Monday, August 22, 2011

Aristocracy of American Money

It's not you. Just so you know.

U.S. banks handed out a lot of loans to people that didn't really deserve them. This was encouraged by the government as some method of moral development for the "less fortunate" as if, somehow, giving someone a home would put them in a position to pay for it by the simple virtue of owning a home? Literally, billions of dollars were loaned to people with no money down and little to no proof they could pay the money back. Loans were given to these people on a wing and a prayer thanks, in part, to Fannie Mae, Freddie Mac and morons at large corporate banks (who either didn't bother to do their homework on whether it was a good investment or simply decided it didn't matter because they'd be bailed out).

These same entities then sold off the risk of those idiotic loans as packaged securities to third parties, other banks, foreign companies/governments and insurers. Those terrible loans then went upside down. In the process, the value of a home in America was destoyed. Doesn't matter if you lived there for 30 years or 3 months, when things collapsed it happened fast. The recovery won't be nearly as fast (and may not happen at all). So, things got ugly.

{More After The Jump}

For a very short period of time the banks were hurting and looked to be in a lot of trouble because of their own unsound financial policies. [Granted, they had windfall, record profits prior to the collapse but we should ignore that, right?]. What did the U.S. Government do (in a bipartisan effort of collossal stupidity)? They gave the banks enough U.S. tax money to cover virtually all of their losses. Then our own government hid the information from us (that's you- John Q. Public) and fought against its disclosure for years. Fast forward to August 2011, the economy has not improved, home prices are actually still dropping in places and market liquidity/leverage options are complete garbage. No one can get a loan, the economy is stagnate and the possibility of a double dip recession is fully upon us. Why?!

Well, because while the banks were bailed out and are now doing just splendidly, home prices are trash and people that deserve loans can't get them. That means solid businesses (ones that can actually grow the economy) are unable to meet short term payment deadlines though they are highly profitable long term. These types of investments are generally good investments. Front the cash to a solid business with proven earing potential and contracts already under ink, reap the rewards for everyone later on. This is how responsible banks traditionally make money. But these types of investments aren't occurring. On top of that, people can't sell homes, or move to find new jobs, or recover any money from their biggest investment (their blasted HOUSE). The American dream has always involved home ownership but now that dream is a worthless liability.

So, in the end, how did the banks fair? Have they closed down? Did they suffer catastrophic losses? Absolutely not. They're doing just fine. Why? Because your tax dollars (the ones meant for building roads and maintaining adequate infrastructure) have been redicted to the very entities that destroyed the value of your American dream. While you were being frugal and trying to invest wisely, carefully monitoring each penny, making investments in your American dream, massive banks and the U.S. Government were pissing away money like it could be printed in bulk with no reprecussions (which they are now doing despite Major Reprecussions including a U.S. debt downgrade). It's a strange world we live in when "too big to fail" means a select few banks and not the actual United States of America.

So, what do we need? More oversight of financial institutions? I don't think so. Remember, it was the U.S. government (the very watchman himself) who encouraged these catastrophic practicies. What we need is for the Aristocracy of American Wealth to learn a very painful lesson. Let them collapse. Someone will fill the void and do a better job next time. You don't reward bad behavior. That's a rule I learned when I was six. No reason why a bunch of adults can't learn that lesson now.

Does that mean I'm anti-business. Absolutely not. What I am, is pro-responsibility. If the government was forcing banks to make stupid loans, those banks should have raised a red flag and fought it tooth and nail. Instead, it appears they came up with a back room deal where they would loan money to people with zero dollars down and no real proof they could pay the loan back. In return, it appears the U.S. Government promised to bail them out when things got ugly. The banks actually had an incentive to make as many stupid loans as possible, anticipating they'd likely be rescued (which they were). As long as they could weather the impending storm, the stupid risks could reap huge rewards. If they didn't, your tax dollars were safety net. Why wouldn't they take that risk? After all they were too big to fail weren't they?

The entire country is suffering now because of a few idiots at the very top who decided to make irresponsible decisions. They thought they could act in their own self interest, short term, and it would work out. Well long term it hasn't, at least not for the United States as a whole. In the U.S., we reward risk when it is a calculated intelligent risk. However, when you take stupid risks, you're supposed to be punished. That hasn't happened and you and I are suffering because of it.

The biggest insult of all isn't just the effect on the economy, it's that the money you worked so hard to earn has now been given to the very people who destroyed your ability to make money in the first place. That should make you sick.

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