Sounds like a case of blame the victim. The borrowers, in large part, are still going to lose their homes. Some small number of them may be helped, but not many. Their credit is still going to be ruined.
I'm not even in agreement with the premise that the mortgage defaults are the primary cause of the credit crises. People tend to look for simple explanations that simple solutions can be applied to. The sub-prime fiasco is one of many causes of the current situation. If we deal with it as "the" cause of the credit meltdown, we'll be right back in the same situation,(only worse) in the very near future.
You made a very valid point here I feel.
What Libsmasher fails to take into account is this:
When first time buyers for example approach a mortgage broker or bank etc to take out a mortgage, they often have little knowledge (especially young couples) of how the housing market works.
So they tend to take the higher authority (banks, mortgage brokers) at their word. One could always, (until the last decade or so) trust the word of ones bank manager, the absolute epitome of respectability, this is
still unfortunately, how many see such institutions.
If a bank, or mortgage broker tells a first time buyer that they can in fact afford the mortgage on a specific home, who are they to argue?
One naively (first time buyers especially) assumes that the financial industry knows how to calculate, re: basic maths at the very least.
Of course, in an ideal world such first time buyers will have done their homework, will understand how basic finance works (or should work), but unfortunately, many are totally unaware for the most part.
This situation has been responsible for many buyers being lulled into a false sense of security. It is wholly unjust to place the blame on the buyer alone.
There are multiple reasons why the proposed solution President Bush advocates cannot work long term (although I quite understand why he (his admin) has resorted to such measures).
This injection of money to save banks etc. (whose practices over the last decade have, let us not be mistaken, been quite, quite dreadful and without doubt fueled by obscene greed) can only stave off a crash for a period of time, common sense dictates this to be so in my personal opinion.
By economically propping up a flagging housing market, the tax payer is supporting a system of hugely over inflated real-estate prices, whether this system has worked to his/her personal economic advantage or not.
This in itself seems morally inexcusable, as the one tangible thing people really need is a roof over their heads.
Apart from that, you can see that the measures proposed, in terms of the real estate correction, means a crash is simply being 'staved off'
Without similar '
creative' debt devices kicking off this whole cycle once more, a large sector of the populace will simply find themselves unable to afford any sort of roof over their head.
Additionally, higher real-estate prices coupled with higher taxation to pay off the proposed 'bail-out bill', will reduce the consumers economic capacity to consume .. which equates to approx 75% of the economy.
To add further 'fuel' to the fire, the cost of all types of domestic fuel and food seem to be, despite the occasional drop, continuing their upward trend.
Although these are consumer items, they're never going to lead to sustainable economic growth, that is fact.
You cannot simply go on increasing personal debt without a corresponding increase in salaries (salaries have barely risen in the last decade).
If the sump is emptying faster than it's filling, then the sump will run dry, to me this is obvious. So debt is not a possibility for continued increases in consumption, since eventually, not only will the individual be faced with the prospect of never being able to pay off his/her debts, but they won't even be able to afford to
even service the debts any more.
This leaves the consumer with his/her ever shrinking disposable income to carry on consuming with.
Taxes, real-estate, fuel, food, current debt levels and an all but stagnant income, means this is an ever dwindling resource.
With the consumer, left with little or no economic capacity to consume, the impact on the economy is of course, reduced demand, which means reduced employment (in the retail sector especially), which means a downward lever on salaries, which means less economic capacity to consume ... 'hello vicious circle, hello tail-spin'.
Each person in the US will have to pay extra taxes to pay off this enormous debt on top of the gigantic debt you are already sitting upon, this equates to
even less disposable income.
The markets have to be allowed to correct, if you stave it off, it just means even more financial heartache further down the line.
Generally we leave the cheerleading posts here to Top Gun.
