I started out my formal business career as a banker. And my graduate education zeroed in on finance and economics as they pertained to commercial banking.
Back in those days, banks and other credit lenders used to buy loans on cars made by car dealers, but there was an important caveat. Those loans were bought with recourse. If the loan to the individual fell behind, wasn't paid and required repossession of the car by the bank, the dealer was on the hook for the shortfall.
So naturally I've been wondering why the government's bail-out plan isn't being done with recourse on the lenders? Buying the mortgage loans for cash to infuse cash back into the marketplace and thus unfreeze the credit market makes plenty of sense. Taking potential risk and loss as well makes no sense at all.
So here's the question: why aren't these loan packages to be bought with recourse? Why aren't the originating lenders being kept on the hook for the losses?
Old fashioned banking was based on a lot of good sense.
BILL CHERRY, REALTORS
DALLAS
214 503-8563
1 800 314-7110
That's the problem, Bill. You explained it perfectly. They have nothing on the hook so why would they care if they have a loss? They will just borrow some more money. Good post.
Ricki, thanks for your added voice of reason.
Bill
The problem is that too many are in trouble. Otherwise, I would be voicing strongly against a bailout.
This fast & loose lending went unchecked for wayyyyy too long!!!
Tom, all I know is that if you're able to pass your total problem on to someone else, you haven't learned a darned thing.
If the problem is lack of cash in the system, which I am certain is correct, then it seems to me the only thing the public via its government is responsible for is putting cash into the system.
But that doesn't mean removing public company's risk. That's what their stockholders are for...to take risk in hopes of getting the pot of gold at the end of the rainbow.
I learned this evening from a fellow who emailed me, that the very idea I proposed in my blog here is being considered and worked on in Europe with the idea that all of the countries, including the US, will adopted it,