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'Splain this to me?


Some material is very old and may be incorrect today

© November 2008 Anthony Lawrence

Seriously, somebody needs to explain this to me. I know I'm hopelessly stupid with regard to Economics (with the capital "E") so please make it somewhere around 7th grade reading level. Here's the question:

Why are we giving money to the banks?

See, I think it would have made a lot more sense to give tax credits to people who need help. It should be easy enough to figure out: if you have a mortgage, your bank sends you and the IRS a little slip of paper that tells how much interest you paid them last year. All we need to do is compare that paper to your gross income to see if you are in trouble. If it's over X% ("X" to be the subject of political arguments), send the guy enough of a check to reduce X enough that he can pay his mortgage. One home, one slip, one rebate. Repeat for as many years as necessary.

Now yeah, some people would get some money they don't need or deserve. Obviously that's true under the present scheme too, so that's not an argument. Some people wouldn't use the money to pay their mortgages but I think we all know that most would.

So wouldn't that take care of the banks? The mortgages get paid - yes, the mortgages are obviously less liquid now because of the real estate plunge, but if they are getting paid, so what? The knowledge that they are likely to get paid should be enough to keep that market fairly fluid.

The banks aren't in trouble because they are getting paid. We spread the problem out over 15 to 30 years so it's less to swallow for the rest of us. Every year of inflation automatically makes the number of folks needing this help less and less, saving taxpayers money. If housing markets recover and people can sell, the problem and the rebates go away then too. Isn't that all better? The whole thing might even cost us less.

It seems obvious that if $700 billion dollars is enough to "fix" the banks, then $20 or $30 billion dollars in yearly tax rebates ought to be anough to help folks pay their mortgages. Maybe it would even be less, and remember it would automatically become less every single year because houses will get sold, houses will burn down, people will die or get a better job or inherit money and inflation will eat away at the X calculation anyway making the total rebates paid smaller and smaller. These rebates obviously only apply to people who have mortgages right now and whose payments exceed a reasonable percentage of income. Some of those mortgages run out in fifteen years, some longer, but they all disappear one way or another.

Is it too simple? I'm serious, I just don't get it. Obviously there has to be a reason why this is an idiotic idea, so lay it on me. 'Splain why giving money to the banks and still letting them foreclose on the poor saps who got trapped in this mess makes more sense than giving money to the people in trouble?

By the way, I have a very small mortgage. None of this affects me directly. Just a FYI.


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Wed Nov 26 23:41:33 2008: 4820   drag


"Why are we giving money to the banks?"

Because some famous economist from the late 1800's wrote that he figured the best way to jumpstart a temporarily failing economic is to simply dump a crapload of money into the financial system. A bit like a giving a adrenaline shot in the heart of a dying man.

Of course they tried the same thing during the stock market crash of the 1930's and it failed miserably there, also. It's just a flawed, very stupid idea, in my estimation.

From what I can tell the government has been doing everything it can to keep the economy artificially inflated. Lowering the the bank-to-bank loan interest rates to record lows, injecting money into the economy through vastly increased government spending and debt, etc etc. What we are dealing with now is just a natural economic force that should of been released years ago. The dam finally let go, so to say.

The capitalist system has evolved over thousands of years to be a self-correcting system. It's all about balancing the risks with benefits and trying to make the most worth of limited resources. Of course if your the government and you do everything you can to limit the risks then there is no self-correction, there is no balance, and everything goes to*\***. Lowering the cost borrowing money dilutes it's true costs (since money is nothing but a abstract representation of available resources) and by bailing out companies that would otherwise fail is just screwing everything up.

What is going on with our government and the bail outs range somewhere between the incompetent actions of morons trying to desperately look like they performing some positive action, any action, and the actions of people engaged in the biggest looting of a country's resources the world has ever known (ie Super-criminal).

The correct course of action is to simply let the economy take a*\*** and let things naturally improve. The economy has done so well so far (say... from the 1950's onward) despite the government, not because of it. They should just F-off.





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