People say to me Hey, Uncle, it’s been a good hour or so since congress failed to save us and, well, I kinda thought we’d all be dead by now. And I’m not. So, what’s up with that?
Well, the problem is a bit overstated. You see, a while back someone decided that home ownership was good. So, people came up with ways to ensure more people could own homes. With more buyers, property values went up. Or, more likely, prices were inflated so that these ways to ensure more people could own homes would be profitable. Now, the trouble is that these inflated housing prices have come down. This sucks if you’re the owner of some property or the mortgage holder on the property and you borrowed or loaned money when the price was high. Now, you’re not screwed yet, if you can still make payments. But if you can’t, then these folks that loaned you money now have financial instruments valued at less than the assets they have a secured interest in. I mean, the loans still have value and are, most likely, still profitable. But there’s some risk.
Then they say to me Well, that doesn’t sound that bad. I mean, it’s not great but it doesn’t sound like the Apocalypse is coming. After all, whenever you lend money there’s a risk that’s why people charge money to loan money. What was the point of the bail out nonsense, then?
Well, for political posturing, of course.
And they say No, I mean what would the bail out have done?
Oh. Well, it would have given money to people who made bad business decisions. It would transfer assets held to the .gov. And we’d start over and be in the same mess. Imagine you’ve been stabbed in the neck. The bill would have been akin to cleaning up the blood instead of actually stopping the bleeding. More here.
Update: Wall Street does not agree.