03-06-2008, 10:35 AM
My Econ 101 professor said all markets are confidence games. Lots of confidence gives you rising prices and equity values. Lack of confidence brings them down. The drop in real estate and stock prices may have already passed beyond the correction phase into something much worse. We'll see.
Meanwhile, Mr. Bernanke, our Federal Reserve chief is not exactly showing the free-market instincts that might encourage confidence. He actually suggested a few days ago that the banks write down the loan balances of homeowners having trouble keeping up their house payments. Talk about rewarding people for making poor choices! Such a policy could easily result in the need for a bailout of the whole banking system far in excess of the cost of the current crunch. Yes, there were some crooked mortgage originators out there, and many did not make too much of an effort to make sure their customers were aware of the downside to those exotic loans, but what happened to personal responsibility? If you don't understand the contract you are signing, either don't sign it or get some help with it.
I have seen some of these folks expecting rescue in TV interviews. One couple got a very sympathetic take from the reporter despite saying that they knew the payment was going up 30 to 40% after two years. How did they think they were going to deal with the increase? Well, the value was going to keep rising and they would borrow against the equity or refinance to stay afloat. Duhhhhhh.
I hate to see people lose their homes, but except in cases of outright legal fraud, we need to be careful about rescues. Otherwise, there will be no incentive for financial responsibility.
Cheers,
Jerry
Meanwhile, Mr. Bernanke, our Federal Reserve chief is not exactly showing the free-market instincts that might encourage confidence. He actually suggested a few days ago that the banks write down the loan balances of homeowners having trouble keeping up their house payments. Talk about rewarding people for making poor choices! Such a policy could easily result in the need for a bailout of the whole banking system far in excess of the cost of the current crunch. Yes, there were some crooked mortgage originators out there, and many did not make too much of an effort to make sure their customers were aware of the downside to those exotic loans, but what happened to personal responsibility? If you don't understand the contract you are signing, either don't sign it or get some help with it.
I have seen some of these folks expecting rescue in TV interviews. One couple got a very sympathetic take from the reporter despite saying that they knew the payment was going up 30 to 40% after two years. How did they think they were going to deal with the increase? Well, the value was going to keep rising and they would borrow against the equity or refinance to stay afloat. Duhhhhhh.
I hate to see people lose their homes, but except in cases of outright legal fraud, we need to be careful about rescues. Otherwise, there will be no incentive for financial responsibility.
Cheers,
Jerry