mae and freddie mac -
|fanny mae and freddie mac - a history|
|fanny mae and freddie mac - the best politicians money can buy?|
|fanny mae and freddie mac - clearing up the mess|
|fannie mae / freddie mac - a round-up/summary|
|bank systemic contagion||GDP 1: gross domestic product [GDP]|
|first and second round effects of external prices rises on inflation||GDP 2: GDP and other quality of life measurements|
|supply-side economics - laffer curves and 'trickle down'|
|the sum of a geometric sequence: or the arithmetic of fractional banking|
|on stimulus spending and multipliers|
As you will see, George Bush has long fought for reform at Freddie Mae, with the usual lack of support from the Democrats.
The question is, essentially, are those who incurred the debts going to repay them? Or is more tax to be taken from the lenders and redistributed to the erstwhile borrowers?
Look at what John Maynard Keynes said, one of the truly great intelligences and economists of the last century.
Thus, taking the approach of Keynes, which I fully embrace:
If the damage to the weak is likely to be great, then it is the rentiers who must take the greater strain.
This is, essentially, a political judgement and decision.
What is at issue here is how much strain is to be put on those who took the cocaine loans from the slick willies in the banks and in the city. Thus, who you bail out is a matter of where you place the ‘blame’ - with the dope peddler - the ‘slick willies’, or with the under-educated addicts.
It is important to limit [credit] addiction, but that requires far better economic education from the schools upwards.
The place of banks is not to get fools hooked, and then to exploit them to the point of destroying lives. But neither is it the banks’ role to socialisticly rule lives, by refusing loans to the deserving poor. It is the job of the banks to do risk assessments. And it is not the job of the government to stop the intellectually impoverished from making errors from which they may be expected to learn.
If the cocaine addict, that is the ones who took the loans cannot, or will not, pay them back to the banks, then the banks will be less able to pay out to their depositors, and banks will go under.
As banks borrow from one another, if a bank cannot pay back to another bank, then cascades of bank failures can occur. This is known as systemic risk.
Remember that the money system is owned by the government. The government are monopoly producers of money. Thus, the banks are the subservient retailers in the system (for much more detail see the mechanics of inflation).
What is called a ‘bail-out’ is, in fact, a matter of choice. It is quite possible to allow all the weaklings, banks and depositors, to lose out. No money has disappeared, the money is merely in hands other than those who were expecting debts to be repaid, or deposits to be available.
A bail-out involves the government replacing the unpaid debts or deposits from the only source governments have - taxation; that is, by direct taxation, or through inflation. Those who did not repay their debts, effectively walk away, or are sanctioned in some manner by losing their credit rantings or, in some cases, by criminal changes of fraud. It is, of course, often extremely difficult to distinguish fraud from stupidity and from irresponsibility.
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© abelard, 2008,1 october
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