Banking and finance is one thing I know little about. But I heard someone say on NPR or somewhere that Lehman Brothers and Merrill Lynch got in trouble because they moved out of the kind of transactions they understood and began trading in types of loans they didn't understand. The result was that they honestly didn't know whether they were in a hole, or how deep the hole was, and they still don't know. Well, if those folks, with all their Harvard and Yale trained Wall Street Wiz kids don't understand this mess, I figure I can say anything I want to about it.
Being rather simple minded, I figure it's like this: if you loan someone a gob of money, and he defaults on the loan, you shouldn'ta give 'im the cash in the first place. If you loan lots of people lots of money, you aren't going to make the right call in every case. So the trick is to make sure that you make a lot more money from the people who pay off than you need to cover the people whose checks are always a day late and a few hundred short. When you can't cover your butt from day to day, it ain't workin'. That, apparently, is where Lehman and Merrill, and AIG and the two F-Macs are right now.
Liberals have a simple explanation for all this: Wall Street greed. And they are surely right. Big Wheelers don't loan people money because they think they will bring about a better society or stop global warming. They loan money because they think they will get a lot more money back. Corporations, like everyone else, get conned mostly because they are greedy and their greed makes them overly optimistic, and that's just as true when they con themselves.
Conservatives also have a simple explanation: government intervention that keeps market forces from working. And they're right too. Congress has tried to "encourage" the markets to make home ownership more available, so the 65% or so of Americans who live in houses nominally theirs but really owned by God knows who will be joined by another five or ten percent. But that means giving loans to people who wouldn't have got those loans before, and that probably means increasing the risk of a lot of foreclosures.
Both Barack Obama and John McCain are busy denouncing Wall Street, and who can blame them? Nobody really likes the guy who might be portrayed by Michael Douglas in Wall Street II. The Left, more than the Right, is calling for more regulation. Dubious as I am that Congress can understand what Merrill Lynch didn't, maybe some market regulation is in order.
But there is one thing I think we can all understand: making financial markets more stable means reducing loans to people and institutions more likely to default, and that means making money harder to get. When money is harder to get, a lot of people will stay stuck in their apartments and a lot of entrepreneurs won't launch the next big idea in sandwich shops. Conversely, helping more and more people to buy a house or start a business means more defaults and financial instability.
When someone calls for more regulation, we might want to know which side they wish to err on. Congress almost always acts at cross purposes in such matters. Clarity on such matters is what one would like to see in the candidates' speeches and interviews. Don't hold your breath.
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