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Originally Posted by pgardn
1. Not exactly true either according to what I read. Banks were making loans to more than just unqualified. And the loans made to the unqualified were made to balloon up. The investment banks were the idiots that made the most complicated financial instruments ever conceived to lump many diff types of loans together so no one knew what the hell they were buying. This exacerbated the bad loan problem.
2. No they dont. But they can certainly clean up their balance sheets with government money instead of using government money to make loans. Maybe your friend works for a smaller bank that stuck to what they were always successful with and now they have become a part of what was not their problem. (Make loans they are comfortable with because the consumer they loan to will be good for it... maybe not loans to another bank trying to get out of trouble because of unfettered greed)
The problem I have with all these "ancedotes" is everyone seems to look for evidence that supports their political leaning instead of looking at the whole body of work. I just read a little bit of Paul Krugman (a liberal), the Nobel Prize winning economist, and of course his take is very different than the above (he also thinks that deflation is a more likely problem in the near future). He says it is a lesson that free-markets need to be regulated. The lesson above is dont let the government get involved in pushing loans to help less affluent indiviuals. Everyone looks for evidence that supports their own line. But in reality it looks much more complex than that. Its almost like an avalanche. It started with some fairly small economic factors in housing, which uncovered a whole lot of skirting rules and pure greed. Which then revealed the government's inept nature (Securities and Exchange Comm.) in regulation... yada yada yada.
I still have yet to get a tale that sets up events
without some sort of political intervention to
highlight a belief. It is amazing how problems
are immediately made political to prove a political
position. Real problems are not solved this way...
In Science anyway. If you ignore data because
it does not fit your model, you get bad answers.
With all due respect to Democrats and Republicans,
liberals and conservatives.
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Of course it is more complicated than I put it but do you really want a 30 page dissertation? The fact was the banks were making bad bets because the quasi-govt programs FM and FM were in effect guaranteeing them not because of good monetary policy but because of political reasons. The fact is that political influence regardless of side will screw up the economy.
Very few banks are getting govt money.
No one said that free markets dont need
some regulation but Krugman is using the current crisis which was
caused by regulation in some ways to further his cause. And winning a Nobel prize is basically only possible if one is liberal.
My post was not politically leaning but stating the danger of political involvement in broad economic policy.
by the way in science there are no politics hence the lack of political involvement and the reason that it makes sense.