IANAE

OK, so I'm not an economist, so please bear with me while I walk through this.

The story so far...
Poor loans were given to a number of potentially bad lenders, based on inadequate (earnings, credit-worthiness) or false assumptions (house prices will always increase). Mortgage brokers were compensated for loan origination. Bankers received their fees upfront. Mortgages were packaged into a variety of instruments (SIVs, CDOs etc) and resold (at some profit each time).
Now the foreclosures are hitting and the repayments aren't being made, the value of these instruments is falling and the current holders (large investment banks) are in trouble.

Rather than try and understand the scope of what's happening, and getting into the honest truth, the financial markets are 'on the run' responding to 'sentiment and belief' with events unfolding in 'real-time' and bank's values (as determined by share price) fluctuating wildly. This is viewed as a Bad Thing(tm) undermining the viability of the market.

Well I'm sorry, but it doesn't seem that the market has done much to be transparent or align incentives to be trusted in. I look a lot at alignment of incentives in my work, and I can't see how the current proposed $700b bailout, or anything else the Fed is doing, is creating any sort of alignment.

Given $700b to play with to solve the liquidity crisis (that's the real problem, right? That's what we should learn from Japan in the '90s that if we just fix the banks with money, they'll keep it) I'd rather the government set up another state sponsored Fannie/Freddie-alike (call it the Realitie) which underwrites reasonable loans. Reasonable equals fully disclosed, low risk etc. Something that won't break and is visible to the public so it won't be corrupted. So if you've actually kept up with your starter mortgage payments and now are getting squeezed by triple rates, you can re-mortgage. Or if you never should have had a mortgage in the first place, and still can't find those W-2s, you're out of luck.

Regardless of how this settles out, can we have some accountability? Can we have mortgage brokers receiving a small slice of each payment, not upfront fees? Can we have those responsible for this mess held accountable, rather than the taxpayers? Can we have full declaration of the riskiness of each mortgage, with legal action possible for misrepresentation?

Sorry, shouldn't speak for legal action. After all, IANAL either.

Hot Train of Thought

After reading Brent's blog on a recent cycle ride, my eye was caught by another blog post of his.

Which then got me to more thinking and conducting an experiment. Google's spelling correction/suggestion function ("Did you mean?...) is often really handy, but it seems to tragically lack a sense of humour. Apart from (what used to appear for) "French Military Victories" that is. Anyway, doing a Google search for "Hot Grill on Grill Action" (Snorg t's have this marvelous shirt, you see), produces an odd suggestion. Remove the word "Hot" and you get an entirely different suggestion. Windows Live is (fortunately) without additional commentary.

Who knew hotness was so important?