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Saturday, January 19, 2008

Paying the piper redux

While driving yesterday morning I happened upon a talk show guy who was busy explaining the lack of fiscal responsibility, the entitlement mentality, etc. and etc., of the American public. He was also highly exercised over the fact that THE Reverend Jesse Jackson had gone to Memphis and suggested that the Mayor sue the banks over the subprime loan mess...

Left unsaid by Jesse was which banks and for what. And the intrepid host kept demanding to know "for what" and inviting "any lawyer" listening to call in and explain it to him. Along about then I surfed over to Glen Beck who was busy explaining that the world was ending and only he knew about it...

Note to Glen: Please give me advance warning so that I can get off the Interstate. That way when I shoot myself after being terminally depressed by you I won't crash into a school bus killing dozens of children and besmirching my reputation. But I digress.

Now I don't know if a lawyer called. They are well known to be reluctant about giving free advice. Besides, they were more likely to be on their cell phones racking up billable hours. BTW - I had a friend tell me that he knew a lawyer who billed for 30 hours a day...

That dog won't hunt, I said. I mean after remembering some of my own billable hours sheets and travel time logs I know for a fact that a day only has 28 hours. But I digress again.

But given that cities are suing gun makers and anybody can sue anybody I would guess the answer is, YES. And for some variation of malfeasance. Of course it will be promptly tossed out. But....if they can get it in the Fed's 9th district and tie Jose Padilla to it... well, they'd have a shot..

Now I yield to no man, woman or child my belief that the country would be much better off if THE Rev Jackson could be convinced to leave the country and do God's work in, say, Iran. But in this case he does have a point. Only a bank, could call a loan in which the interest rate charged is ABOVE the regular rate, "subprime."

I mean if my performance is poor, then I am sub par. If I am a contractor working for the prime, I am a subcontractor. So why should I think a subprime loan costs more than a prime??

And why would a financial company think that making a loan to someone who has problems paying their bills make sense? Especially if the cost of the loan is more than what folks with good credit is paying?

Let me see here, George. You can't handle credit, so I don't think you can handle a 5% loan, so I'll loan you the money at 6%... But don't worry, I'll set you up with a 3% Adjustable Rate Mortgage so that you can live it up for a few years... before that is, the ARM jumps to 5% and then 7% and you default... In the meantime I'm gonna bundle your mortgage with a lot of other such mortgages and sell them to some one else...

You know, George and Jane deserve what they are getting. But when did taking advantage of some one's stupidity become acceptable??

In the mid 70's the banks had a lot of low interest loans on the books, many were assumable by someone with good credit. So the loans didn't get paid off... In the meantime inflation kept driving up the interest rate that the banks had to pay to keep the savings people had in their institution and guess what. The outflow was more than the inflow and bingo.... they started failing... Of course the government stepped in and bailed them out in the midst of much sound and fury.

At that time the banks could claim that inflation wasn't their fault and the loans they had made were good solid loans. And that was mostly true.

This time the banks can claim only that they were trying to help people with poor credit get a home.

If that is so, then why did they resell the loans?? If you think that makes sense, I remind you of what that noted philsopher, Forest Gump said.

Stupid is as stupid does.