If Wall Street companies want to pay executives big bonuses, they are spending their own money and it is none of your business.
Tipsy, I'm curious, would you say it was our business if say for example those companies received tax payer money to bail them out? Take for example AIG, which was rescued by the taxpayer, would you not agree that companies such as these would have some sort of obligation to the taxpayer to operate on a prudent basis and as such we the taxpayers should have some input in its executive compensation ? While I agree with you, that for the most part companies boards set the compensation level of it's executives and as such it's really not that big of a deal, however it's a little hard to justify this especially for a bank for example, or a company that lays off American workers or hires them overseas all the while taking taxpayer funds.
They should never have gotten taxpayer money to bail them out. IF in fact the government had intended to protect the ordinary investor that entrusted money to AIG, they should have found another way to do it other than bailing the company out. AIG is an insurance company. It insured mortgages. Under the terms of the Community Reinvestment Act, lenders were required to make mortgages to people KNOWN not to pay their bills. Had the government not made this requirement, the lenders would not have lent, AIG would not have insured. Because of feckless government regulations billions was wasted on people who never had an intention of paying their mortgage. They treated that purchased home as they did their rentals. Stay as long as they can before they are evicted. Had AIG been allowed to fail, it would have gone bankrupt, its assets seized and dealt with through receivership. The assets including what good mortages they had could have been put into a trust fund perhaps with SOME taxpayer supported funds to protect small investors. Let the company go. Enron was let go. Bernie Madoff's investors got burned. Nothing made AIG investors immune. Minimize the damage, that I would have gone along with.
Please don't bring up taxpayer money supporting businesses that go overseas. This regime is giving a carmaker in Finland millions and millions of dollars to make toys for the very rich. Not a dime for any carmaker here. Not a cent. Do you agree with that little debacle?
Ok, I think it's time to inject some honesty into BOTH sides of this, because the above is not quite correct, and neither is some of what the other side has been saying. First of all, the CRA, and the loans made under it, did not, in and of themselves cause the problem. The truth of that is that the default rate on those CRA mortgages was about 9%, which is about what it historically has been for conventional mortgages. THAT was not the source of the problem. The only contributing factor that remotely came out of the CRA was the "Bundled mortgages". As an incentive for banks to make what were presumed "riskier loans" (there's a legitimate question as to whether they really were), the government allowed the banks to do what had previously been forbidden-bundle mortgages, and sell the bundles (technically "derivatives") to the brokers as financial instruments, which could then be bought and sold, thereby spreading the risk. At the time it was done, this looked like a harmless idea, and under slightly different circumstances, it might have been. It looked at the time, like a way of helping people who might have otherwise not been able to get a mortgage into home ownership, thereby giving them a stake in society they had not had before; and in the beginning, it worked.
That was all well and good, but in 2000, the economy headed into what looked to be a mild recession. The fed did what it has been doing for years; it eased monetary policy to help the economy "soft land" instead of crash more abruptly. Then in 2001 9/11 happened and one result was a deeper recession than had been forecast; the fed acted again, easing monetary policy (and thus lowering interest rates) again, and again. Now however, there was less room to lower the rates further, and so, interest rates fell to all time lows, and remained there. Even through the recession, housing values had remained strong. Now, with plenty of mortgage money flowing a low rates, it boomed. The overall housing market overheated, and the "bubble" was born. Demand spiked, prices went up, until they no longer reflected the real values of the properties. It was essentially the same thing that had happened in the earlier tech bubble, and "dot.com" bubble in the stock market, except that it involved homes, (which are typically a family's largest asset), and thus, a lot more people. Superficially, it looked as though a lot of wealth was being created, but the "wealth: was an illusion; it existed only on paper, and only for as long as demand for housing stayed high.
Meanwhile, there was a boom in demand for those mortgage derivatives; those same low interest rates depressed yields on conventional investments, from Treasury Bills, to bonds to dividends. In a now very soft money market, these derivatives offered significantly higher yields (albeit at higher risk, and many investors flocked to them., sending demand up, and brokers scrambling to find more. Now it wasn't just CRA mortgages; the relaxed rules had let them bundle mortgages, period, and the banks did so. With values still rising, and a steady stream of applicants, they issued more and more, with looser underwriting criteria; even offering adjustable rate mortgages with ultra-low "teaser rates". The situation was now becoming dangerous, but few saw it, or indeed, wanted to Fannie Mae, and Freddie Mac joined in (why not; there was money to be made), and congressional regulators saw no reason to ask too many questions-why disrupt what was apparently going so well.
At the same time, home buyers continued to flood ito the market, encouraged by realtors who also saw this as a boom time to be enjoyed; and with rates and monthly payments low, many proceeded to buy more expensive and more over-priced houses than they would have dared look at before; After all, the way values were going up, they were sure they could refinance, when the higher rates on their ARM's kicked in. Still others used increased equity in their existing homes as a cash cow through home equity loans. The stage was now set, and it was only 2005. All that remained was a trigger to burst the bubble. (The then-CEO of AIG would provide that in 2008, with results we now know.
So who failed? Who could have stopped this? The uncomfortable answer is....ALL OF US! That's right, I said ALL OF US, from consumers, to bankers to Wall Street, to the regulators, to the politicians, everybody had a hand in it, and could have stopped it. Consumers COULD have stopped binging on easy credit, and buying what they could only afford as long as everything went right-THEY DIDN'T. The Bankers COULD have stopped it, by slowing down the lending (but banks are publicly owned, and have a duty to their shareholders to maximize profits)-THEY DIDN'T. The Brokers COULD have stopped it (but they have a duty to their clients and shareholders to maximize profits) -THEY DIDN'T! The politicians COULD have stopped it; they at least had the power to reign in Fannie Mae and Freddie Mac (but that would have been unpopular with the voters)-THEY DIDN'T. Instead, everybody carried on, with everyone who had a clue what was happening silently hoping the spending party would end on someone else's watch, or at someone else's expense. THAT IS THE COLD, HARD, BITTER TRUTH!
The finger pointing that has gone on ever since is as stupid and as disingenuous, as it is utterly predictable! There is plenty of blame to go around, and BOTH political parties, and the American people themselves, are just as damn culpable as anyone else is! The banks didn't do it, Wall ST. didn't do it, congress didn't do it, Bush didn't do it....EVERYBODY DID IT! No one group did all this by themselves, and it's high time we faced that.
Now, with all that in mind, tell me who needs to go to the guillotine!
