Tweet
Re: Rick Santelli’s Chicago Tea Party
I agree in general, though this line of thought is a bit muddy:
I'm still new at this, so please correct my take if I am off:
The borrower is committed to either repay the debt or turn over the collateral (property) to the lender. Most of these loans are non-recourse. Who ever ends up with the property takes a loss.
The problem is that the government doesn't want the debtors to walk away. It means losses for banks, nationalized companies, etc. In the first case can take down banks (and all the bad/costly issues that go with that) and the second tax payers are taking a more direct hit. In addition, property values and realestate taxes take a hit.
I'm not arguing that the right solution is for the government to change the terms of the loans, etc. That is a patch to a flaw in the system that emerged. The long term idealistic goals would be:
1) Figure out how to decouple government budgets from property tax (or other assets that could rapidly change value) so that the government doesn't have an interest in preserving value of assets.
2) Decouple government stability from companies so that companies that make bad lending calls can suffer for it.
Unfortunately the bug in the system already happened. Those are lofty long term goals, but the symptom needs to be dealt with as well now. No matter what, some rules have to change in the processes - be it changing loan terms, nullifying CDSs, nationalizing critical companies in the short term, etc - for the system to restablize while minimizing the pain/damage done. Someone has to pay for the loss.
I agree in general, though this line of thought is a bit muddy:
Originally posted by fliped42
The borrower is committed to either repay the debt or turn over the collateral (property) to the lender. Most of these loans are non-recourse. Who ever ends up with the property takes a loss.
The problem is that the government doesn't want the debtors to walk away. It means losses for banks, nationalized companies, etc. In the first case can take down banks (and all the bad/costly issues that go with that) and the second tax payers are taking a more direct hit. In addition, property values and realestate taxes take a hit.
I'm not arguing that the right solution is for the government to change the terms of the loans, etc. That is a patch to a flaw in the system that emerged. The long term idealistic goals would be:
1) Figure out how to decouple government budgets from property tax (or other assets that could rapidly change value) so that the government doesn't have an interest in preserving value of assets.
2) Decouple government stability from companies so that companies that make bad lending calls can suffer for it.
Unfortunately the bug in the system already happened. Those are lofty long term goals, but the symptom needs to be dealt with as well now. No matter what, some rules have to change in the processes - be it changing loan terms, nullifying CDSs, nationalizing critical companies in the short term, etc - for the system to restablize while minimizing the pain/damage done. Someone has to pay for the loss.
ffice" />
Comment