Now That We Have a Problem...
It looks like regulators are 10-years-after-the-fact getting around to closing a loophole that has most likely destroyed life as we know it.
I think this loophole is what enabled the banks to get the mortgages off their balance sheets and it enormously leveraged the money supply. Every where you look now you see news about this mess but you see little about how it has grossly increased the money supply.
The end of this article got my attention, "Banks could book profits up front." Think it through, and those profits weren't real profits. I think people have this idea about how much money banks should be able to generate in profits and this idea of growth, but it was completely fudged profits and growth. This is truly milk maid accounting, counting your chickens before they hatch, and boy, did the financial industry spill their milk...
In the comments in my previous blog I put a link to a shocking "new" development. There is simply no question a homeowner who has zero or negative equity is better off walking away. Mish did a post, "The Business of Walking Away."
The ethical issues it raises are enormous, but in a way, it is "pay back." From my perspective, I have watched a grossly declining lifestyle for the people around me and I don't like to think about how it is for people with less opportunity. When I was a young adult I had disposible income being a low income employee. Today low income employees don't make ends meet, indeed, quite a few in professions aren't making ends meet and their lifestyle looks modest.
Corporations have not been considerate of workers, profit simply being more important that any kind of fairness. This quote is good,
"Implicit in this segment is that families are not entitled to make "business decisions." But you know who is entitled? Why, businesses of course. When businesses laid off 1.5 million workers in 2007, it was purely a "business decision." When Wall Street banks "wrote down" more than $100 billion in losses in 2007, it was purely a "business decision."
Look for families to become more comfortable making "business decisions" of their own in 2008."
A third one on my reading list, very important, the bank reserves are negative. The warning to not have more than the FDIC limit in a bank is a good one to heed.
There is one more, Calculated Risk brought up a post written almost a year ago now about all of the fraud that surrounds bubbles and it is a very good read, full of moral issues around, and ultimately, it seems like many players are in volved in some level of fraud. This has been referred to in response to the increased investigations with respect to the subprime mess.