Interesting take on the markets

September 19th, 2008

Yesterday on NPR’s Diane Rehm show, one of the commentators made this point: (paraphrased)

The “bad debt” that all the banks are carrying, and that everyone talks about as the cause for this problem, is mortgage-backed securities. It’s bad because there are so many foreclosures, meaning that people aren’t paying back their loans. And that’s a problem because the banks turn out to have a much less solid investment than they thought.

Instead of spending $100 billion or more bailing out bank after bank, the government ought to spend that money to stabilize the real estate sector. Invest it in programs to help people stay in their homes and avoid foreclosure. This will help both the individuals, and simultaneously fix the problems with the banks, because the mortgage-backed securities will regain their value.

Sounds way too sensible to do, doesn’t it?

After all, we wouldn’t want to encourage risky behavior on the part of the common folk that don’t know better. No, we only want to encourage that with our large multi-national financial institutions that can wreck the entire economy.

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  1. Joshua

    The people who ran the large banks and investment firms being rescued by the government have defrauded the American people and should be prosecuted.

    That said, the government, and subsequently the taxpayer, has a much better chance of getting a return on investing in these “large multi-national financial institutions” than they do with propping up 100 million private homeowners. There is far too much risk in that and it is spread out over an unimaginably large number of people.

    Oversight, to make sure that the investment in the programs you are referring to is being used properly, would be impossible. It would be irresponsible and likely destroy our economy. But then again, it does sound nice before thinking it through…

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  2. Tom Moertel

    The real-estate bubble finally bursts and the solution is to try to pump it back up again with taxpayer money? Wouldn’t it make more sense to accept that the bubble has burst and that we’re going to take some losses now that the effects of the correction are upon us?

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  3. Jason

    @Tom: In theory yes, but the problem is no one knows how deep this “correction” would go, and if it indeed would vastly over-correct.

    A massive number of employees are already being dumped into the market place by this(very bad if you’re an employee). And then you have potential for cascades (what happens if Wal-Mart can’t get any more loans?).

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