Wednesday, October 1, 2008

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy.

Bankruptcy, not bailout, is the right answer

This bailout was a terrible idea. Here's why. The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk. Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

Posted by malct @ 11:10 AM (530 views)
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One thought on “The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy.

  • japanese uncle says:

    Those who pushed CDOs the toxic waste, and those who doctored mortgage applications must be subject to criminal investigations on account of their dolus eventualis in the handling of them. Thousands of bankers and brokers must be sent to prison on both sides of the Atlantic, let alone confiscation of the fortune swindled in the process during the last 10 years, which can nicely finance the moratorium for the poor families threatened with repossession, BTL being strictly excluded, naturally.

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