on this, see my essay: https://politicallyempowered.wordpress.com/2012/01/11/wrong-whys-and-universal-laws/

“In my many years I have come to the conclusion that one useless man is a shame, two is a law firm and three or more is a congress.” John Adams
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