By Moe Bedard
While the likes of Bank of America, JP Morgan Chase, and Wells have signed on to the Obama plan, Bond managers are setting their battle plans against one of the largest government bailouts in history. Arguing that changing the terms of 4 million potential loans would do irreparable damage to the bond market, a market that essentially makes our massive home lending programs in America available, Wall Street claims that “it is a fallacy to think that policymakers can selectively abrogate contracts without affecting future investor behavior” (Bill Frey, Bloomberg).
Here’s a straight forward, premise to conclusion argument for all of you Wall Street Bond Managers:
Premise 1: The free market, left unregulated, can severely damage credit markets, bond markets and our economy in general.
Premise 2: Indeed, the free market, left largely unregulated during the last decade, has given birth to the toxic assets we commonly refer to as mortgage backed securities.
Premise 3: In response to the failure of the free markets and historic losses, private firms are begging for government bailout money.
Premise 4: This means, in a general sense, that private firms are not fixing the problem on their own.
Conclusion: If private firms can’t resolve the problems they’ve created by their own devices, and if government is asked to bail them out, then they should expect the government to limit their authority, a move that could potentially decrease profit margins in the future.
What it seems like to me is that Wall Street bond lobbyists want the best of both worlds: bailout money and to be able to earn the same money over time no matter what kind of devastation they’ve brought to bear on our economy. The argument I think they pose is simple: change contracts and we’ll increase rates or decrease credit! How about this instead…they should earn less and maintain what they provide because we are keeping them in business!
I agree 110%! it’s like rewarding failure and penalizing consumers who knew better in the first place.