Infinite Jest said:
rant n rave: a 6% default rate is still very high (by comparison, in the UK, which is in recession, there's a 1.1% default rate. In New Zealand, it is 0.1%).
It's high, but is it a crisis?
But the real problem is the derivatives that have been sold on the basis of those mortgages (an analogy I saw on Metafilter: if I bet $1 million dollars that you can buy dinner tonight, and you can't, then it doesn't matter if someone else buys you dinner - I still lose my $1 million. Basically, there were a lot of (in hindsight) very bad bets. Among other problems).
That's all well and good, but who made those bets? I'm assuming it's not the average American. In fact, I'm pretty sure it's personnel at all the lending companies. If so, why aren't those people eating it? Did the slew of mistakes create a problem that the company couldn't possibly solve, either through other financial activities or by selling out to another company? I guess, in essence what I'm saying is: what is the bailout for? The people (or the company they represent) that fucked up should be taking the blame, and the companies should simply fail if necessary. And a buyout should not pay anyone's salaries. The people that fucked up took a risk, and they lost. Why am I paying for it? Especially if I had no money or any interest in any of the banks. If I take on loans to open a restaurant and my restaurant fails, I don't get a check from the government to pay off my debts. And chances are my restaurant didn't fail due to sheer negligence...
The problem started with mortgages, but it's way past that now. It's currently a liquidity problem - banks will not lend money to each other, full stop (and banks lending money to each other is a trivial, but vital, part of our system. Normally it would just happen with no problems). We have a situation where banks will accept a loss on their money to leave it somewhere "safe" like the Bank of England or the European Central Bank. If banks won't lend to each other, they sure as hell won't lend to you or me, or (more importantly) to our employers - to expand their business or to pay our wages.
They certainly will. My dad personally spoke to the VP of one of the largest banks in the Midwest (even in America), and he said that they are most certainly still supplying loans, and would in fact supply a loan to my dad a quarter point below prime with a $50,000 minimum.
You also asked whether we could let institutions fail, and just let someone take them over. That's not a bad argument, and I don't know enough to comment. But our problems really accelerated when Lehman's was allowed to go bankrupt, and other banks (etc) realised that they won't get back money that Lehman's owes them. There has been an incredibly serious domino effect - which, as far as I can see, is why the Fed has stepped up now with this bailout plan. (Of course, if they'd just bailed out Lehman's for $100bn or so, we maybe wouldn't need the $700bn. But hindsight is easy). Also, the more extreme analyses I've seen claim that if nothing was done, the US would quite simply lose all its banks. Sure, the Chinese, Japanese and Arabs would step in and buy up the bankrupt banks, but that doesn't seem like a desirable outcome from an American point of view. (As I said, that's the extreme analysis - but you would surely see some more bank failures).
Basically what I'm thinking is that there are monopoly issues (looks like we'll end up with only one or two lending institutions owning everything) and the problems with foreign banks owning us, as you mentioned. However, I still don't see why that warrants MY money being given to people that fucked up and still made millions of dollars a year in salary. If all our banks get sold to foreign companies, I would hope that would be enough of a fucking wake up call to American citizens to stop being so ragingly ignorant. We let our government officials do pretty much whatever the fuck we want, and we let our financial managers do pretty much whatever the fuck we want. When you don't pay any attention, you get what you pay for.
I'm willing to see America collapse under complete foreign control of our money. Especially since the alternative is to see America collapse under its own inability to finance itself (if we go through with the bailout, it is certain to fuck up our government programs nearly irreparably and our economy as well). And especially since that alternative involves taking MY money for something I didn't get us into. MY money is all safe. I bank at an institution that doesn't do this kind of shit, and I pay attention to this kind of shit for a reason. Everyone else should too if they don't want to take it up the ass. The government's only duty is to keep us alive and make sure our Constitutional rights aren't violated, not to make sure we don't gamble our money away. I'm getting pretty tired of the culture of irresponsibility that is encouraged at every turn. If We the People demand that the government analyzes these risks and lets us know about them, that's great, but the government is not here to bail us out from fucking up or meddle in the companies that are fucking up.
And the killer is, the government stands to make money/interest on this buyout, but do you think the people whose tax money is being used are going to get anything back? No. It's going to go into government programs that give money to people who didn't pay in. If I put my money in an investment, I get the return, not the homeless guy up the street begging for change on the corner. I'd be more than willing to pay that money back in taxes and have it go into social programs then, or donate it all to charity, which I probably would, but we all know full well that that's not going to be my choice to make, which grinds my gears even more because I didn't even have the choice whether or not to make the damn investment in the first place. Where the fuck is MY vote?