Comments on: Lessons Of Aig http://www.frumforum.com/lessons-of-aig Building a conservatism that can win again Sun, 21 Mar 2010 02:53:37 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: midcon http://www.frumforum.com/lessons-of-aig/comment-page-1#comment-50864 midcon Mon, 23 Mar 2009 17:28:03 +0000 #comment-50864 One of the key lessons America may have learned from all this is that people and institutions have demonstrated the fallacy of self-regulation. Since institutions have taken the brunt of the wrath (deservingly so), let's focus a bit on the individuals. <br><br>On Dateline last evening, they interviewed folks who received mortgages. Their situation speaks volumes, so I won't editorialize. One person made $20K per year and received a mortgage for $250K. Another, with a landscaping business had a mortgage payment of $5000 per month, more than the total revenue per month from the business. Lastly, another person had 6 mortgages totaling over $1M. Her net income last year from her 1040 was minus $6,800.00<br><br>We rail against predatory lending, when we ought to have including predatory borrowers. One person, when asked thought she was just a tiny bit responsible. Some of the others felt no responsibility at all.<br><br>While we can attempt to instill values of personal responsibility in our citizens, some degree of regulation is necessary. I wouldn't go so far as a to call for a well-regulated citizenry, but regulations should have been in place to prevent these people from these predatory practices that not only jepordized their own future, but other citizens who bear the impact of the deficient and decreased values for their homes. One of the key lessons America may have learned from all this is that people and institutions have demonstrated the fallacy of self-regulation. Since institutions have taken the brunt of the wrath (deservingly so), let’s focus a bit on the individuals.

On Dateline last evening, they interviewed folks who received mortgages. Their situation speaks volumes, so I won’t editorialize. One person made $20K per year and received a mortgage for $250K. Another, with a landscaping business had a mortgage payment of $5000 per month, more than the total revenue per month from the business. Lastly, another person had 6 mortgages totaling over $1M. Her net income last year from her 1040 was minus $6,800.00

We rail against predatory lending, when we ought to have including predatory borrowers. One person, when asked thought she was just a tiny bit responsible. Some of the others felt no responsibility at all.

While we can attempt to instill values of personal responsibility in our citizens, some degree of regulation is necessary. I wouldn’t go so far as a to call for a well-regulated citizenry, but regulations should have been in place to prevent these people from these predatory practices that not only jepordized their own future, but other citizens who bear the impact of the deficient and decreased values for their homes.

]]> By: sinz54 http://www.frumforum.com/lessons-of-aig/comment-page-1#comment-43861 sinz54 Sun, 22 Mar 2009 13:50:21 +0000 #comment-43861 Prof: The problem is not that a company is "too big to fail". Lots of big companies have failed over the years without damaging the U.S. economy severely. We even weathered the S&L bailout without too much trouble. The real problem is investing with excessive LEVERAGE. Leverage magnifies downside risk. The more the leverage, the far greater the risk. Excessive stock speculation on margin ratios of 10 to 1 was one of the factors of the 1929 stock market crash. The problem today was investment (or was it speculation) in securitized mortgages with margin ratios of up to 30 to 1. And that market collapsed when homeowners, who had gotten mortgages with only 5% down (margin of 20 to 1) or even no money down, found themselves upside down on their mortgages when housing prices declined. A margin ratio of 30 to 1 means that a company that invests in such securities can take down a market 30 times its size. For the future, we need a general policy to prevent excessive leverage in all these markets. Homeowners should NOT be able to obtain a mortgage with less than a 10% down payment (and preferably 20% if the deal doesn't look like a sure thing). Leverage in securitized mortgages should be kept below 10 to 1. And so on. Prof: The problem is not that a company is “too big to fail”. Lots of big companies have failed over the years without damaging the U.S. economy severely. We even weathered the S&L bailout without too much trouble. The real problem is investing with excessive LEVERAGE. Leverage magnifies downside risk. The more the leverage, the far greater the risk. Excessive stock speculation on margin ratios of 10 to 1 was one of the factors of the 1929 stock market crash. The problem today was investment (or was it speculation) in securitized mortgages with margin ratios of up to 30 to 1. And that market collapsed when homeowners, who had gotten mortgages with only 5% down (margin of 20 to 1) or even no money down, found themselves upside down on their mortgages when housing prices declined. A margin ratio of 30 to 1 means that a company that invests in such securities can take down a market 30 times its size. For the future, we need a general policy to prevent excessive leverage in all these markets. Homeowners should NOT be able to obtain a mortgage with less than a 10% down payment (and preferably 20% if the deal doesn’t look like a sure thing). Leverage in securitized mortgages should be kept below 10 to 1. And so on.

]]> By: Prof http://www.frumforum.com/lessons-of-aig/comment-page-1#comment-50258 Prof Fri, 20 Mar 2009 16:54:39 +0000 #comment-50258 We can agree that a policy of "too big to fail" in a sense is a failure, however what can the market and/or government do to prevent in the first place corporations to grow or assume this corporate power in strategic sectors of the national economy. Gigantism and high concentration of several corps in a sector is widely applauded by the market and government for the so-called benefits the economy derives from their status. I think the horse is out of the barn since we opened the door long aga... We can agree that a policy of “too big to fail” in a sense is a failure, however what can the market and/or government do to prevent in the first place corporations to grow or assume this corporate power in strategic sectors of the national economy. Gigantism and high concentration of several corps in a sector is widely applauded by the market and government for the so-called benefits the economy derives from their status. I think the horse is out of the barn since we opened the door long aga…

]]> By: coleman http://www.frumforum.com/lessons-of-aig/comment-page-1#comment-39431 coleman Thu, 19 Mar 2009 22:19:24 +0000 #comment-39431 Great post.<br>Time to heat the tar, gather the feathers. Soon the average American is going to both grasp the dimensions of this unbelievable problem AND understand who is responsible: the crooks on Wall Street and the politicians in both parties who looked the other way - and took their money. Crony Capitalism at its worst. It may bring down America.<br>This piece in "Rolling Stone" is devastating:<br>http://www.rollingstone.com/politics/story/26793903/the_big_takeover?utm_source=daily-newsletter&utm_medium=email<br><br> Great post.
Time to heat the tar, gather the feathers. Soon the average American is going to both grasp the dimensions of this unbelievable problem AND understand who is responsible: the crooks on Wall Street and the politicians in both parties who looked the other way – and took their money. Crony Capitalism at its worst. It may bring down America.
This piece in “Rolling Stone” is devastating:
http://www.rollingstone.com/politics/story/26793903/the_big_takeover?utm_source=daily-newsletter&utm_medium=email

]]>