Evil Bankers 2

The bankers are being scolded by the government almost every day it seems. They knew the loans that they were making were garbage and asked if someone else would be willing to take the risk that they may not be repaid.  In return for not taking the over-all risk, the banks were willing to give up the majority of their interest payments.  The bankers then took the loans and packaged them for resale.  These packages were then sliced-up, repackaged along with pieces from other packages and sold to investors.  When this system blew up, who got the blame?

The government says that it is the bankers who are evil and need to be punished. And I am sure that the government is correct.  Aren't they always?  These evil men supplied a service that the people wanted so badly, that the government felt forced to strong-armed the bankers into providing.  Let me be clear about this.  The bankers did NOT want to give loans to people that, very likely, would not be able to repay the loans.  They were intimidated by the government to give loans to people that did not have good enough credit to warrant the loan.  When straight coercion did not supply lax enough standards for the Barney Franks of the world to be happy with, the government agreed to back the loans through their puppets Fannie Mae and Freddie Mac.

Under pressure from the gov't and with guarantees from Fannie and Freddy; the bankers knew that they had to act.  They still knew that the loans were garbage and did not want them on their own books, but they had to give the loans out.  Even though the government was backing the loans, the bankers knew that they could be left "holding the bag" when the bubble burst.  They devised a method, described above in paragraph one, to absolve themselves of the insane risks that the government had foisted on them back in the '90s.  Its only flaw was that it worked too well.

I would like to take a moment here to talk about investors in general.  When you go to work for someone, you get paid for your work.  However, when you decide to let your money work for you through investments, you take a risk.  That risk is that you could lose your invested money. You may be fooled by a stock broker, or you may just make a bet on a losing horse.  Either way, you take a risk while hoping for a return.  You just better be sure you due a lot of research because without risk, there is no reward.


The investors, be they institutional (insurance companies, hedge funds, etc.) or private, they bet that should the repackaged loans that they were buying would either not default, be worth more than the loan amount should they default, or be paid off by the government (Fannie/Freddie).  These investors felt that they had found a way to “beat the market” and it turns out that they did.  Unfortunately, in this instance the market was the government.  Even worse, the government gets its money (in one way or the other) from the people.  Yep, me and you paid off the investors.

You can try to blame this on the bankers all you like, just be sure that you navigate carefully around the facts.

1. the government forced the bankers to make risky loans
2. the government guaranteed the loans (because the bankers would not make the loans even after #1)
3. the banks sold the loans: I wouldn’t want to have that junk on my books either
4. the investors bought the loans without researching what it was that they were buying
5. when the loans went into default, the government paid the investors off

There are a couple of failures here.  The investors did not do their due diligence.  The government had no right to put taxpayer money on the line to give loans to people that could not afford the loan payments.

Saying that the bankers caused this mess is like saying that someone facing a firing squad should not be standing front of all those guns.  This mess was completely avoidable.  Just make sure that the demented old folks running this country keep us safe. It is not the government’s job to make your life better; it is their job to make sure you have the freedom to do so for yourself.