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The Bible vs. The Bailout
Over at the American Spectator, my friend Robert Stacy McCain considers the biblical ramifications of the bailout:
When government begins to meddle in the economy, picking winners and losers, using appropriations and fiscal policy to transfer money from one group of citizens to another, it divides society into two classes, taxpayers and tax consumers, punishing the former in order to reward the latter.
Such a policy is not merely misguided, it is immoral — indeed, it is sinful…and by displaying the spectacle of government engaging daily in legalized theft, the welfare state tends to corrupt the morals of its citizens.
The redistributionist state long championed by Democrats now seems to be operating in reverse, with Main Street Americans expected to subsidize Wall Street, upside-down McMansion buyers, and troubled mortgage lenders. In approving a plan that takes from those who have earned and gives to those who have not, McCain wonders, which part of ‘Thou shalt not steal’ does government not understand?
back to top33 Comments to “The Bible vs. The Bailout”
We need to get back to this nation’s founding principles. You know, all that “from ea according to his ability to ea according to his need” stuff you learned in any public university.
Then again, look at the root words for politics: Poly means many or multiple. Ticks are things that suck the very lifeblood right out of you. QED as they say in geometry.
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A few New Testament passages that may apply in principle. Discern for yourselves:
* “The hard-working farmer ought to be the first to receive his share of the crops.” Paul, 2 Timothy 2:6.
* “…for each one should carry his own load.” Paul, Galatians 6:5.
* “Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.” Paul, 2 Corinthians 9:6-11.
* “He who has been stealing must steal no longer, but must work, doing something useful with his own hands, that he may have something to share with those in need.” Paul, Ephesians 4:28.
* “Make it your ambition to lead a quiet life, to mind your own business and to work with your hands, just as we told you, so that your daily life may win the respect of outsiders and so that you will not be dependent on anybody.” Paul, 1 Thessalonians 4:11-12
* “If a man will not work, he shall not eat.” Paul, 2 Thessalonians 3:10.
* “Such people we command and urge in the Lord Jesus Christ to settle down and earn the bread they eat.” Paul, 2 Thessalonians 3:12.
That last one may be the best.
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There were plenty of prohibitions against *usury too. Without that we would certainly not be in the mess we are in today. But who can imagine it?
*That means charging interest for those of you who are ignorant of the term and too lazy to look it up in the dictionary.
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I thought ususry was exhorbitant interest–in the 20% and above category. Shh–don’t tell the credit card companies.
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Amazing that so many are imperiled now due to unqualified borrowers taking loans they had no business even looking at, much less affixing their signatures on!
It’s all about trusting folks to do the right thing.
What an assumption. To all you bankers out there who ASSuMEd…
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Sawgunne:
My understanding is that lenders had to have a certain percentage of loans go to these type of borrowers – or face a lawsuit! It was all part of an effort to bring homeownership to minority and low income Americans. In other words, government forced lenders to make the loans and then led lenders to believe the loans had the backing of the government. When Republicans tried to reign in Fanny and Freddie back in 2004, they were racked over the coals by Barney Frank and several members of the Black Caucus. Newsmax has video of the congressional hearing that was carried by CSPAN. This baby dwarfs Enron. WHERE ARE THE HEARINGS?
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Usury is now defined as 30%.
What the banks should have done, and moreso, what Congress should have done — not saying that people shouldn’t do it ON THEIR OWN — is limit how many credit cards and the credit limits that a bank can offer to a person. Yes, I know that’s nanny government, but it would have been cheaper than this bailout. When they changed the bankruptcy law to favor banks, they should have done this “in favor” of citizens.
Up until this mess, I was still receiving two or three solicitations from banks every day. I’m tired of shredding them. Hopefully, this will stop.
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#5 – Sawgunner. They made no such assumptions. They knew exactly what they were doing, both the borrowers and the lenders. Moreso the lenders. And when the government compelled them to make bad loans, they were motivated by greed and passed the buck and risk by selling their bundled bad loans to investors who were going to resell them and so on… the problem is that the market for bundled bad loans dried up when people figured out they they could no longer afford to pay once the ARM reset. The investors who got stuck with the bundle when the music stopped acquired the defaults. Now nobody can get out from under them.
It was all on the basis of greed and love of the almighty dollar, coupled with with the government dictating who these banks had to do business with. The love of money is the root of all evil. And now were seeing what that has wrought and we are reaping what we have sown as a nation.
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Let me see:
1) the Bush administration nationalized the largest insurance company in thew world
2) the Bush administration is proposing effectviely nationalizing the financial industry as part of the $700B stabilization bill
Oh and McCain voted for the bailout bill and argues that it must be passed quickly.
Yup – it is those pesky conservative Republican who are leaidng us down the primrose path to socialism.
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BT post 6,
no actually, as I understand it what they had to do was not create restrictions against the users (read no redlining).
Nowhere were the terms of qualifications of the mortgage required to be changed or reduced.
Now if you have documentary evidence of a law making this requirement, can you reference the law?
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NJLawyer post 7,
perhaps we should have insisted that those originating mortgages should have ensured that certain minimum standards were met, that there was truly full disclosure of the full potential liability of the mortgage, and had clearly documented that these actions had been taken?
The last mortgage document I was presetned was perhaps four years ago: have you as a human being ever tried to read one?
And you expect people with limited financial sophistication to understand these documents?
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Conservative proposals for the market crisis ask the government to expend $50 billion or more without receiving anything in return. See recent threads here. Conservatives don’t want the government to acquire or take equity in the financial system and be a player. They would rather see the government play foolish Santa Clause than market-making capitalist.
Nevertheless, it seems logical that government will take over the credit markets and begin setting the price of long-term risk, which is too important to leave to a market that obviously can lose its ability to mobilize the risk-taking capacity of society.
Wall Street as we knew it is gone. Amazingly, there’s not a free-standing investment bank left. The ones that didn’t fail have been turned into bank holding companies subject to regulation. There are still people on Wall Street who know how to buy and sell mortgage-backed securities and their derivatives, and we need to pay them handsomely so the banks don’t make more money than the principal investor — the people of the US. They’ll earn the fees we pay them. Otherwise, the US isn’t redistributing money, it’s investing in assets, making a market for them. and preserving the wealth of all of us.
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If you are asking me to trace the paper trail from lender to congress – i can’t. But your effort to dump responsibility for this mess on Bush and Bush alone is laughable. If Republicans were solely responsible there would be congressional hearings by now. The fact there isn’t, should tell you which party is responsible. In truth, both parties are responsible. The Newsmax video is pretty damning – for those who care to know the truth. Youtube also has a number of informative videos that make the case better than I particularly since the MSM refuses to shed light on the issue. Could it be because the MSM is in the tank for one party 5 weeks before an election? Nah!
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“from each according to his ability to each according to his need”
Um, Sawgunner, Karl Marx, whom you are citing here, does not define our nation’s founding principles. But if you learned that in a public university, I’m not surprised.
“Nevertheless, it seems logical that government will take over the credit markets and begin setting the price of long-term risk, which is too important to leave to a market that obviously can lose its ability to mobilize the risk-taking capacity of society.”,
As capricious as markets are, they still function according to certain inexorable laws of supply and demand and human interactions at levels of complexity that defy the best efforts of the solons of government. History demonstrates that planned economies are economies that are doomed to fail. The market eventually trumps the governmnet , for good or ill. The plunging house prices have brought them back to approximately where they would be had they followed natural trends and not where they were pushed by the housing bubble, inflated with credit risky mortgages.
The Fanny Mae, Freddy Mac casino, that allowed speculators to risk house money to hit big payoffs, was presided over by pit bosses Barney Frank, Chris Dodd, etc. that resisted warnings from Greenspan and McCain a few years back. “Let’s keep rolling the dice,” was Barney Frank’s rejoinder, and now we have crapped out and he and his cronies are crafting a “bailout.”
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And while I’m venting, I think John McCain just lost the election. As a guy who opposes pork, taxes and wasteful spending how on earth can he justify voting for the bailout?
And if Palin bombs tonight (and there’s a very good chance of that) put the fork in John – he’s done.
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Can anyone explain the housing bubble and how that happened? I’m still trying to get my mind around how housing prices soared. What drove that? I saw construction all around here, so it doesn’t seem plausible that it was driven by a housing shortage.
Easy credit, I guess, right? That’s where the sub-primes came in? Since it was easy to get credit people just paid more without blinking?
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BT post 13,
no.
I am askking a simple question: what law requires lending institutions to lend to people who are not qualified?
There are laws which require that the qualifications be uniformly applied, but this is different from requiring loans to unqualified borrowers.
You seemed to imply that there was a law which required lending to unqualified borrowers. What is th is law?
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BT post 13,
I assure you that shortly there will be congressional hearings.
I can also assure you that simply based on the chronology of power, the Republicans will not come out looking pretty in these hearings.
The underlieing cause is inadequate regulation for a variety of issues (see the Princeton lecture I have posted). The best defense that can be made is that these were new instruments and it was unclear what needed to be regulated.
I suspect that after $1T that will indeed sound as a feeble argument.
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Ken post 14,
acutally I have seen an analysis of the housing market (again see Princeton lecture) which suggests that housing prices need to fall an additional 25% to make the nominal growth trendline.
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This crisis is as much a problem of poor stewardship in thousands (millions?) of families, demonstrated by failure to count the cost, as bank greed.
This probably is another case of the sins of the fathers being visited on generations to come.
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momof5 post 16,
I can try.
There apparently is a financial pool of about $70T or so floating around the global economy looking for a place to be invested: read get high returns at low risk
In the late 1990s/early2000s, the financial insititions, no longer haivng the dot com boom to invest in, started “optimizing” the mortgage backed securities. There were several outcomes:
a) these became attractive instruments for this global capital market
b) they provided easy access to money for making morgages
In paralllel the Fed reduced the interest rate to very low levels (one banker I know kidded that the money was almost free) setting the standard for very low interest rates.
So lots of money at very low interest rates were available for borrowing to fund buying houses.
That meant that the average person could afford a much more expensive house for a given monthly payment than they could previously.
House prices tend to move relatively slowly.
You now have the makings for a slow motion boom.
Meanwhile the increase in housing prices allowed present homeowners to sell their houses at a big profit or take out home equity loans to pull equity from their houses.
And the rising prices and easy mortagages created an environment where much money could be made by flipping houses.
So now you have the making of a speculative drive to the housing market.
About one year ago, the Fed increased interest rates: money became mopre expensive.
To keep the boom going new clients needed to be brought into the housing market (we see the hint of a ponzi scheme here): see the beginnings of the sub-prime problem.
When the boom ran out of steam, housing prices started to drop.
When the price of houses dropped, sales dropped, but more critically foreclosures increased.
The housing buble gets burst.
When the foreclosures increased, these mortgage backed securities greatly increased in risk AND the market for these securities dropped. In the U.S. it appears that there may be $10T of these mortgage backed securities which are clogging the books of the financial institutions.
I suggest the Princeton lecture for the detasiled version, but the short verison is that virtually all of our fiancial institutions are on the edge of bankruptcy, based on the dramatic drop in value of mortgage backed securities, and as they start failing they both hoard cash AND there are fewer institutions to provide credit. Here is your creidt crunch.
And here comes the bailout to unclog the balance sheets of these assets (see Make It Man’s report from Fidelity).
Hope that was clear enough. I would be happy to try to clarify further.
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momof5 post 20,
I would be curious if you could read and clealry understand the typical mortgage, much less understand clearly what your actual liabilities are under the mortgage.
I remember my second mortgage after graduate school. We purchased in 1989. We placed 20% down. We used a lawyer (and quite a good one at that).
In our usual habit of buying high and selling low, we bought at the peak of the that time boom.
Buried deep in our mortgage was a clause which stated that if the market value of your house droped below your mortgage face value (mark to market), you were in default. By the early 1990s our house had dropped more than 20% and we were technically in default.
At the time the lending agencies did not want to foreclose, we were making all of our payments, and the banks concluded that since our house had not been sold, we did not know what its market value was: they blinked.
In todays market, my suspicion is that we would have been in foreclosure, although in truth shortly thereafter they changed this clause in our mortgage (they didn’t ask us!) and removed the mark to market term.
We put 20% down.
We made all of our payments on time.
We reviewed the mortgage with a lawyer.
We were technically in default.
And tell me again how we had acted irresponisbly?
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MOMOF5
I’m certainly no expert but I suspect the easy money caused demand for housing to exceed supply. Consequently, home prices shot up. During this period lenders even came up with creative mortgages to qualify more folks. In this mix you had investors (such as myself) and homeowners hoping to move up to larger homes along with folks who wouldn’t normally qualify for a loan. A bubble was created that eventually burst when circumstances changed.
In response to Musing, I do know that a colleague of mine is married to a guy who has his own title company. Several years back I got a mortgage from him that required document after document after document along with a down payment. At some point afterwards lending requirements were relaxed so that a borrower just had to sign a statement saying he made xxx number of dollars a year. No proof beyond that and no down payment. Requirements were indeed relaxed. Do I know who was responsible? Nope. Just that – from what I’ve read and heard – it happened.
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BT post 23,
two questions:
1) why did demand increase?
2) why is demand now decreasing?
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BT post 23,
yes it is my understanidng that the mortgage originators greatly reduced their requirements for issuing a mortgage. there are some interesting side issues here BUT:
1) were there regulations which controlled the documentation required?
2) why were the mortgage originators not concerned about the actual ability to repay?
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Thanks, Musing & BT. I’m getting info in fits and starts (between paying the bills and fixing quesadillas for the neighborhood kiddos
), so my ability to study complexities at this point is limited.
It seems clear from Musing’s point in 22 that some got caught in technicalities. For those, I feel particularly sympathetic.
It also seems clear that others bought more house than they should have. I’m somewhat sympathetic–who doesn’t want a nicer neighborhood for the kids to grow up in??
Yet, taking risks by having NO margin built in, by buying a home depending on Murphy staying far away, or by buying the house you LOVE for much more instead of the one that would have provided adequate shelter, these are the irresponsible decisions that I’m reluctant to have taxpayers accept responsibility for.
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KEN: History demonstrates that planned economies are economies that are doomed to fail.
Democrats aren’t talking about planned economies. Some are talking about government seizing control of the price of risk. Government used to set short-term interest rates rather than leaving them up to the market. Now government needs to nationalize the banks and let bureaucrats with Ph.D.’s set the rates.
Almost every economist recommends directly injecting capital into the banks (in contrast to the Paulson approach). Taxpayers give them money and get equity in return (just like what Warren Buffet did to Goldman Sach. Recapitalization on this order of magnitude is acquisition (in whole or in part). We should want to do this to purchase a well-operating financial system.
History demonstrates that the Swedish model works.
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In our usual habit of buying high and selling low, we bought at the peak of the that time boom.
******Musing,
Very, very rarely, I can completely relate to something you say. We now have a joke in my household that if we are thinking about buying stock, everyone else ought to pull out of the market. Ditto with a house.
We bought our second house right at the peak/end of a huge housing bubble in San Diego, CA. When we had to move because of a job situation, we were unable to sell the house at all, let alone for the value of the mortgage. We rented it for awhile, taking a huge loss and living in a small apartment.
We ended up letting the bank have it and took the hit to our credit.
Lord be praised, we learned something from that.
Our third house (where we live now) is way below what we could have afforded at the time. But, it was *adequate* to our needs, and even had a few things we wanted (beyond what we needed).
Fortunately, even if the housing market drops another 25%, I think we will still have our full value in the house (although it could be close.)
But, I guess the point is that we have “been there, done that” to the point that it has become a family joke. We always tend to buy high and sell low.
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Musing brings up an interesting point, that part of the housing bubble definitely was driven by outright fraud – witness the schemes involving house flipping.
This practice has literally destroyed neighborhoods in my city (Buffalo), as well as elsewhere.
Here is an interesting site with information about flipping.
Flipping Frenzy
Things are so bad, our city has an Anti-Flipping Task Force, and there has even been a movie, Flipped about the practice.
Also, at the mortgage corporation/bank where I work, we were/are vigilant and proactive in trying to detect when there is potential fraudulent flipping happening.
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My brother flipped a house, but it helped the neighborhood. It was in terrible shape. He painted, landscaped, and repaired. He also put in a driveway and took down a dead, dangerous tree.
It went from urban blight to a pretty little starter home. The neighbors loved it, striking up conversations with him when he worked on it. He invested quite a bit, and still turned a profit.
Maybe someone could community organize that kind of flipping!
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Musing:
1. Why did demand increase? I’m speculating that demand increased because more people could now qualify for loans?
2. Why is demand now decreasing? Good question. Perhaps because some of the funky interest only loans began to go up and so did forclosures as people lost their homes? I’m sure there are other factors to.
1. I would assume there are documentation requirements. Not my field however.
2. Why were mortgage originators not concerned with ability to pay? To that I would say because lenders thought the loans were backed by Uncle Sam – or at least lenders thought they were.
Now educate me…..
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How about these ones, both in reference to government and to individuals…
Proverbs 22:7, “The rich rule over the poor, and the borrower is servant to the lender.”
Luke 14:28-30, “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, `This fellow began to build and was not able to finish.’ ”
Guess what we’re doing?
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BT post 31,
point one: right on and further the loans were cheaper so they could buy more house.
point two basically right as I understand it: the Feds uppped the interest rates so that houses became effectively nore expensive.
Now one has to push more expensive mortgages to compete, and I believe we see there the beginnings of the sub-prime mess. I suspect that few wanted to get into the sub-prime fiasco until it became necessary to maintain business: why chase dicey loans when there are enough good loans to go around.
I am not aware of any laws requiring any documentation for loans not direclty handled by the government. I could be wrong here, but I don’t thik I am.
for item 2: my obsrvation is because the mortgage originators were not keeping th eloans. Rather they were selling them off. As such were there a foreclosure, they would not be impacted.
I sense a privatizing the gain and making the public take the risk.
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