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ETpro's avatar

Moody's downgrades 15 global banks. Would the banks have been better served to allow homeowners to refinance?

Asked by ETpro (34436points) June 22nd, 2012

After We-the-People all ponied up and paid for the Bush Administration’s TARP to bail out the big US banks, the banks used the largess to remain solvent and also to give their executives big bonuses. But aside from that, they sat on the cash. They refused to lend to small businesses. They used our money to lobby Congress to do nothing about the $1 trillion student-loan debt crisis. Most disturbingly, they refused to let homeowners save on their mortgages by refinancing at today’s far lower rates. This led to a second wave of foreclosures that drastically extended the Great Recession.

On June 21st, Moody’s downgraded the bond ratings of 15 big global banks including Bank of America, Goldman Sachs, Citi, J.P. Morgan, and Morgan Stanley in the USA. Had the banks used the bailout money to help struggling homeowners and small businesses instead of to reward themselves for their own reckless practices that crashed our economy to begin with, wouldn’t they now be in a stronger position? With Wall Street now pouring barrels of cash into GOP coffers because the Republicans promise to slash Wall Street and banking regulation, cut taxes for the wealthy and try to pay for the cuts by gutting social programs like food stamps, Medicare, Social Security and such, what will it take for the fat cats to learn that acting in ways that destroy the economy they feed on will ultimately starve them as well as the 99%? Or do you think the tiny portion of the 1% who are actively working to grab everything for themselves can really function just fine without the rest of us? Can the uncolg their own sewers and take their own trash to the landfill?

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6 Answers

Neizvestnaya's avatar

I think so. Like a lot of mortgage holders who lost their homes, we would have held on, kept on paying and eventually caught up. The bank ended up selling our home for less than half of what we paid. I suppose the loss write off was worth more to them than our money.

Jaxk's avatar

This question must be a joke. Moodys downgraded the banks because they didn’t feel they had enough cash reserves and thier long term profitability is reduced. How would making more loans in a volatile housing market increase thier cash reserves? It would decrease the reserves making the problem worse not better. And the long term profitability would only decrease by mortgage adjustments (not to mention the higher costs imposed by Dodd-Frank).

You seem to want to exacerbate the problem instead of fixing it.

Linda_Owl's avatar

I am sorry @Jaxk , your answer makes no sense. Throwing people out of their homes instead of allowing them to restructure their mortgages is ridiculous. The banks could have had regular payments coming in to them if these people had been allowed to refinance / restructure their mortgages. How is taking back an empty house/home better than having people in these houses making regular payments? All the banks did was make a bad problem worse by tossing these people onto the streets.

Jaxk's avatar


Unfortunately the mortgage modifications didn’t work. Even after the loan was modified over 50% were still deliquent on thier mortgage. All this hype only extended the problem and did nothing to fix it.

ETpro's avatar

@Neizvestnaya I agree. In 2008, we should have gotten all the industrialized nations together and worked out a global Marshal Plan. Because we did not, we are now in what Paul Krugman rightly calls the Third Depression. We should have told the financial institution that produced the crisis with their $350 trillion per year derivatives trading that they could be liquidated, nationalized, or bailed out if they would agree to a series of conditions. They should have been required to go back to lending money to make profits, and prohibited from investment banking, and being insurers of their own products. And they should have been required to lend to small businesses and to refinance homeowners at the new lower rates where that made any sense. Bush did none of that in his TARP bailout.

@SuperMouse Incredibly relevant, and a complete refutation of the fictitious world @Jaxk and other right-wingers insist on inhabiting.

@Jaxk In your own inimitable words, “Nice try.” It’s simply not true, though. Moody’s global banking managing director, Greg Bauer, said in a statement, “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.” The banks have more cash today than when the original crash occurred. They are not just sticking to banking. They continue to make risky bets where the rewards are huge when the win, and they pocket the bonuses, but the losses can be massive when they lose, and they send the losses to the Taxpayers to cover, again extracting huge bonuses. JP Morgan lost $2 billion dollars on their hedge. But they only took a 2% loss. What if they had lost the whole $100 billion they bet? Not all bets win. What if all the big banks invest in derivative instruments that suffer an endemic failure like the sub-prime mortgage bubble caused when it burst?

Dodd-Frank made the bank’s costs unbearable? I suppose that’s why they are posting record profits and the stock market doubled in value from 2008 to 2012. Banks did just fine for 66 years under a FAR more stringent set of regulations, the Glass-Steagall Act of 1933. The Big Republican Lie that Dodd Frank is responsible for all our current economic woes requires you believe in time travel. The Bush Recession hit in 2007. The Dodd–Frank Wall Street Reform and Consumer Protection Act went into effect on July 21, 2010.

Bush should have exacted concessions from the bailed out banks. He did not. TARP funds were just handed over to them trusting that after demonstrating they are greedy bastards who will cheat any way possible, suddenly they had become saints. Your argument seems to be that only the poor are greedy. That when humans attain great wealth and power, they instantly become altruistic saints. Anybody with a grain of sense knows that is utterly absurd. Money never made the Mafia saints. It hasn’t turned the MedellĂ­n Drug Cartel into purveyors of life-saving medicine and peace efforts. Hitler, Qaddafi, Saddam Hussein—when has wealth and power ever made a greedy, power-hungry tyrant a saint?

As to loan modification, Banks forcolsed without even going through due process. Only a scant few homeowners were ever able to even get any major bank to talk to them about loan modification. Of those that did, many did save their homes.

@Linda_Owl Don’t let our resident champion of the corporatist agenda rattle you. You are quite right.

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