kujebak contributed these words of wisdom on 11/04/08 07:33:
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<...>
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> The only two remarkable aspects of the current financial
> crisis are its root cause,
You mean government-inspired political correctness? Or the Fed-inspired
credit bubble, caused by what can be termed a criminally loose monetary
policy under the Chairman****p of Mr Irrational Exuberance?
> and the way it's being ****trayed
> in the media. It is quite astoni****ng to compare present
> day perception of how capitalism is supposed to work to
> the way Americans used to think 40 years ago.
That does not apply just to America. All over the western world more and
more people believe it is the government's job to look after them and to
ensure they are happy and their needs are met. If they screw up, then
why - it's the government's job to bail them out!
Painlessly, of course.
> To most
> people today, when one makes a profit from an investment,
> that's capitalism, but when one loses money in a risky,
> or ill-conceived economic venture, that's not capitalism.
The trouble is, George, that while you are correct in principle, a large
part of the current problem has been caused also by financial gurus with
black box modelling systems, who believed they were bullet proof and
that that the concept of black swans was no more than an academic
economists' fairy tale.
The sheer complexity of many of the products that are now going bad,
coupled with what can only be termed greed and short-termism (best seen
in the amount of leverage some of these "experts" have been using), has
made sure that even the wonder boys now don't know what the extent of
their liabilities really is. Creative accounting can only help up to a
point in such cases. Ultimately insolvency cannot be avoided.
This is the main reason for the credit crunch - counterparty risk. This
is also why the CDS implosion, coupled with bankruptcy of one or more
major banks is rather likely.
> That is some sort of foul play, and a reason for government
> involvement (i.e. socialism). When people sign one of these
> newfangled mortgage contracts knowing full well they could
> not get into the housing market any other way,
Many of them could, though. As I said in my reply to Karel, many of
those now defaulting are in fact quite well off in income terms.
But they just had to have the extra 3 bedrooms and 2 bathrooms, in the
better suburb. They also had to have that pool and all new fittings and
whitegoods.
I am of course not excusing those people. To the contrary.
> and that they
> quite likely are not going to be able to make payments
> two or three years down the road, they deserve what they
> get, which is not necessarily and immediate foreclosure
> followed by an eviction, as in the case of this young Stock-
> ton couple, which decided to squat in their own home,
> waiting for a government bailout:
>
> http://tinyurl.com/3vhw94
<...>
That is rather disgusting what these people are on about. And so brazen
about it - they bought a house they knew they could barely afford; now
life got too hard, so they stopped paying the loan - even though they
still had the means to continue - and, oh, how wonderful; they now have
spare cash to eat out and get a babysitter!
They could not get away with this here in Australia. Their bank would
evict them within weeks and if they could not pay the loan out or did
not have insurance to cover the shortfall between the sale price and the
loan balance, it would bankrupt them and take whatever else they had of
any value.
No wonder the concept of jingle mail is proving so popular even amongst
those Americans who can very much afford to cover the mortgage payments.
Why would you if you can live in the house for free, without any fear of
repercussions?
Sheer lunacy.
S
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