Tuesday, 30 September 2008

The Big Bail Out, Round 1

Now here's a thought.

America's bankers seem to want a bail-out from the taxpayer for the consequences of their shabby lending and even shabbier use of worthless mortgages as security for cycle after cycle of further lending. Let them have a bail-out, but let them take a chunk of the risk themselves. We know it is not all the bankers' fault because the US government forced them to make many of the bad loans, so let's apportion blame 50-50.

I suggest that, in addition to the banks themselves being in hock for the money paid, every two dollars paid to a bank must be matched by personal guarantees worth one dollar from the directors of the banks (and their spouses, no hiding behind the petticoat by putting the yacht in Mrs Banker's name). No personal guarantees, no money. If a bank looks like it might fold and affect a hedge fund badly, let the directors of the hedge fund join in and mortgage their houses to the taxpayer. No free ride boys. Pay to play.

Members of the liberal intelligentsia are all over the radio this evening denouncing the idiotic members of Congress for not supporting the bail-out plan, but this is to misunderstand the American mind-set. If something goes wrong they presume someone is at fault. It has its downside (McDonalds and hot coffee come to mind) but it also has a massive upside. Bad business decisions are visited upon many an executive and greedy decisions in which the truth is masked from customers often result in long prison sentences, even where there is no direct deception. It's all a matter of personal responsibility. The bigger the earner, the more he is held to account for bad decisions which hit the little man hard.

A package of some kind will go through, but not before the right balance is struck between the risk taken by the taxpayer and the risk borne by those with most to gain.


Anonymous said...

Wow been a Crazy week, but my gut feeling is to let it fail. Suck -it up. Lets cut the fat, may the strong survive.

It all started with government getting drunk on good intentions i.e. CRA something that is corrupt to start with, is bound to get worse with time.


Anonymous said...


watch it. First link was shut down.


TheFatBigot said...

CRA was a disaster waiting to turn into an H-bomb.

The sad thing is that we can all understand why Jimmy Carter wanted to give everyone a chance to buy their own home.

For those with sufficient income who were unable to raise a loan because they lived in the wrong town (which, sometimes, meant no more than that they were the wrong colour) there was good reason to force the banks to apply the same lending criteria to all applicants because that is plain and simple fairness.

The real problem was that the criteria had to be relaxed to meet the needs of CRA, especially after Bill Clinton changed the original scheme and required much more lending.

It is all very well saying "we are helping the poor" but you do not help the poor by locking them into obligations they cannot afford. It gives politicians some nice statistics to throw around: "we have enabled an additional X million to own their own homes". What good does that do when a few years down the line the proud homeowner is out in the street?