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Making Their Bed... and Ours

CrazedWalrus (901897) writes | more than 6 years ago

User Journal 1

I've never understood banks. I work in banks, I'm a customer of banks, and I guess I have a fairly good understanding of the banking industry. Here's what I don't understand, though, with this mortgage crisis/banking crisis thing going on.

I've never understood banks. I work in banks, I'm a customer of banks, and I guess I have a fairly good understanding of the banking industry. Here's what I don't understand, though, with this mortgage crisis/banking crisis thing going on.

  1. Banks do stupid things, like lend money to people who can't possibly pay it back (By the way, it's not just mortgages. See "credit cards for illegal immigrants." now that many of them are packing up and going home voluntarily or otherwise.)
  2. Banks get surprised when they don't get paid back.
  3. Banks start worrying about the quarterly report and lay off workers to compensate. Bonus points for doing it during the holiday season.
  4. Banks raise interest rates on adjustable mortgages to try to compensate for their losses.
  5. Laid-off workers now can't pay their mortgages. Go to 2.
  6. Homeowners with massively higher-than-expected payments now can't pay them back, even if they weren't particularly "high risk" to begin with. Go to 2.

Maybe that's a little oversimplified, but seriously, WTF?

Is it just me, or are banks making a bad situation worse by pulling down people who were otherwise doing fine and making them part of the problem instead?

We've seen the ripple effects these bad mortgages have on the industry. Fixed income instruments like bonds and mortgage-backed securities are supposed to be the tree when you're going out on a limb. They've turned out to be a tree that's dead and rotting, and a lot of people find themselves out on that limb holding termite-ridden sawdust. The ripple effects happen when one party is legally (contractually) obligated to cover someone else's bad bets. Chances are in times like these that they will be obligated to cover a LOT of bad bets. If they're unable to pay, everyone starts losing money.

For the car analogy, think auto insurance. You fully insure your $80,000 car: liability, collision, comprehensive, act of God, the works. You go out driving and total it while doing 110 in a 35. You walk away without a scratch, thinking "Damn, I'm glad I'm fully insured." When you make your claim, you find out that, unbelievably, 25 million other careless, drunken bastards crashed their $80,000 car that very same day, and they all have the same insurance company. Your insurance company now needs to pay out $2,000,000,000,000 ($2 trillion) within the next month. They file for bankruptcy and refuse to pay.

You and 25 million others are now out $80,000 for that car, even though you thought you were paying to be covered against exactly this situation. Worse, because 25 million people are now out looking for that same $80,000 car, the price has gone up to $110,000. If you want to buy that car any time in the near future, you're out $30k more due to market forces. Some people are actually paying this premium, but to do so, they can no longer put in that heated pool they were planning. There's your ripple effect. The market for pools was affected by a bad car insurance company, AND the cost of fixing the original problem has also gone up.

To make matters worse, the banking industry is now selling significant stakes to China and the Arab countries (See Morgan Stanley, Citibank, Bear Stearns, Merrill Lynch, for example). Not only does this put the country's financial system at risk of foreign influence, it also means that larger percentages of profits will be flowing overseas to these countries. That means less money (investment, employment) here at home.

All of this has detrimental effects on the overall economy, and it causes itself to get worse. When will people who call the shots decide that they need to stop exacerbating these issues by looking short term? Laying people off by the thousands doesn't help medium or long term, nor does selling controlling stakes overseas. It only buys short-term solutions at the expense of creating future problems.

Some analysts are calling what's happening as the makings of another Great Depression, Dust Bowl style. Only time will tell if that's true. For now, it sounds a bit alarmist, but we haven't yet been treated to the sheer selfishness of modern Corporate America. If you think they're bad when times are good, or even just "okay", wait til you see 'em when the excrement really hits the ventilation device.

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Making our bed (0)

Anonymous Coward | more than 6 years ago | (#22016614)

Is it just me, or are banks making a bad situation worse by pulling down people who were otherwise doing fine and making them part of the problem instead?

When will people who call the shots decide that they need to stop exacerbating these issues by looking short term? Laying people off by the thousands doesn't help medium or long term, nor does selling controlling stakes overseas. It only buys short-term solutions at the expense of creating future problems.
Consider that the "people who call the shots" will never, never ever, never ever ever, really have to worry about their own financial situation. Even if all of the stock markets across the world tanked today they would still own significant amounts of land, own significant stakes in grass roots corporation (even if the stock markets tank the grocery stores, infrastructure utilities, and logistics organizations will still see their workers showing up every day), and have absolutely no concern for ever being evicted, or not being able to pay their mortgage, or not be able to afford their next meal (or vacation, or yacht).

From the point of view of those people they're not exacerbating a problem: they're ensuring that large swaths of the population will remain forever in financial debt. If they can get the government in on the bailout then so much the better. They've now added that many more paying customers into the debt system.

From their point of view they're not making things worse. They're making things better, for themselves and their social connections, by ensuring a constant revenue stream from hardworking individuals who have been steamrolled into believing that there's some actual moral imperative to pay back debt--without ever considering that maybe, just maybe, that debt has (indeed) been artificially inflated for the sole purpose of keeping them there. What better ruse is there for a landlord than to ensure that his tenants will never be able to escape financial debt? What better ruse is there for a slaver than to ensure that his slaves, even if they escape, have no other opportunities or support systems?

It's a cutthroat world and the US Federal Government has been horrendously complicit in aiding and abetting the defrauding of the entire American population for many years. The Civil War wasn't about slavery: it was about the definition of payroll (who is and isn't a slave). Once payroll was established in law it became quite easy to make the correlation between work and compensation quite hazy; a perfect sham for a con artist. World Wars weren't about nationalities or freedoms. Those same "people who call the shots" (or their predecessors) could have stopped the world wars cold simply by not funding the governments which engaged in them. But they did, because it was profitable, and it gave them the opportunity to saddle entire nations with debt.

Look at the US Federal Government's total accumulated debt. Every year the federal level politicians continue to borrow more and more money from the Federal Reserve (which is a private organization). That money must be repaid, with interest. Look at the interest rate that the Federal Reserve sets. The major media portrays this as the interest rate which affects credit cards and mortgages but, in all reality, its just a little sliding scale to ensure that the average American taxpayer never has a chance at accumulating a measureable amount of savings with which to escape their own debt. Instant lifetime customer, instant lifetime renter, instant lifetime profit margin for the "people who call the shots" to siphon from, vampirically, to subsidize their lifestyle, through little or no effort of their own, for all time.

Look at most of California. California wasn't especially, extravagantly, or extraordinarily wealthy until the real estate (80s) and .com (90s) boom. That's just money siphoned, through the stock market, from the rest of the nation. And the people here, the ones who are the nouveau rich, conduct themselves as if they're entitled to it, as if the world owes it to them, as if they worked for it, and as if they have no responsibility to contribute that money back to the people they siphoned it from.

Ponzi scheme, pyramid scheme, outright scam... call it what you will... unless there's a global financial meltdown complete with violent revolutions and overthrow of governments, then the world will continue to run as it always has: a robber baron's paradise with a thin PR facade of feelgood lip service.
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