Thursday, September 18, 2008

Question About Banking Crisis

Today the Fed and central banks around the world pumped 180 billion dollars into the banking system to increase liquidity. I understand that this move lets the banks continue cashing your paychecks but how does this fix the underlying problem with the banking industry which is associated with defaults on overvalued assets.

If I am not mistaken (I could easily be) the problem with the banks is that they bought those pooled mortgages that have now lost most of their value. If you loan someone $100,000 you should have that much in collateral, right. So if they bought these $100,000 loans and the value of the collateral dropped to $50,000 they have lost $50,000 if the home owner defaults. Not to mention all the profit they were counting on from the pool. Quite frankly if my home's value dropped from $100,000 to $50,000 I would be handing the keys happily over to the bank, which apparently is the problem.

If the banks would not have overvalued the homes in the first place to increase their profit this would not be an issue. This is a common sense versus greed situation. I am a taxpayer who was smart enough to realize that a house that was worth $100,000 two years ago simply is not worth $500,000 today, again common sense, and stayed out of the obviously rigged housing market. I am angered that I will be paying to bail out the greedy bankers who made massive profits while perpetuating this fraud. Let them fail...I don't get bailed out when my greed overtakes my common sense.

But back to the point. How does injecting cash into the system help the banks. They are still holding lethal amounts of bad debt. Unless the housing market does a massive rebound into fraud territory again this bad debt still exists and will only get worse. Thus the problem cannot be solved without letting the greedy money handlers fail, which again I have no problem with. Or have the government use working class taxes and print more money to assume the responsibility for all the overvalued debt and bail out the elite bastards who got us into this mess. I really do have a problem with that.

Three other points.

First - Home values don't magically increase just cause the banker says it's so. A rise in home values must be associated with a tangible catalyst of some sort that increases demand. These can include a major industry locating nearby increasing the working pool or possibly a military base housing some number of returning troops. Look at the flip side. When a major manufacturing facility closes in a city home values plummet. See the rust belt as an example. If home values are rising without an associated increase in salaries or number of jobs something is wrong.

Second - This is just the beginning, the big "stable" players, Citi and Bank of America, will see their problems start when consumers run out of money and start defaulting in bulk on those high risk credit cards those banks like to issue.

Third - Funny how the government is willing to nationalize any corrupt industry to protect the profits of the elite, but ask them to nationalize the health care system, a move that would vastly help the working classes, and they scream Socialism.


Anonymous said...

Nice to see you back Big Bear!!I really enjoy your posts and have learned so much from you travels and journey to independance!! This is a very good point you are making. The greedy b@#$%^&s are getting richer off us little peons and we are letting them get away with it. Just one step closer to total collapse. Bank of America is the one burning me up at this point. They are making themselves so "big" that the government will back them up when they fall too. Can't risk letting them go when so much depends on them because they have so much. AAARRRGGGHHHH! It really makes me upset. Please keep on posting. You have really helped us!!

Florida Mom

Mayberry said...

This is exactly why I want to get OUT OF THE SYSTEM!!!! I realize that is virtually impossible, but I can minimize my involvement to only what's absolutely necessary.... God how I wish folks would just throw the bums outta office....

mockum said...

As I understand, a problem beyond people defaulting on their loans is that the bank was providing insurance (called credit default swaps) against people defaulting on their loans. So, the banks are holding bad credit *and* they're paying out insurance claims. The banks have a cash flow problem: the cash they need to pay the claims is loaned out. The Fed loaning the banks money helps solve the banks cash flow problems.

the texan said...

I like your thinking on the bank mess. Seems to me everything the government touches turns to popo. I sure don't want them into health care anymore than now. Less would be better. mayberry got it right we need to throw the bums otta office.

Anonymous said...

Both of the examples you give scream socialism to me!

Nationalized health care and nationalized banking and nationalized mortgages are all socialist programs.

You seem to be a fan of national health care. This simply does not work. Look at Great Britain as a model. It has failed big time. People who can afford it will go to France to get better health care b/c the providers in GB suck so much.

BigBear said...

About 12 years ago I was hiking in Northern England. I was walking across a lawn at Bamburg castle, my right leg dropped into a hole and I broke it. I was taken to the hospital in an ambulance it was a long ride all the while worried about how I was going to pay for this. Got to the hospital, they put a cast on my leg kept me for 24 hours and arranged for me to get back to London for a flight back to Chicago. They even arranged to have my rental car picked up. It cost me nothing. They were friendly, the doctors spent time with me, they actually seemed to care, VERY PROFESSIONAL AND COMPETENT. Strange experience. I felt no anxiety at the hospital, I was treated like a person the doctors actually explained the processes and made sure I knew what was happening. This was my experience with a "Socialist Health Care System".

The hospital was not a modern art exhibit like in the US. The English hospital was very gray and drab, they spend money on care not aesthetics. It was very meat and potatoes, not caviar based like our for profit systems. I had no problems, they didn't even ask for my ID until my leg had been set and I was in the room.

In the American Corporate Medical system the first thing they want if you are conscious is your payment information.

The medical system in England treats the patient quickly and efficiently. There is no spa treatment for the ill. You go, get fixed and get on with your life. This is why the elite go to France, a much bigger socialist system by the way. They get treated for free plus get all the pussy hand holding and sparkling water they can drink.

I do not approve of any socialization of business. It usually leads to screwing the common citizen. But having experienced the "Evils of Socialized Medicine" first hand I can not fault it. I received much better care during my visit to a British hospital than I have ever had in the "capitalist halls of health" in America.

Universal Health Care would benefit all working class Americans especially the retired. Don't blindly listen to the right wing capitalist propaganda.

If you cannot afford health care in America, you don't get health care in America and you die. While they spend TRILLIONS bailing out the elite so they can go on to screw more people on the backs of the working classes WHO CAN'T AFFORD HEALTH CARE AND DIE.

Between bailing out the rich bankers who are sinking because of greed and helping the working classes get health care...

I CHOOSE HELPING THE PEOPLE, plus it is cheaper that bailing out the banks.

Ninety percent of Americans cannot afford that Gold Standard health care that Limbaugh always gushes over. Average citizens will get third world treatment in our Pay to Live system.

Sorry to be so adamant but I have used both systems and assure you the American care you get is substandard on all counts.

My point is if there is going to be a bailout then bailout the workers who actually support the system. Not those who suck the tit dry and then bitch when the milk runs out.

I might have to actually blog about this subject.

Anonymous said...

I don't think they are paying for the sparkling water- they are paying for service.

Your experience is unique in GB.

I am using socialized health care RIGHT NOW and I tell you, it's nice that it's free, but the service blows. Long waits, and non-caring medical care is typical.

The worst part is, you will be subsidizing the care of fat people and smokers. Many illnesses are caused simply by being overweight or by smoking (both usually a choice by the person). We all know Americans are known for that. So, eat and smoke up today, America - your health problems tomorrow will be subsidized by the government and taxes.

Oh, and I've been to several 3rd world countries, their care is 1000x's worse than America's. 90% of Americans have insurance and thus can afford the for profit health care you have today.

Not that the system's perfect- it's not. But just look and the government's record on socialization to date. Do you really want another program? Imagine the feeling you get when you have to go the DMV. Do you want that same feeling when you go to get health care?

Anonymous said...

My personal experiences with GB health care mirror Bear Ridge's (I lived there for two years).
The US is the ONLY industrialized nation on the planet without socialized medicine, the only one that has turned basic health care and emergency care into a for-profit enterprise. The end result? We may more, as a percentage of GDP (16%) than any other nation for our health care, yet we consistently rank behind such nations as Sweden, Canada, Greece, Portugal, and even Cuba in terms of average lifespan (42nd!) and infant mortality.

Japan, another developed and advanced nation with socialized health care, spends half of what we do (in terms of GDP, 8%) for medical care, yet the Japanese receive much better service (again, I've lived there) and live longer.

Anonymous said...

I've had US socialized health care, from two different branches, USN and USAF. You can have it if you want, but I prefer to keep paying for MUCH better quality care.