Monday, September 29, 2008

Credit Chaos

Lots of people talking about the current mess are lawyers, politicians, and people with no credentials other than having a radio show. I really want to hear from economics and finance specialists on this subject, especially regarding the consequences of not bailing out these corporations.

I've found a couple of good collections of links I want to share with you:

"What the $700 Billion Proposal Means for You" is an article from Motley Fool, an investment website.

Culture 11 brings us "5 Easy Pieces" on the economy.

Also, Investor's Business Daily shares some of the history of this mess: "The Real Culprits In This Meltdown"

Finally, here's a little video history courtesy of Fox News (I know, not exactly neutral):

(Click here to view this at YouTube. HT: Verum Serum)


Vinny said...

I understand that the Democrats encouraged lending in poorer areas that the banks did not see as profitable, however, it seems to me that it takes a complete suspension of credulity to believe that this was the primary cause of the present crisis.

Businesses are upon occasion forced to enter unprofitable transactions to satisfy some government regulation, but when this occurs, any business executive with an ounce of sense is going to enter the absolute minimum number of transactions necessary to satisfy the regulatory requirements. Sub-prime lending could not have reached the levels it did without financial institutions being convinced that there was big money to be made.

The poor management of Fannie Mae and Freddie Mac certainly aggravated the crisis, but the foolish belief that ever increasing housing prices would bail out reckless borrowing and lending decisions infected the entire financial system and it was believed just as firmly by the financial wizards on Wall Street as it was by the politicians.

ChrisB said...

I'll agree that the cause of this mess goes deeper than just subprime mortgage requirements (greed, for one), but that is a huge part of it.

Another piece is those who bought the "packaged" securities without considering the high risk mortgages. A lot of managers bought these things without sufficient due diligence. These are, after all, many of the same people who were heavily invested in Enron et al. People like to buy what's hot and too often don't think about what they're doing.

You also can't ignore the oil-related component here. Though this might have happened eventually anyway, this was almost certainly propelled by the rise in fuel costs that made living so much more expensive. If gas was still $1.35/gal, a lot more people would still be able to pay their ARM.

I think the take home message is that neither party is innocent in this mess and that we're asking government to fix what government broke (or at least helped) -- and all that may imply.

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