[quote=briansd1]
I felt the same as you do, but upon further reflection, I’ve come to the realization that the bailouts were necessary.
What would have happened had the correction been allowed to occur unabated without government bailout?
Some areas are down 50%. If those areas were allowed to drop 80%. What would the walking-away and living-for-free rates be?
I can guarantee you that if Carmel Valley dropped 50% to 60%, the walk away rate would skyrocket.
If banks were allowed to fail, leaving employees, depositors and contractors to fend for themselves, the loans portfolios would have been lost in some electronic neverland. And the length of foreclosure would be stretched out even longer.
How could banks foreclose without employees to do the work and retrieve the collateral documents?
Walking away is an economic decision. And so is living for free. Few walk away until the bank actually forecloses, so living for free is a given. As you say, it’s collateral damage.
There isn’t much the government can do but to “lessen the pain”.
1. We’d be much closer to the real bottom, and there would have been less damage to those who did not engage in reckless borrowing or lending — and more damage to those who did (as it should be).
2. If we could have reached the bottom sooner and with less **long term** collateral damage, the people who were most prudent and responsible would have put a floor under pricing and economic activity, as we all have a price/situation at which we’re willing to buy in.
3. If there were no bailouts, the damage would have been felt more immediately, creating more incentive to punish those who set us up for failure (and it WAS intentional/knowingly done). The reckless borrowers and lenders would have been punished. As it stands now, the most reckless are the ones being rewarded, while those who restrained themselves during the bubble are “rewarded” with artificially suppressed, ultra-low rates on savings, and reduced purchasing power to boot as all the idiots are back out there with 3.5% FHA loans and “tax credits” from our broke federal and state governments (who can’t find the money for schools, though).
4. Those who believe the crisis has been averted are not looking far enough into the future. We will be paying for this for **decades** because there is NO WAY we can pay for all of this without tremendously burdensome taxes and reduced services, in addition to greatly reduced purchasing power, domestically and globally.
We could have suffered a severe, sharp correction that would have lasted a few years, but it would have given us a great foundation from which we could have built a sustainable economy. The govt/PTB have now eliminated that **much better** option.
Yes, the govt would have needed to step in, IMHO, but it would have been better if they had nationalized the banks (if necessary) and backstopped the FDIC, SIPC, and PBGC. Additionally, I was in favor of work projects to keep people employed and to help restore/improve our energy and transportation infrastructure. Increased funding for R&D in medical and energy technologies would also have been encouraged.
