Join Date: Jun 2008
Location: Morgan Park, IL
Location: Morgan Park, IL
Sportbike: A couple
Years Riding: too long to have any sense
How you found us: NESBA
I'm with Resurrection. I'm not bitter, though. I have little debt (only a car loan and a mortgage), pay my bills on time, put money into my retirement savings, and don't spend money I won't have to pay at the end of the month. Seems like I'm being penalized for being fiscally conservative in a time of easy money. My priorities have been longer term than most, and now all the short-sighted thinking is coming back to bite all of us, including me, in the a$$.
I've seen it coming for quite a while. In the early 1980's the Govt under Regan started de-regulating the financial industry. Reganomics was born, which was epitomized in a movie that contained the line "Greed is good". The thought was that if you help the rich get richer, then everyone will somehow benefit. The stress was on doing what personally maximally benefits you, and screw the rest of the community/society/world.
As the rich needed ways to keep getting richer, they lobbied government to remove usury laws (which had limited interest rates), and started the process of de-regulating the stock market, the banking industry, and the commodities exchanges. All this was done under the banner of promoting free market capitalism. However it ignored the bad side of greed.
This lead to a lot of increased consumption on the part of many, because credit/money became easily available, albeit at 24% interest. As we all got used to consumption, we found other ways to get at money - re-finance the house & take cash out - 5 year car loans (they used to be 3 years max), and all kinds of other schemes, even payday loans at 300%+ interest.
Money was easy to come by because as long as you were willing to pay the interest rate charged, you could have more.
The economy expanded and all was well.
This scheme works fine until you can't afford to pay at least the interest. Then it all falls apart. That is where we are now.
All those people and businesses who made that money available to us made their commissions, and then sold the loans to banks and others around the world, claiming they were low risk securities. Everyone involved gets a cut each time these articles are traded. The brokers who did this were paid based on the business written (quantity), not on the quality of the loans. There was simply no regulation, no incentive to worry about the consumer's ability to repay what they had borrowed. As we have seen, this lead to blatantly fraudulent loans being issued to people who did not have a prayer of repaying them.
All good times come to an end. They have been obviously been coming for at least a few years now, but finally reached critical mass this summer. The warning signs started a few years ago, but we just kept on saying that these were just a few anomalies and that everything was sound. Now the bad paper is spread all over the world, and everyone is panicking.
The real problem is not the loss of value represented by the bad paper. It is the loss of trust among the players in the financial markets. Banks this week are reluctant to lend each other money, much less us. This is bringing world finance and the flow of money to a screeching halt.
This bailout is supposed to remove some of the bad paper from the market, and somehow restore confidence among the banks, so that they will continue to make each other and us loans.
I seriously doubt that it will work, even if passed, and eventually (in 20+ years) the government gets all the money back like it has done with the last big crash of savings and loans about 18 years ago.
The best the bailout will do is minimize the recession that is coming. And for that, it may be worth it, no matter how reluctantly we finally accept that fact.
Trust in the system has been destroyed, and just taking the bad loans off the table won't restore it. We will require tighter regulation of the markets and banks for a while to get confidence back. That, too will come in the near future.
There has never been a free lunch. The bill for 35 years of collective overspending is now due.
EDIT: correction, some usury laws were repealed in the late Carter administration due to high inflation - a follow-on from the cost of the Vietnam war and the 1970's Oil Crisis (both of them).
Last edited by beac83; 09-30-2008 at 10:54 PM.