Consumers also need to change their mindset. Over the last three decades credit became a commodity. Credit is NOT a commodity, it's a financial tool. Homebuyers borrow to buy a house in their price range. Then they – (are you sitting down for this?) – they repay the loan.
And equity in a home is NOT a commodity either. It's part of a family's estate. You don't eat it as it as fast at it appears, you bank it, and later you live off it in retirement. And, if you're heirs are lucky, you pass on what's left to the next generation as seed money so they can repeat the process. That's not only good personal financial hygiene but forms the basis of a sustainable economy.
Now, don't get me wrong, there are government guarantees that serve a useful purpose. Deposit insurance, for example, is a good thing as it protects the modest fortunes of average folks. In fact, it should probably be increased from $100,000 to $250,000.
We did NOT sign up for that. There is not a single piece of legislation that designates institutions “too big to fail.” Not one word. (And by the way, “too big to fail almost also always translates into “too big to jail. I'd change that too. In fact, that would be my very first change.)
Any bank that requires significant federal assistance just to survive, should be put under federal conservatorship until such time it can be repaired and sold to the private sector, or liquidated.
Then, rather than dumping all our sand into the vaults of failed banks, we should use it to create more jobs in the privates sector. Those workers will, in turn, spend some of that money stimulating the economy and save some of that money bolstering the asset base of the remaining banks.
Holy Adam Smith, Bat Man! Is that REALLY so hard to figure out?
And equity in a home is NOT a commodity either. It's part of a family's estate. You don't eat it as it as fast at it appears, you bank it, and later you live off it in retirement. And, if you're heirs are lucky, you pass on what's left to the next generation as seed money so they can repeat the process. That's not only good personal financial hygiene but forms the basis of a sustainable economy.
Now, don't get me wrong, there are government guarantees that serve a useful purpose. Deposit insurance, for example, is a good thing as it protects the modest fortunes of average folks. In fact, it should probably be increased from $100,000 to $250,000.
But federal deposit insurance (FDIC) is a risk taxpayers know about as it's an explicit government guarantee financed largely by insurance fees paid by banks themselves. But what we are learning now is that in reality taxpayers underwrite the entire private banking system in the US. Because when it goes sideways in a big way, as it has now, we end up covering their loses.
Any bank that requires significant federal assistance just to survive, should be put under federal conservatorship until such time it can be repaired and sold to the private sector, or liquidated.
Then, rather than dumping all our sand into the vaults of failed banks, we should use it to create more jobs in the privates sector. Those workers will, in turn, spend some of that money stimulating the economy and save some of that money bolstering the asset base of the remaining banks.
Holy Adam Smith, Bat Man! Is that REALLY so hard to figure out?
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