Det du missade i Zlatan yran #3

Om du var för upptagen med att läsa om senaste turerna kring Milans intresse för Zlatan så tänkte jag bara informera om att finanskrisen fortsätter.

Alla älskade Obama när han kandiderade men ingen bryr sig om vad han gjort sedan dess. En liten update är att man ny tryckt igenom 2700 sidor av ny lagstiftning för finansmarknaden (som ännu ej stiftats). För den intresserade finns en utförlig analys här.

Annars en sammanfattning av de viktigaste poängerna nedan. Kom ihåg, denna lagstiftning skulle se till att vi inte får nya finanskriser:

"The Act failed to deal with Fannie and Freddie. There is no question that the primary movers in the housing boom and bust were Fannie Mae and Freddie Mac, government sponsored housing financing entities (GSEs). Fannie guaranteed one-half (53%, or about $5.5 trillion) of the U.S. housing market’s $10.7 trillion of mortgages; about 10% ($500 billion) of those were subprime (“toxic”) mortgages. Countrywide, the largest subprime lender,eventually taken over by BofA, sold 90% of its loans to Fannie, and Countrywide’s loans comprised 25% of Fannie’s purchases.

Fannie and Freddie were nationalized in September, 2008 and the federal government

assumed their liabilities without limits. As of Q1 2010, Fannie had lost double its profits made for the previous 35 years. They have already cost taxpayers about $85 billion. Estimates of bailout costs range as high as $1 trillion, assuming home values decline another 20% and foreclosure rates continue to climb.

It is interesting that the Republicans tried to introduce provisions in the Act that would reform Fannie and Freddie. But Barney Frank blocked this reform.

Meanwhile, the federal government loan guarantee machinery is still roaring along. The FHA has guaranteed about one-half of all new home loans since 2009. Its minimum down payment requirement is 3.5%. About 24% of loans it guaranteed in 2007 and 2008 are in default. Overall delinquencies are 8.3% of their $865.5 billion of loans, up 35% over June last year.The government continues unabated to favor and distort the housing market despite their role in causing the financial crisis.

The most important lesson of this financial crash is that large financial companies now know that they will be bailed out if the Fed and Congress believe it is necessary to “save the economy.” While the President says we’ll never bail out these companies again, the Act, as noted previously, actually does allow the government to bail out “industries.”

The expectation of bailouts is what economists call a “moral hazard.” That is, if you bail companies out it encourages risky behavior because of the knowledge that they will be bailed out. Capitalism, as many have pointed out, is a system of profit and loss. The loss part of that equation is essential to capitalism. Austrian economist Joseph Schumpeter called the failure of firms a process of “creative destruction.” Not only does failure wipe out the mistakes of a failed business, but more importantly it is a necessary signal to entrepreneurs, banks, and venture capitalist to not waste their valuable capital on similar ventures. If you remove the concept of loss from TBTF businesses, the signal are you sending is to encourage risk-taking with the taxpayers’ money.