People do not enough responsibility for their actions.
Byah said 04/14, 08:06 PM
People are unwilling to take personal responsibility for their economic situations. It is almost entirely their fault that they over-purchased a house and entered into dangerous mortgages. A mortgage is not something to purchased overnight. This should take time and deliberation, and if people were unwilling to spend the time, then they should accept the consequences. Instead they are complaining that the government should bail them out (i am not condoning the purchase of Bear-Stearns either). If these people were to act responsibly, then they would eiher not be in this situation or they would accept consequences.
Tickers said 04/15, 10:01 AM
While irresponsible borrowing is a factor, it is only part of a wider picture, which is that the financial markets managed to set up and invest in poor people getting loans that they traditionally have been denied.
Traditional mortgages worked because the lenders only dealt with people who they could be confident would be able to repay the loan ??? in the event of foreclosure the investment would still be decent enough to minimise the lender???s losses and the risks were calculated to be not too high.
The sub-prime mortgage however worked on a very bad assumption ??? that the housing market would only rise, therefore credit agencies and risk assessments effectively considered there to be practically zero risk. In fact the financial market sold the mortgage payments as investments for people that were hugely over-inflated in value.
A blue collar worker will not see or understand the wider implications, that the loan was given to them on the assumption that the house price would rise and that they could refinance the mortgage at a later date even if they lost their job. But the lenders should have done, and if they had acted responsibly, then there would have been no crisis.
Byah said 04/15, 11:11 AM
The common home owner should take responsibility for their current situation. However, I will not blame the crisis on these people. The crisis is the fault of lenders taking a large risk. I understand that they claimed sub-prime would be low risk due to growth, but this defies the fabric of our economic system. America's economy goes through a cycle of growth and 'recession'. This cycle is much shorter than the avg. home loan. This simple fact about economuc growth affects the risk of an adjustable rate mortgage. This being the case, the government should not rescue those lenders who made foolish economic decisions. This crisis has the potential to purge the market of unsafe lenders and practices. The common man may suffer, but in order succed as a capitalist nation, some businesses must fail. The lenders are also guilty of taking little responsibility
A large portion of the housing market was purchased by speculators and land owners. These people do have the skill and knowledge to avoid sub-prime mortgages and other high-risk ventures. Some proposed plans have included these people in the rescue. That is a powerful example of people not taking responsibility for their actions.
Tickers said 04/15, 04:09 PM
Unfortunately the crisis is far wider than just allowing unscrupulous lenders to collapse as a result of their own idiocy. The problem goes throughout the financial services industry in the US, to the tune of $1.3 trillion dollars in March 2007.
If the whole sub-prime industry collapsed all of that would be wiped from the American economy and that would be catastrophic for a country where the economy is a services one, rather than based on agriculture, manufacturing or oil exports.
This is why Bear Stearns could not be allowed to collapse (and to an extent Northern Rock in the UK) ??? if the bank became bankrupt then the assets would be sold off at cut-rate prices ??? putting some $385 billion dollars worth of financial transactions at risk and setting a low standard for the value of sub-prime mortgage investments that would have wiped off the $1.3 trillion earlier (currently they are protected partly because nobody is trading the things, but a bankruptcy would force a trade value).
A complete collapse would simply hurt everybody in America ??? probably worse than 1929 because the economy is more dependant on financial trading. The way to stop that is to stop foreclosure.
Byah said 04/16, 09:48 PM
Point on Bear-Stearns is well taken. Perhaps what needs to happen then, instead of a purely capilitalist solution, is one where the company is hit hard, but not destroyed. The original plan, where the stock was to be sold off at ~5% its value would have overted most of the tremendous monetary loss you mentioned, but would have still have the effect of purging poor business. Lending is about managing risk, and overexposing yourself to any one market, such as the subprime mortgages, is dangerous. Now, the shares of Stearns are to be sold at ~15-20% of their value, with the majority of that increase going to the high offices at the company. That, coupled with the possible rescue of speculators, creates a solution that dramatically softens the financial blow. This circumvents or criples the capitalist system. I will recognize the need for some intervention, to avoid an event similar to the 1929 depression, but the government is interfering too much.
Tickers said 04/17, 06:07 AM
The shares of Bear Stearns are different to the MBS and CDO assets, which had they flooded the market would have been catastrophic for western banks. But I think you underestimate the scale of the problem.
The American and Canadian banks have written off $117 billion, European banks have lost $104 billion. Contrast that to the write offs currently available for India, where the largest private sector bank has only lost $260 million.
The American and European markets have put themselves at great risks due to systemic failures among borrowers, lenders, investors, regulators and government. The capitalist notion that you speak of, where the foolhardy are purged to make the market better, has a logical conclusion when the whole of the market has been foolhardy.
That is the collapse (or at least severe weakening) of western banks as banks from India and China increase their influence because they have adhered to more sensible lending practises. The economic power of America is put at risk and could change the global picture quite drastically.
Those are the stakes, and why the government cannot just sit by and let capitalism run its course.
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Damn - wrong box. I think the debate has somewhat shifted from who is to blame to what is the best way to move forward. On the first issue I don't think you can blame workers who are borrowing, since they are not in a position to understand the risks that they are taking - they just want to buy a house and take the advice of 'experts'. You seem to have moved in your second argument (blaming the lenders) but if you want to return to that for the third round then am happy to. Cheers, Tickers.
Tickers | 04/15/08
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Cheers for the debate Byah. I do agree with you on your other one - I would love to give this topic more than the 1200 character limit.
Tickers | 04/17/08
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Tickers, that was one of the hardest debates i have ever engaged in. Cheers, and thanks for the support on character limits.
Byah | 04/17/08
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Kudos to both of you gents, I got a headache reading this it was so intense. That said, I would like to say the following: 1) Fundamentally, I agree with Byah that people in this country (Liberal and Conservative) have a real problem taking responsibility for the actions they take. In the case of homeowners, they probably should have had a lawyer look over their stuff before signing it. 2) This housing situation is so vast however, that government inaction will, undoubtedly, be disastrous. Unless the American people are willing to tolerate another few hundred thousand homeless people on the streets as a result of this crisis, something has to be done. 3) I don't care what side of the political aisle you are on, but the structural and legal ways this was ALLOWED to happen have to be changed. Lobbying is important: it brings the concerns of people to our representatives. The problem is, as regulated as these groups seem to be, look at the reality: A former lawyer and lobbyist for the accounting industry, who lobbied for the rule changes that allowed the Enron and Sunbeam disasters to happen, ended up being appointed by Bush as the Chairman of the SEC.... AND HE WAS APPROVED BY CONGRESS. For those of you who actually read this whole thing, I apologize it was so long but I haven't had a good political talk in quite a while. The fact of this current housing situation though is that inaction will only lead to higher costs in the long run. Either way, the "system" needs to change, it's truly out of control and allows things like this to happen.
MarkW2525 | 04/17/08
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Unfortunately the crisis is far wider than just allowing unscrupulous lenders to collapse as a result of their own idiocy. The problem goes throughout the financial services industry in the US, to the tune of $1.3 trillion dollars in March 2007. If the whole sub-prime industry collapsed all of that would be wiped from the American economy and that would be catastrophic for a country where the economy is a services one, rather than based on agriculture, manufacturing or oil exports. This is why Bear Stearns could not be allowed to collapse (and to an extent Northern Rock in the UK) ??? if the bank became bankrupt then the assets would be sold off at cut-rate prices ??? putting some $385 billion dollars worth of financial transactions at risk and setting a low standard for the value of sub-prime mortgage investments that would have wiped off the $1.3 trillion earlier (currently they are protected partly because nobody is trading the things, but a bankruptcy would force a trade value). A complete collapse would simply hurt everybody in America ??? probably worse than 1929 because the economy is more dependant on financial trading. The way to stop that is to stop foreclosure.
Tickers | 04/15/08
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