If you insist on calling me an apologist, I’d prefer the term Fed apologist instead of banking apologist. Since usually I find myself defending the Fed against those who think that if the FED would just go away and/or we’d adopt a gold standard that money supply fluctuations, business cycles, inflation and deflation would all go away too, when nothing could be further from the truth.
I don’t approve of everything the banks have done. I’ve railed against their bait and switch credit card policies and their greedy interest rate hikes. I don’t think they really did much bad with regard to mortgages. They played by the set of rules that were being enforced. But the rules were both insufficient and all the rules weren’t being enforced.
Of course the banks operated out of greed. Our entire system pretty much operates out of greed. Government is a necessary evil to set the market place rules and enforce them so the greed doesn’t result in foul play. When government fails, the greed results in bad decisions.
If the rules allow you to outsource to 3rd world countries that pay wages of $2 a day, the last firm to outsource is the firm that goes out of business. No amount of tax cuts is going to help compete against labor wages that low. But you can’t expect individual firms to be the ones to make good policy for the country. That’s an out of business strategy for an individual firm. It has to come from Government.
If the rules allow you to sell 100% mortgages and sell them to the government, then that’s what you do, if you want to stay competitive. If you have an economic downturn and some of those loans go bad, well that’s the risk you took.
But you still have the homes, you still benefited from the economic boost during the construction, when the loans were made. And as long as you haven’t build way more houses than you have residents, so that they become an asset that will just be wasted, then that’s probably not the real problem.
The real problem is what happened to the rest of the economy that too many can’t afford to pay for the loans, when they could afford them when the loan was taken out. Fix that and you’re out of this mess.
Letting a liquidity crisis drive all the banks and all the businesses under isn’t the way out.