Funding the Crash

When I last wrote I was headed to one of the reasons I think we’re in this economic mess…and I’m not going to blame Bush as is the want of many political folks. Real estate is a very good investment historically for a number of reasons.  At the top of that list is the way real estate is financed.  There was actually a time when a purchaser needed to pay 20% of the sale price in cash to get a loan for the balance.  Then we were required to prove the loan to be paid back.  Sounds basic right?  well along the way something got in the way of good judgement and sound decision making…any guesses?  Greed! Yes the real estate moguls wanted to do deals just like our friend Ralph Kramden but lo and behold the banks wanted to be bigger and better than the other banks so….Mr. Kramden got the money.  Whoa…

So basic lending principles were compromised to beat the competing banks and the rocket left the launch pad.  10 years later those same folks now want our help to fix the problem they created and of course our government is obliging.  Not only that they want more control of the banks which on the outside seems like a good idea.  However a better idea would be to let the dumb banks go down leaving the stronger better based lenders. 

What message do we send with these bailouts?  The politicians all have crafted messages to benefit their view of the world.  Be careful; be very, very careful!

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