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E-PrinceTo provide a proper backdrop for my lecture on the government's role in the economy in ECO 100: Introduction to Microeconomics, I always preface it with the question: "Who in this class has a mother?" In a good year ...(back to the article)
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ECO 100 is Intro. to Microeconomics (rather than Macro)
Maybe the government "Ma" should let the "teenage" banks take more responsibility for their losses for once. Otherwise, we're further exacerbating moral hazard and the next crisis is just going to be that much worse than the current one.
The Federal Reserve took no rate action change until nine months after the subprime mortgage collapse was already under way. If the Fed had acted sooner and lowered it Fed Funds Target Rate down to 4.25 percent in January of 2007 and had kept it there to stabilize the market, the subprime mortgage collapse would not have happened and the current economic slowdown would not have happened. The Federal Reserve is not charged with helping to finance a 9 trillion dollar federal debt by keeping interest rates high; it is charged with stimulating the economy and fighting inflation--in that order. Congress could set the Fed rate using a basket of international currency rates, and the Board of Federal Reserve Governors should be abolished.
Why didn't the the Gov't bail out the sub-prime mortgages from the bottom up by subsidizing the mortage payments until the the homes could be sold at a market rate (or their occupants met income requirments). The money would have still flowed up to the CDO investors, business as usual, along with the partial paymnents from the home owners. Would that not have been more effective/productive than showering the foolish/greedy middlemen with the bailout money who will just steal it?