7 ms·

It is bad to keep citing 2008 money as if it were a handout. Much of the money was paid back with interest, and the government MADE money on those loans. Look u

It is bad to keep citing 2008 money as if it were a handout. Much of the money was paid back with interest, and the government MADE money on those loans. Look up the “maiden lane” loans for an example.

naasking 5y ago
It's bad to keep countering complaints about 2008 as if the balance sheet is all that matters. The ethical complaints aren't about the money, but about the incentives and disincentives for certain behaviour, and the constant preferential treatment for a certain class of people above others. The cited reason for buying the bank debt instead of the home owner debt was "moral hazard", which actually applies to them both, but you don't need to guess which group was exempt from that consideration.
- abakker 5y ago
  The worry was about creating moral hazard — the idea being that we would set a precedent that would drive the banks to be even more risk tolerant. Ultimately, everyone decided that the risk of bank collapse and bank runs were worse risks that the possibility that moral hazard would be the outcome.
  - naasking 5y ago
    Almost exactly the same argument applies to mortgage relief for the home owners, that's my point.
- Aunche 5y ago
  >The cited reason for buying the bank debt instead of the home owner debt was "moral hazard" The moral hazard was the smallest of the problems. The complexity of how to do so seems like the much bigger issue. What does "buying homeowner debt" even mean when much of that debt has been securitized?
  - kbenson 5y ago
    Paying mortgages, or a percentage thereof, for people? If it's considered an interest free loan on which the people would pay back in their taxes or on any sale of the home initiated by the owner or as inheritance fees, possibly with a maximum delay before payments must be attempted, then that seems fairly straightforward to me.
    - Aunche 5y ago
      How would the government have capacity to do this? It's much easier to just purchase bundles of mortgage backed securities. From the moral hazard standpoint, I think they were worried more about the lenders rather than the lendees. Under this arrangement, even the shadiest of private lenders get rewarded. Under TARP, at least it was just banks that got bailed out, and they could buy the MBSs at a discount.
      - dragonwriter 5y ago
        > How would the government have capacity to do this? To pay mortgages? Set standards for when it would do it, and then open up public applications.
      - kbenson 5y ago
        > How would the government have capacity to do this? It's much easier to just ... I don't find the argument that "it's hard to track and manage that" valid or compelling for an organization which includes the IRS as one of its constituent parts. Actually paying portions of mortgages would both keeps the banks solvent as well as keep the people capable of pulling through with assistance from taking the burden of the problem because of what might be temporary issues (a recession and lack of work). It's a much more market based solution than "throw money at banks", in that it doesn't subvert the market entirely, just supplements it. They would still need to allow people that had no hope of paying their mortgage to lose their homes, and something different might be needed for that to keep that subset of the problem space (which might be a large subset, a lot of lenders were fudging number to get people into homes they couldn't afford) from still causing things to spiral out of control, but there was no guarantee that the first part of TARP was going to be enough either, so it's not like "the situation needs to be closely monitored for future needed intervention" wasn't an assumed part of any proposed plan.
deleted 5y ago
[deleted]
kristopolous 5y ago
If that's the argument, then the money should have been spent on free preschool, community centers, and after school enrichments, since those have the highest ROI. Preschool is like a 9-12x return on investment; it's bonkers.
xmprt 5y ago
Why is spending money on the rich considered an investment whereas spending money on the poor is considered welfare? For example, it is clear that investments made in public school education has much higher returns.
- smegsicle 5y ago
  > it is clear that investments made in public school education has much higher returns do you have evidence of increasing funding to public education directly resulting in better outcomes in general? obviously better schools are usually better funded, but i can't imagine how throwing money at a bad school would result in better education...
  - paraph1n 5y ago
    > but i can't imagine how throwing money at a bad school would result in better education... ...what? How about hiring better teachers. Building nicer facilities. Funding extracurricular/after-school activities. Smaller class sizes. Better equipment (computers, technology, textbooks). Better/more support staff (counselors, etc). The list goes on... I would much rather go to a school that had plenty of money than go to a school that was on a tight budget. And yes, I would almost certainly get a better education at the former.
    - smegsicle 5y ago
      computers are cheap but better teachers don't grow on trees
  - AnIdiotOnTheNet 5y ago
    But giving money to corporations will definitely result in better outcomes... Namely that the rich get richer.
sumedh 5y ago
> It is bad to keep citing 2008 money as if it were a handout. So if I make reckless decisions because I am greedy, the govt should bail me out and then if some of my investments work out in the end I can return the govt's money. Its heads I win and tails I dont lose strategy.
- abakker 5y ago
  That's actually the strategy, yes. It sounds like it might be bad, but...it isn't? In practice, people don't want to take risks that are irresponsible, they want to make money. I'd also point out that it was not the riskiness of the assets that the government bailed out. It was the complexity of valuation that reduced the short term liquidity in those CDOs and other collateralized and securitized debt products. When they were actually unwound, it turns out the risk was lower than people thought it would be.
  - sumedh 5y ago
    > In practice, people don't want to take risks that are irresponsible Yes that was the same argument used by Alan Greenspan when he said investment banks dont need regulation because they wont take risks that are irresponsible, yet Lehman and Bear Sterns and others imploded because they did not understand the risks. This is precisely why you should not socialize the losses, if they fail let them fail or else you regulate them so they they dont take excessive risks. > It was the complexity of valuation that reduced the short term liquidity It was so complex that the bankers themselves did not understand it.
Broken_Hippo 5y ago
The government makes money when they give poor people money, too, and not only that, but other folks make money too because poor folks tend to spend their money. This is without having to keep track and collect loans.
- kortilla 5y ago
  No it doesn’t. The government doesn’t get back the principal + interest like they did from the banks. You’re considering secondary effects, which would have also happened with the money loaned to the banks.
  - Broken_Hippo 5y ago
    I don't have sources that I'm willing to look up, but no, not really. Trickle down economics doesn't work like promised.
    - kortilla 5y ago
      What are you talking about? This isn’t trickle down economics. This is just literally paying back interest on a loan and not going bankrupt (Bank of America, Merrill Lynch). There is an immediate first order return and the second order return of not letting the largest banks fail was widely believed to be positive even in retrospect by both Democrats and Republicans. Do you even know what trickle down economics is? I’m guessing no and that’s why you didn’t post any sources. Long story short, it’s about taxation policy, which has zero overlap with “loans for banks vs handouts for poor people”.
      - Broken_Hippo 5y ago
        "You’re considering secondary effects, which would have also happened with the money loaned to the banks." Quote, you. The effects of such a thing simply aren't the same. Poor people aren't helped when you give folks money at the top - which is, after all, what the taxation policy does. It isn't uncommon to include things that aren't strictly taxation in this.
pempem 5y ago
There were also side effects, i.e. many small banks closing because they were not 'worth' being saved. So what we saw was big banks getting an infusion, paying it back and finding themselves at the top of a more consolidated market thanks to the US Govt. https://www.politico.com/news/agenda/2022/01/19/minority-owned-banks-527315 https://www.politico.com/news/agenda/2022/01/19/minority-own...

naasking 5y ago

It's bad to keep countering complaints about 2008 as if the balance sheet is all that matters. The ethical complaints aren't about the money, but about the incentives and disincentives for certain behaviour, and the constant preferential treatment for a certain class of people above others. The cited reason for buying the bank debt instead of the home owner debt was "moral hazard", which actually applies to them both, but you don't need to guess which group was exempt from that consideration.

abakker 5y ago
The worry was about creating moral hazard — the idea being that we would set a precedent that would drive the banks to be even more risk tolerant. Ultimately, everyone decided that the risk of bank collapse and bank runs were worse risks that the possibility that moral hazard would be the outcome.
- naasking 5y ago
  Almost exactly the same argument applies to mortgage relief for the home owners, that's my point.
Aunche 5y ago
>The cited reason for buying the bank debt instead of the home owner debt was "moral hazard" The moral hazard was the smallest of the problems. The complexity of how to do so seems like the much bigger issue. What does "buying homeowner debt" even mean when much of that debt has been securitized?
- kbenson 5y ago
  Paying mortgages, or a percentage thereof, for people? If it's considered an interest free loan on which the people would pay back in their taxes or on any sale of the home initiated by the owner or as inheritance fees, possibly with a maximum delay before payments must be attempted, then that seems fairly straightforward to me.
  - Aunche 5y ago
    How would the government have capacity to do this? It's much easier to just purchase bundles of mortgage backed securities. From the moral hazard standpoint, I think they were worried more about the lenders rather than the lendees. Under this arrangement, even the shadiest of private lenders get rewarded. Under TARP, at least it was just banks that got bailed out, and they could buy the MBSs at a discount.
    - dragonwriter 5y ago
      > How would the government have capacity to do this? To pay mortgages? Set standards for when it would do it, and then open up public applications.
    - kbenson 5y ago
      > How would the government have capacity to do this? It's much easier to just ... I don't find the argument that "it's hard to track and manage that" valid or compelling for an organization which includes the IRS as one of its constituent parts. Actually paying portions of mortgages would both keeps the banks solvent as well as keep the people capable of pulling through with assistance from taking the burden of the problem because of what might be temporary issues (a recession and lack of work). It's a much more market based solution than "throw money at banks", in that it doesn't subvert the market entirely, just supplements it. They would still need to allow people that had no hope of paying their mortgage to lose their homes, and something different might be needed for that to keep that subset of the problem space (which might be a large subset, a lot of lenders were fudging number to get people into homes they couldn't afford) from still causing things to spiral out of control, but there was no guarantee that the first part of TARP was going to be enough either, so it's not like "the situation needs to be closely monitored for future needed intervention" wasn't an assumed part of any proposed plan.

deleted 5y ago

[deleted]

kristopolous 5y ago

If that's the argument, then the money should have been spent on free preschool, community centers, and after school enrichments, since those have the highest ROI. Preschool is like a 9-12x return on investment; it's bonkers.

xmprt 5y ago

Why is spending money on the rich considered an investment whereas spending money on the poor is considered welfare? For example, it is clear that investments made in public school education has much higher returns.

smegsicle 5y ago
> it is clear that investments made in public school education has much higher returns do you have evidence of increasing funding to public education directly resulting in better outcomes in general? obviously better schools are usually better funded, but i can't imagine how throwing money at a bad school would result in better education...
- paraph1n 5y ago
  > but i can't imagine how throwing money at a bad school would result in better education... ...what? How about hiring better teachers. Building nicer facilities. Funding extracurricular/after-school activities. Smaller class sizes. Better equipment (computers, technology, textbooks). Better/more support staff (counselors, etc). The list goes on... I would much rather go to a school that had plenty of money than go to a school that was on a tight budget. And yes, I would almost certainly get a better education at the former.
  - smegsicle 5y ago
    computers are cheap but better teachers don't grow on trees
- AnIdiotOnTheNet 5y ago
  But giving money to corporations will definitely result in better outcomes... Namely that the rich get richer.

sumedh 5y ago

> It is bad to keep citing 2008 money as if it were a handout. So if I make reckless decisions because I am greedy, the govt should bail me out and then if some of my investments work out in the end I can return the govt's money. Its heads I win and tails I dont lose strategy.

abakker 5y ago
That's actually the strategy, yes. It sounds like it might be bad, but...it isn't? In practice, people don't want to take risks that are irresponsible, they want to make money. I'd also point out that it was not the riskiness of the assets that the government bailed out. It was the complexity of valuation that reduced the short term liquidity in those CDOs and other collateralized and securitized debt products. When they were actually unwound, it turns out the risk was lower than people thought it would be.
- sumedh 5y ago
  > In practice, people don't want to take risks that are irresponsible Yes that was the same argument used by Alan Greenspan when he said investment banks dont need regulation because they wont take risks that are irresponsible, yet Lehman and Bear Sterns and others imploded because they did not understand the risks. This is precisely why you should not socialize the losses, if they fail let them fail or else you regulate them so they they dont take excessive risks. > It was the complexity of valuation that reduced the short term liquidity It was so complex that the bankers themselves did not understand it.

Broken_Hippo 5y ago

The government makes money when they give poor people money, too, and not only that, but other folks make money too because poor folks tend to spend their money. This is without having to keep track and collect loans.

kortilla 5y ago
No it doesn’t. The government doesn’t get back the principal + interest like they did from the banks. You’re considering secondary effects, which would have also happened with the money loaned to the banks.
- Broken_Hippo 5y ago
  I don't have sources that I'm willing to look up, but no, not really. Trickle down economics doesn't work like promised.
  - kortilla 5y ago
    What are you talking about? This isn’t trickle down economics. This is just literally paying back interest on a loan and not going bankrupt (Bank of America, Merrill Lynch). There is an immediate first order return and the second order return of not letting the largest banks fail was widely believed to be positive even in retrospect by both Democrats and Republicans. Do you even know what trickle down economics is? I’m guessing no and that’s why you didn’t post any sources. Long story short, it’s about taxation policy, which has zero overlap with “loans for banks vs handouts for poor people”.
    - Broken_Hippo 5y ago
      "You’re considering secondary effects, which would have also happened with the money loaned to the banks." Quote, you. The effects of such a thing simply aren't the same. Poor people aren't helped when you give folks money at the top - which is, after all, what the taxation policy does. It isn't uncommon to include things that aren't strictly taxation in this.

pempem 5y ago

There were also side effects, i.e. many small banks closing because they were not 'worth' being saved. So what we saw was big banks getting an infusion, paying it back and finding themselves at the top of a more consolidated market thanks to the US Govt. https://www.politico.com/news/agenda/2022/01/19/minority-owned-banks-527315 https://www.politico.com/news/agenda/2022/01/19/minority-own...