Wed Oct 19th, 2011 at 03:51:27 PM EST
I just posted this on both my blogs:
Adam Levitin posted a great piece on Credit Slips ripping on proposed "solutions" for the financial crisis (And yes, kiddies, regardless of the pablum they're shoveling your way, we're still in a crisis.). Basically, he compares these proposals to prescribing an aspirin to someone with a knife in his chest and then giving the aspirin to the attacker. First comment out of the box blames the mess on those evil, nasty borrowers. To quote the Interweb meme, "Don't know if trolling or just stupid." Probably a shill, actually. Anyway, I and a few others declared a free-fire zone. Enjoy.
The triggering comment from Dennis Chow and my response follow.
Shillmeister opening comment:
Who should pay? This is basic justice. Those who broke the economy should pay to fix it. You break it, you take it.
I would argue that irresponsible home buyers broke the economy, not the banks (although they were the drug dealers, they forced no-one to take out an interest-only ARM with no docs at the point of a gun). So why focus all the ire on the banks? I say make the homeowners pay instead, through bankruptcy, seizure of assets, or garnishment of wages.
Posted by: Dennis Chow
My snark-laden response:
Wow, Mr. Chow, were you asleep during 2003-2007? Or were you one of the ones packaging deals and pocketing commissions? Here's reality:
By 2003, the middle class was already cooked to a crackly crunch, although it was still lurching around like something gross from a George Romero movie because it hadn't gotten word of its demise. The markets started recovering, but jobs for real people consisted of working project to project with no benefits. Fewer and fewer people could afford to retire or go to the doctor, and costs of trivialities like food and housing kept increasing. Hence, increased debt load.
A lot of people realized they had to get out from under it all somehow and filed bankruptcy. Well, we couldn't have that, so Congress passed the great and glorious BAPCPA. Frankly, this was intended as a headshot at the 99% and should have had as a a preamble, "The way is shut. It was made by those who are rich, and the rich keep it." Thanks to a lot of creative work by debtors' attorneys, it hasn't quite gone that way yet, but the 1% are still working on it.
Fortunately (Hah!), "relief" was on its way in the form of a rising real estate market that was being driven not by buyers but by an exploding investment pool. Demand went up because financing went crazy. Prices went up because payments went down as money got cheap because the finance companies found other ways to get their cut. Yes, borrowers weren't forced to borrow, but they aren't the ones who controlled the appraisers, the insurers, the repo agreements, the securitizations, the tranching, the hedging, the debt swaps, the credit rating agencies, and the regulators. Usually, they didn't even write their own loan apps. The lenders knew what was going on far better than the borrowers, but they kept driving it because they were living off front-end-loaded paper.
So honestly, who was driving the bus when it went over the cliff? Sure, borrowers used some of the loan proceeds to buy stupid and frivolous stuff, but 1) it is apparent the loans themselves were stupid and frivolous and that the lenders knew it but were too happy to go on making them because the shark had to keep swimming, and 2) you'd probably be surprised how much of the proceeds went to stupid and frivolous stuff like retirement accounts, medical bills, and college for the kids.
All gone now, though, and the borrowers are paying, contrary to your allegations. No more papering over the endless budget shortfalls with home equity. If the house itself isn't gone already, it will be. No real job, but no retirement either. No college for the kids except via a boatload of nondischargeable debt that renders the degree economic nonsense. And the hits keep coming. Oh yes, the borrowers are paying. The ones who aren't paying are the ones at the top of the pyramid who ran the show, raked in the benefits, and remain unscathed. So it really isn't that hard to see why ire is directed at them.
Posted by: Knute Rife
How in the name of Adam Smith's most saggy shorts is anyone still trying to blame this mess on the borrowers? And even more, how is anyone still arguing that borrowers should be the only ones covering this tab? Unless of course the commenter is being paid for the comment.
BTW, concerning the comment on Credit Slips that follows my last one, I'll believe anything "mt" says when I can flap my arms and fly to Mars. He throws around "fiat currency" the same way gold bugs and survivalists do. I suspect he has a Rand Paul bumper sticker on his Cadillac Escalade.
BTBTW, please remember that we hain't got that thar soshulized medisun over here, and the public retirement pension consists of the monthly sack of chicken feed from Social Security.