I’m not sure what you mean “arguing with bankers”...arguing contra them or arguing FOR them. Regardless, I have no direct dog in this fight; I would really like to have been short these stocks from their highs when almost anyone could have seen how extended they were. But that would have required some serious staying power and is furthermore a worthless “coulda shoulda” exercise.
Very simply: I am a firm believer in the standalone concept of “making money for oneself”. I am concurrently a firm believer in the reverse side of that coin, to wit, “taking your own losses when your own bets go sour”.
I am a total non-believer in the idea that someone else should bail you out of your blunders. If, in the midst of your own blunderdom, you borrow money and fix yourself and then pay back your loans, I have zero problem with that.
This bailout concept goes against any and all of my own priciples, for at least 4 reasons.
The FNM/FRE wholesale mortgage operation was used for many years since inception in the late 30’s (FNM) and somewhat later (FRE) to facilitate a win-win situation for all concerned parties: It created a secondary mortgage market which provided mortgage liquidity, thus lowering interest rates for borrowers, permitting widespread homeownership. Generally, I think that’s a societal good. FNM & FRE also provided institutions (mutual funds, ins. cos., college endowments, municipalities, unions, etc; even foreign investors) a good market in which to lend excess funds and to earn investment interest thereby.
Because the underlying mortgages were vetted and rated per longstanding performance/default and loan-to-value characteristics, (the correct term being; they “conformed” to creditworthiness and servicing and collateralization standards that were based upon long established banker experience) they had a very low (sub-3/4 of 1%) default rate and thus reliable long term performance. And finally, common stock investors who believed the US housing market was on a long term growth trajectory had a nice vehicle to invest in. As I see it, all parties benefitted.
When the standards for loans-able-to-be-bought by the FNM/FRE entities declined to sub-dogbreath quality, though, the game changed, and hedge funds and money center banks jumped in with all tentacles. In the very low ROI environment created by Alan Greenspan post 9/11, banks took advantage, brilliantly, of several market dynamics: 1: They began to use the “cloaking” aspect of hiding horrible loans inside bundles of “lower than average” loans. 2: They took this approach even further with the “tranching” concept of horizontally slicing giant bundles of loans into quality hierarchies 3: They realized that the fast and big money was from originating loans, not holding or servicing them. 4: They used their marketing reach to engage investors in their mortgage divisions. 5: They realized that the ratings agencies would be quite loath to act against their own interests by downgrading the credit offerings of the very entities whose businesses they were in the business of seeking. At least the ratings agys would be very slow to wake up to the overall dynamic. 6: They kept for themselves the cream of their tranching operations while offloading the riskiest assets to others, again, using their reputations as financial gurus.
Well, it all worked great until a collision occurred between the last buyer who could fog a mirror, the diminishing affordability of home prices artificially pumped up by speculators, and the rapid onset of higher defaults among the worst of the worst last-to-the-party marginal borrowers.
So, with apologies for the long winded epic which is really quite abbreviated; here’s my point. A semi-government entity (The Fed) enabled the housing bubble by lowering rates far below the natural rate of inflation. Semi-government entities (FNM/FRE) fed the bubble by lowering their conforming standards to the point of utter absurdity. The Wall St. banks gamed this system into a perpetual motion cash machine that drove a worldwide housing price bubble to extremes very few would have imagined. As these banks were in the main ORIGINATORS (writers and fee collectors) of the underlying loans and not HOLDERS (riskbearers) of same, they benefitted with very little risk. Because the US taxpayer was implicitly AND NOT EXPLICITY at risk for their boo boos.
Now that the bubble has burst and the collateral underlying even the best of what the banks were able to gin up and keep for themselves has deteriorated, these beneficiaries will again be rescued out of the seemingly infinite pool of taxpayer funds: The guarantees are now EXPLICIT. Hundreds of billions and now trillions of dollars of taxpayer funds are now to be made available in the name of “rescuing the mortgage market” and “preserving the financial system” and “reliquifying the banking system” and plenty of other high-sounding slogans.
And now that the US Government owns essentialy HALF of all outstanding residential mortgages in the US, the process of weeding out the garbage the banks will inevitable dump into this cesspool they themselves created will involve either the sale of the bad loans (at a nickel or dime on the dollar) or the sale of the underlying collateral.
So, this action reliquifies the banks so they can cherry-pick the distressed assets that they themselves created. On the taxpayer’s dime, the banks are indemnified against their own excesses. Also on the taxpayer’s dime shall these same banks be enabled to vulture buy the assets at fire sale prices. I only wish I had such a deal.
Basically I meant those disagreeing with you on here could very well be doing so because they have or will somehow benefit from this mess. In my opinion, yours would be the proper conservative view-”I am a total non-believer in the idea that someone else should bail you out of your blunders.”