Bailout Delayed, Free Market Returns With Vengeance
September 30, 2008
Congress Killed the bailout. Everybody is mad at somebody. The bailout is too big. Too small. Doesn't spread the wealth. Will hurt taxpayers. Will lead to more bad behavior. This list goes on. In this upside down world, Republicans want big government solutions to market problems while Democrats want to redistribute wealth to bankers. Everybody has a bone to pick on the bailout yet nobody can explain exactly how $700 billion stops the market madness.
What did the stock market think about the delay in the $700 billion fix? Dow down -777. Yesterday, even lucky numbers meant bad luck.
With big banks dropping like flies (A.T.B.T.F. almost to big to fail...) and every kind of debt with more default risk than U.S. government bonds going through bouts of panic selling (even munis! ) its time to reflect back and remember one thing: this is all the result of the Great Real Estate Bubble.
While there is certainly much blame to go around, the biggest villain was a simple widespread belief that homes were a perpetual upward motion machine.
Like everybody, we have our own ideas on how to 'save' humanity from our greatest bubble yet (bonus feature - it doesn't require creating another bigger bubble somewhere else). But who cares what we think about the bubble anymore... All you need to know is there are only three parties that can take the fall as trillions in phantom real estate wealth evaporates:
1) Home Owners
2) Lenders (this includes investors in mortgage debt, not just jet-set bank execs)
3) Taxpayers
Government polices and bailouts can shift the burden between the big three, but all will take a hit. Without magically re-inflating the housing bubble, there is no way all groups can come out unscathed. The best way to start crafting a bailout package is determine how you want to spread the multi-trillion dollar burden.
And remember when you go around finger pointing, those that live in glass houses shouldn't have taken out a pick-a-payment home equity loan to renovate their kitchen with stainless steel appliances and a granite counter top because someone on HGTV said repeatedly it adds value beyond the cost of the renovation...
Congress Killed the bailout. Everybody is mad at somebody. The bailout is too big. Too small. Doesn't spread the wealth. Will hurt taxpayers. Will lead to more bad behavior. This list goes on. In this upside down world, Republicans want big government solutions to market problems while Democrats want to redistribute wealth to bankers. Everybody has a bone to pick on the bailout yet nobody can explain exactly how $700 billion stops the market madness.
What did the stock market think about the delay in the $700 billion fix? Dow down -777. Yesterday, even lucky numbers meant bad luck.
With big banks dropping like flies (A.T.B.T.F. almost to big to fail...) and every kind of debt with more default risk than U.S. government bonds going through bouts of panic selling (even munis! ) its time to reflect back and remember one thing: this is all the result of the Great Real Estate Bubble.
While there is certainly much blame to go around, the biggest villain was a simple widespread belief that homes were a perpetual upward motion machine.
Like everybody, we have our own ideas on how to 'save' humanity from our greatest bubble yet (bonus feature - it doesn't require creating another bigger bubble somewhere else). But who cares what we think about the bubble anymore... All you need to know is there are only three parties that can take the fall as trillions in phantom real estate wealth evaporates:
1) Home Owners
2) Lenders (this includes investors in mortgage debt, not just jet-set bank execs)
3) Taxpayers
Government polices and bailouts can shift the burden between the big three, but all will take a hit. Without magically re-inflating the housing bubble, there is no way all groups can come out unscathed. The best way to start crafting a bailout package is determine how you want to spread the multi-trillion dollar burden.
And remember when you go around finger pointing, those that live in glass houses shouldn't have taken out a pick-a-payment home equity loan to renovate their kitchen with stainless steel appliances and a granite counter top because someone on HGTV said repeatedly it adds value beyond the cost of the renovation...