You know things are going wrong when a Congresswoman urges her constituents (and others) to squat in their homes, even when the bank can foreclose on them:
It’s safe to say that the current system isn’t working. Some borrowers were stupid, and others just greedy, but these loans should have never been made. And when banks made them, they should have held onto the paperwork (the irony is that bundling loans into big piles of shit helped create this mess, and now banks are unable to trace the actual loans due to said bundling). Ian Walsh:
Banks have been abusing the privileges they received and as a result credit for the things America really needs has dried up. Wanted a loan for a hedge fund? No problem. Wanted a loan for a new company employing hundreds that would only make 5% to 8% a year? Probably not.
But it was the hedge funds returns that were fake. And it was the small businesses that never started because they could only make 5% a year which could have produced real value and lasting jobs. If you want people to start new businesses, if you want consumers to spend, then giving them credit at reasonable rates, and making that credit available is what has to be done.
At the same time, due diligence has to come back into the equation. Everyone in America needs a credit card. Might as well just give them one. Without it you can’t rent a car, stay in a hotel or really interact in a modern society. But eveyone doesn’t need or deserve the same credit limit. And everyone doesn’t need a home equity loan, in fact very few people do. Let the Fed do the drop dead easy lending “you have an income of $50,000 a year, you want a mortgage where you will pay $10,000 a year, that’s under 30%, you can have it”. Have the credit unions and the few remaining banks do the more speculative lending, but watch them like hawks. And take the credit bureaus and the ratings agencies under government sway, and either nationalize them or regulate the heck out of them, so that the ratings they give mean something.
Add in some federal anti-usury laws (no interest rates above fed funds + 15%, on anything, including fees) and you’ve got yourself a full new banking system where credit is available to those who need it at reasonable rates, while reasonable oversight is occuring. And because so many investors and lenders were wiped out, well, the lesson will have been learned, for a couple generations, that if you do really really stupid things, the government won’t just bail you out.
No more privatizing profits and socializing losses.
Probably won’t happen, but it’s a good idea. I’m loath to make sweeping pronouncements, such as “The End of the Banking System”, but what Walsh writes about will have to be done, in one way or another.