Monday, October 17, 2011

The Banks Aren't Entirely To Blame...

Blaming the banks for all of our financial woes is akin to blaming pizza for obesity. Granted, a fabulous meat-lover's pizza with a stuffed-cheese crust isn't something that a marathon runner is likely to chomp on the night before a race, but pizza joints thrive because they have a product that people like, and therefore, want.

Now, the government steps in and dictates what "living wage" a pizza joint owner has to pay his employees, the mandatory healthcare coverage he has to provide, and posting of government-mandated nutritional information. The pizza shop owner has to offset those costs by either raising his prices or lowering the quality of the pies.

Let's say the government decides that EVERYONE should have a house, and directs the banks to loan money to those who MAY NOT have the capability to fulfill the terms of the loan. You know, like no steady job history, past credit difficulties, things like that. The banks have shareholders that they have to answer to, so they create a new group of financial instruments called MORTGAGE-BACKED SECURITIES (let's say, 5 good loans, some precious metals stocks and 2 "questionable" loans) to rid themselves of these potentially "toxic" assets. They sold them short to other investors who were hoping that the overall package would net them a profit in spite of the questionable "paper" or loans within the package.

Then the government cracked down on these financial "instruments", forcing the banks to cover their losses on all the empty properties that they were now stuck with, by raising their prices or lowering the quality of their product.

Notice the underlying theme here? Every time government tries to "help us out", we end up getting screwed with either higher prices or lower quality. The "Occupy" protesters need to focus their anger on the source of the problem...the politicians who are screwing us all in the name of "fairness".

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