This week’s rant (Value Line Observer – Jan 15 2010) is about the new tax on banks that was misnamed the Financial Crisis Responsibility Tax. If the tax is really on those responsible for the financial crisis, then why are Fannie Mae and Freddie Mac conspicuously absent from the list of those liable for the tax? It was Fannie and Freddie buying loans from local banks that expanded the mortgage market, otherwise, those lenders would never had enough capital to extend loans at the rate the mortgage market was growing. Freddie and Fannie’s easing of mortgage credit standards required for re-sale into the secondary mortgage market is arguably among the most important systemic mistakes in tracing back the wild growth of credit available to bid up real estate prices to bubble levels, and then financial crisis. Good job government!
A tax on banks?! Come on! They are already paying tax, it’s called income tax! Once the tax rate is over 50%, isn’t that an incentive to make — wait — less money? Wasn’t the government just a year ago begging banks to take TARP financing with the argument that shoring up bank capital was they key to saving the planet? But with an odd approach to reward and punishment, the same healthy banks that have been encouraged by the government to lend more aggressively as capital ratios improved, are now going to have those capital ratios eroded – by the same government. Do these different departments actually talk to one another?
How are the banks responsible? Because they sold their loans to Fannie and Freddie as they were encouraged to do – by the same government? Had Fannie and Freddie not bought the loans, the banks would have made fewer loans, which on average would have had better credit, and fewer homes would have been sold at inflated prices. Excuse me if i’m repeating myself, this is outrageous.
Val Hughes
www.thevalueguys.com
Jan 15 2010
Rhymia…
Great blog post, saw on http://www.Rhymia.com...