Letter to Congressman Miller about the Bailout

Congressman Miller,

Please take a stand on this financial crisis.

An illustration: Let’s say that some beach-bum, surfed-out, pot-smoking loser asked me to borrow $1,000. He looks honest, as far as pot-smoking losers go, so I give it to him. Six months later, I go to his dirty apartment to ask for a payment. And, his response is “Whoa, man. Have we met before?”

Now, who is at fault here? Is the pot-smoking loser at fault for borrowing my $1,000, knowing that he wouldn’t be able to pay me back? Sure, he is. But, he’s also a pot-smoking loser. And, I knew that when I gave him the money. So, shame on me.

My point is this: bad loans are primarily the responsibility of the lender.

And, bad loans - after all the repackaging, CDOs, swaps, and security bundling – are at the heart of this crisis. Shame on the lenders!

Here’s a picture of the future: It’s 2020, 12 years after the mortgage loan bailout. The federal debt is still monstrous. Credit card debt, retail consumer debt, student loan debt, and new “innovative” lending (we now lend to pre-school kids as a school voucher program) have risen to astronomical levels since mortgage lending was curtailed by that nasty crisis of ‘08. A mild recession hits, triggered by a price increase in some anti-aging medication. Lending tightens, and, viola, we’re right back here. Only this time, China offers to buy out our whole banking system – with $4 trillion cash in hand– in exchange for us putting posters of Mao up in every church and having our school children chant “China is great” for five minutes a day.

The point is, responsible lending is a MUST. Moving forward, we can’t leave any gray area about responsible lending. And, as much as I’d like to think lenders would learn their lessons here, and move forward responsibly, THEY WON’T! I came home from work yesterday, listening to the news of the bailout, and guess what I found in my mailbox? Yea. Credit Card offers. Four of ‘em.

Look, if the government needs to inject cash to shore up confidence, do it. But, I say you should GIVE THE $1,000 TO THE POT-SMOKING LOSER! Sure, he’s a loser. He smokes pot. He’s probably an idiot. But, at least he’s not an irresponsible lender.

Besides, the $1,000 borrowed by that loser has been packaged and re-packaged, and converted to CDOs ,and swapped, and securitized, and sold to the long-term asset line on the balance sheet of every company in the Fortune 500. You have to wonder if anything other than killing the bad loan at the source is going to work.

Good luck, congressman.

Travis English

More than slightly depressing thoughts on economic crisis..

This week...

What a ride.

There’s a part of me that wishes I didn't care. I’m sure that the majority of Americans have no idea what is actually happening in the financial markets. Jon Stewart called the headlines "Big numbers attack three letter acronyms!" And, frankly, most may be better for it. I, on the other hand, have a dangerous amateur interest in economics, and have followed the story as best I can, trying to understand it.

I’m sure that, two or three years from now, there will be three well written books that explain the crisis from three totally different perspectives. One will decry the lack of regulation. One will decry the greed of the financial institutions. One will decry the sheer irresponsibility of the American homebuyers who signed all these loans.

Did you know that an FBI background check is required to be a notary public? And, every new home loan has to be notarized. Doesn’t this just spell out the depth of the fraud going on behind this whole thing? Every loan written had a signing session where a person and a notary sat down for an hour and signed papers saying that all sorts of things were true. And, they weren't.

So, surly we should all place blame soundly on the greedy people who obtained huge loans that they couldn't afford for homes that were grossly overvalued.

That category, I suppose, includes me. At least, to some extent. I bought a house that was hugely overvalued. But, I can make the payments. They’re big, but I can make them. Now, if this whole thing fails to recover by 2016, I’ll have to default, too.

And, if that time comes, I’ll swallow my losses. I knew, when I signed the papers, there was risk involved.

Damn these bailouts.

I understand the whole "too big to fail" idea. The whole system is based on confidence, right? So, we have to maintain it. And, so, regardless of the actions of the banking industry, we have to save it.

I get it. Really, I do.

But, it tastes horrible.

Hopefully, in retrospect, history will conclude that the lesser evil would have been to bail out the people. Had the treasury department, three months ago, started paying on defaulting loans, they could have upheld the system's integrity for less money. And, at the end of this whole thing, years from now, all the morally reprehensible stupid people would still be living in their houses. Instead, we're spending billions bailing out the lenders. And, at the end of this whole thing, years from now, the banks will own a lot of houses. And, a lot of people will be starting over.

The way I see it, a bailout is going to happen. So, either way, the government is protecting a select group from the consequences of their actions. We're incurring the so-called economic "moral hazard". At this point, it's a question utilitarian ethics. Which bailout practice would result in the most good for the most people? In that light, I think giving money to the banks is the wrong move.

Of course, to really put it in perspective gets depressing. For 4 to 6 trillion, we could have bought ourselves a national healthcare system, bailed out social security, bolstered national education to be the best on the planet, and, with the leftovers, made a pretty good dent on solving world hunger. Instead, we got two mortgage banks and an insurance company.

Bad deal?