I have nothing to do with this

[cema]

As I am not an expert in finances or economics, I defer any judgment on the bailout and its failure.

But we are all experts in politics, aren't we. Do I understand it correctly that the basic driving force behind the current financial troubles is a failure of a socialist experiment in the housing market? Or is it only part of the problem?

And the politicians, as usual, will blame someone else. (And everybody else will blame politicians.)

It is interesting to note, too, that more Americans are reported to trust Obama's team on economics than McCains' team. Whereas one would think that it would be the other way.

Update. A bit heated in the comments. Chill out, the world is not going to end right now.

Comments

Socialist or capitalist

[msmolyak.livejournal.com]

My understanding is opposite to that of Cema. The necessary condition behind the mortgage were the historically low interest rates. This lead the financial institutions (trying to satisfy investors hungry for yield) to seek any possible ways to come up with investments generating interest above and beyond the treasury bonds.

Sub-prime mortgages proved to be such an instrument. I do not disagree that politicians (probably from both parties) only welcomed the fact that more American families can realize the "American dream" of owning a house and did little if anything to stop the abuses in the mortgage market.

The next factor in the current crisis was the securitization of the mortgages. An ability of banks to resell the mortgages (including sub-prime) to institutional and individual investors (remember those yield-hungry investors?) was what created such a supply for sub-prime mortgages. The borrowers were happy to oblige and so were the investors buying the mortgages from the bank (which incidentally meant that the banks had no incentive to manage the risk of the borrowers).

Yet another big factor in the present situation is another financial instrument, Collaterized Debt Obligations. Those were insurance policies (which were not regulated as such) sold by the likes of AIG to investors buying the securitized mortgages. The CDOs promised the buyer to pay in case the underlying debt obligation default. AIG considered this a risk free (or nearly so) exercise in premium collection and did not keep capital reserves adequate to cover potential losses.

I do not see much of a socialist aspect in this chain of events. This is the capitalists sorely miscalculating the investment risk at many different levels.

Misha

Re: Socialist or capitalist

[msmolyak.livejournal.com]

And here is the socialist aspect of the whole mess:

http://online.wsj.com/article/SB122298982558700341-email.html

Re: Socialist or capitalist

[gera.livejournal.com]

That's a very good and very relevant point. Compare that with your previous comment, especially it's first two paragraphs. What's the cause and what the consequence?

Ok, there's some cheap money floating around and people are looking for a place to invest it. They find an area that's already booming, that's promising great returns?
Why is it already booming? Because of the increased demand. Why is it increased? Because suddenly there are many more buyers than prior to that point.
Where did they come from? Not from natural growth or immigration but from a social sector that had had few home owners before.
Now, that's the horse and the CDO business and it's infamous end is the cart.

Re: Socialist or capitalist

[gera.livejournal.com]

Какие люди, однако :)

Re: Socialist or capitalist

[msmolyak.livejournal.com]

Гера, привет!

Ну почему же однако? Мы еще можем, если надо.

Миша

Re: Socialist or capitalist

[gera.livejournal.com]

Привет-привет! Рад видеть :)
Я позволю себе с тобой поспорить по существу вопроса :)
(Coming up...)

Re: Socialist or capitalist

[cema.livejournal.com]

:-)

Re: Socialist or capitalist

[e2pii1.livejournal.com]

> The necessary condition behind the mortgage were the historically low interest rates.

interest rates устанавливаются административно центробанком, а не свободным рынком.


> This is the capitalists sorely miscalculating the investment risk at many different levels.

Они не miscalculated, а всё рационально делали: надеялись что государство имеющее привычку лезть в экономику за счет налогоплательщиков их выручит(bailout) от кризиса - и оказались правы.