(Video) Should government bail out the big banks?

June 22, 2015

"It's on"

Remember the financial panic of 2008? That was the time when, with the big investment banks teetering on the brink of bankruptcy and a worldwide credit crisis underway, the federal government stepped in to bail out the banks and restore stability to the system.

But was it the right thing to do? For Prager University, economist Nicole Gelinas of the Manhattan Institute argue the case for “no.” In her view, the practice of saving banks “too big to fail,” something begun under the Reagan administration, buys short term peace at the cost of creating a long-term monster: banks that engage in riskier and riskier practices leading to greater instability, secure in the knowledge that Uncle Sam (read: the taxpayer) will bail them out. Like giving an alcoholic a drink to steady his nerves, bailouts only enable bad behavior, they don’t cure it.

Here’s the video. See what you think:

The right thing to do, in my opinion, is to let wayward banks go bankrupt, but handle as the Savings and Loan crisis of the 1980s was handled: federal regulators take over, shareholders and bondholders are wiped out, management is fired, the bank’s assets are redistributed through the normal bankruptcy process, but individual depositor’s funds are protected. This would provide a brake against ever-riskier behavior, instead of shielding bankers from the consequences of their actions.

Of course, this wasn’t the whole cause of the financial crisis: government intervention in the housing market, in the form of encouraging bad lending practices and selling risky mortgages as government-backed securities played a huge role, too.

Hmmm…. Government intervention causes a problem. I’m detecting a pattern here. smiley idea

PS: A good book on the crisis is “Reckless Endangerment,” by Morgenson and Rosner.

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Pay your bills on time? Racist!!

December 2, 2010

Yes, if you pay your bills on time and thus have a good credit score and the banks reward you with a lower-interest mortgage, it’s not because you’ve been responsible and thus represent a lower credit risk. Nope, it’s because the banks (and probably you, by extension) are RAAAAACIST!!

Banks will be accused of employing discriminatory credit standards when making mortgages in a series of fair housing complaints that a national consumer coalition plans to file beginning next week.

The National Community Reinvestment Coalition plans to challenge the widespread practice of requiring borrowers asking for FHA-backed loans to have higher FICO scores than the minimum required by the FHA, according to a report from Ken Harney at New Times.

The FHA requires a minimum FICO score of 500. Borrowers with down-payments as low as 3.5 percent must have a score of at least 580. Borrowers with scores between 500 and 580 must put a minimum of 10 percent down.

Several banks require higher rates. At the start of 2009, many banks moved their minimum FICO score for an FHA backed loan up to 620. Wells Fargo and Bank of America recently raised their required score to 640. FICO scores run from 300 to 850, with higher scores supposedly indicating a lower risk of future defaults.

The NCRC says that the higher FICO requirements disproportionately discriminate against African-American and Latino borrowers, many of whom have credit scores above the 580 threshold set by FHA but below the higher minimums set by banks.

It argues that because the FHA insures the loans, there is “no legitimate business justification” for rejecting applicants on the basis of FICO scores that are acceptable to FHA.

Bear in mind that the groundwork for the current financial crisis was laid by groups suing banks under the Community Redevelopment Act (and through thuggish street tactics) to lower their credit standards to make risky sub-prime loans to minority borrowers. Then it was Socialist community organizations such as ACORN and their lawyer, one Barack Obama. Now it’s the NCRC. But the game is the same, forcing banks to make risky loans to people who probably can’t afford them. The banks back then were unable to resist, tarred by the brush of racism by community organizations below and pressured by race-pandering politicians from above.

And where did that get us?

The logical error here is that disparate results among ethnic groups must represent racism requiring legal redress, not simply differences in economic status due to income, personal financial responsibility, and the vagaries of life. Nope, it has to be due to systemic, institutional racism that requires the government to engage in social engineering in order to create more winners. In the end, all that will do is turn us all into losers as the same bad practices are revived in an already weakened financial system.

It’s said that the definition of madness is doing the same thing over and over again while expecting a different result. If that’s true, then this suit is just plain crazy.

Via Mark Hemingway.

(Crossposted at Sister Toldjah)