Originally Posted by nvidia2008
I came back to read this again. Lending is a mutual agreement.
That means, the lender is as responsible for defaults as the debtor.
This would be true if not for the government using GSE's and also regulation to alter the relationship. So in an ideal world I would totally be in agreement with you. However in the world where the government creates an instrument claiming to remove risk and then "compels" you under threat of litigation to lend in the manner they dictate, that isn't quite true.
Yes, you can say the debtor is an idiot when they fail to meet their obligations. But the basis of financial transactions is that there is always risk. You lend money to a business, it may go well, or they could go bankrupt. Clearly in some cases it's because the debtors are irresponsible idiots with the money. But in some cases, the business may fail for all kinds of legitimate and unforseen reasons.
Most businesses yes. Since we have a Federal Reserve that while claiming to be independent, clearly is not and since they have been manipulating interest rates, reserve requirements, and the Congressional arms has been declaring lending requirements are racially motivated, etc. it isn't quite that simple.
I'm not even saying it is only one party. I made up this mental shorthand to sort of explain it to others. Republicans said business could speculate with free government money in exchange for Democrats declaring they better lend to people who have no business being lent to at all.
But this does not negate the onus of responsible lending by the lender, ie. banks.
Actually in my mind it does. You look at any industry where the government has declared no one can judge, the result must still be achieved and private industry can handle the world while government handles dictating all the rules and you see the same exact results. It isn't just banking. It is higher education, health care, real estate, energy, etc.
Just as with sub-prime, US, British and European banks that continued lending to Greece well past the point of any sensible risk management have also caused this problem. Banks became greedy chasing interest from loans and interest from loans to pay the interest.
What interest? Not be a complete ass but have you seen the interest rates on government bonds? They are about the worst investment possible. Governments know it so again, they manipulate the system. They've been printing money and buying their own bonds and also exchanging the bonds for the toxic assets the banks were holding that the banks had from lending to people under government compulsion. Also the money printing generates inflation which makes other investments, specifically stocks, more risky so the banks start looking to the government for a safe haven from government action.
It becomes one form of coercion traded for another type of coercion.
If I lend my car to my drunkard friend, most people would say I have only myself to blame when he crashes my car.
This would be absolutely true in almost all cases. However here is what the scenario will look like under the government.
Drunk friend: Dude can I borrow your car?
You: Ummm.... no, you're drunk.
Government: That's a judgement and you make it because you are racist, sexist, and insensitive.
You: You're wrong. He's drunk.
Government: Well you can prove we are wrong while we go through this multiple year review and background check on your actions and btw you get to hire someone to fetch, organize and give us everything we demand or you can sign this consent degree to lend cars the way we want and actually survive.
You: Fine I'll lend it an pray he doesn't destroy it.
You: Government, I've got a problem. While my drunk friend hasn't managed to destroy the car yet, there are increased costs with him borrowing it. He's very hard on the brakes due to his terrible reaction times. He peels out all the time while being a drunk ass. The tranny is starting to make ominous noises as well. I can't absorb the cost of this asshole much longer.
Government: Well don't worry, you can't use that car much longer any way.
Government: We've decided it is too inefficient, not safe enough in a crash, and it wasn't made by union personnel.
You: It's a perfectly decent car when not being driven by a drunk asshole.
Government: Well don't sweat it. We've got just the car for you that meets those requirements. We are also going to give a tax credit for your old car, and an interest free loan for the car.
You: Well I guess that can make up for the damage from the drunk friend. I'll be able to start to get back on my feet and move forward if you do that considering you made me loan it to the drunk friend.
Government: Oh well we are doing this but you'll have to continue to lend it to your drunk friend. You'll also have to loan it to his drunk friend as well.
You: This is ridiculous. Why don't you just get a car for these guys?!?
Government: Well we can't do that. They're totally irresponsible. They're a bunch of drunks for goodness sakes. They forget to add oil, fill gas and would destroy it. While they'll do those things in smaller degrees, they seem to straighten up a bit when it is someone else's possession that they know they have to give back rather than their own stuff which they destroy. Plus the public would object to us buying cars for drunks.
You: This is crazy I don't want to give my car to drunk all the times. They'll destroy it and I'll be saddled with all the loans and costs.
Government: Well we can also create a government sponsored car ownership enterprise. You can sell a half interest ownership in the car to them, that way you are only on the hook for half the costs and you still to enjoy the car most of the time.
You: This can't be cheaper than just buying a car for the drunks at this stage.
Government: Well you're right but you need a car so you'll vote for us. They need a car to borrow so they'll vote for us. The people working for our GSE need a job so they'll vote for us. The people designing the car to our specifications will vote for us. Etc...
Do you see where this is going?
I'm not saying the Greek government is not messed up, but the banks are also to blame.
The banks are along for the ride. I'm not saying they are perfect. I'm saying they are no different than any other entity that has to serve at the whims of the government.
This is why in a normal economy within a country there are bankruptcy procedures. This is so that whatever can be recovered from a bankrupt entity is recovered and the creditors then simply, get on to other things. This is the promise of capitalism... You take managed risks, and when things don't work out, they don't. You move on, so that ideas that fail, fail efficiently and ideas that work aren't hampered too much by past failure. In fact, this is IMO how the US became a remarkable nation. Through great ideas that worked, but also by easily dealing with ideas that didn't.
The difference here is the government exempts themselves from their own rules and alters the rules for their cronies. A couple recent examples are guaranteed student loans. They are from the government and cannot be discharged in a bankruptcy. When GM and Chrysler went bankrupt the government came in and altered the order of creditors to be paid off. This amounts to altering the risk and contract terms AFTER THE FACT.
The government is like the mafia. They keep making you offers you can't refuse.
When one bails out Greece, one is not bailing out just the Greeks but the banks that have all the bad debts. In other words, one is distorting the loss that the bank is supposed to experience. The distortion in perception that is happening, but for not too much longer I think, is that banks should be protected from losses. This does not make sense, because that is their business. They are supposed to manage things so that their profits outweigh the losses. That's why there's collateral and guarantors and all these things that are supposed to allow sensible risk management of loans and deposits. Some of our most brilliant graduates continually go into the banking sector, not science, teaching or art. Not that this is wrong, I'm just saying, the banks know what they are doing, they're not dumb.
It would make sense if dealing with people instead of the government. The government controls all the strings though. If you go to the bank and want a loan after defaulting, the bank will charge you a much higher rate for that risk. This isn't true with the government. The government can depreciate the banks assets via inflation, alter what they can lend via reserve requirements, regulate what programs they can offer and what rates they can charge, etc.
Let's think a little different... Or normal, as you can see.
I think I've shown some very different thinking and I hope you'll open your mind to it.
Consider the converse situation, where, we as depositors when putting money in a bank's mutual fund, are lending our money to the bank. If our investment fails due to stock prices, calamities or fund manager stupidity, is anyone going to run to our rescue and say, hey, no worries, I'll bail you out, old chap? This seems preposterous. But when it's the banks, it's all OMFG WE NEED TO GIVE YOU TONS OF MONEYZ OTHERWISE THE WHOLE SYSTEM WILL COLLAPSE.
Clearly something is wrong with this picture. The biggest scam post WW2 is that the banks have figured out how almost never to have to take losses... They have continued to create all kinds of derivatives and instruments that ensnare all of us in a complex web that almost the whole world now is hopelessly dependent on. They now sit by the side and laugh as politicians of the left and right put on a charade of fixing the problem.
I don't want to repeat myself. I'll simply say track the size of government along the same period of time and the answer is pretty clear. Track the percentage of GDP controlled and spent by government. The clearest example of this right now (in my opinion) is green energy. Look at it to see all the cronyism, loans, etc that are the modus operandi of government action.