But in the end, this really isn’t about Wall Street. It’s about reducing the risk that something really bad happens. It’s about limiting the damage from the past decade’s financial excesses. Unfortunately, there is no way to accomplish that without also extending a helping hand to Wall Street. That is where our credit markets are, and we need them to start working again.
“We are facing a major national crisis,” as Meyer Mishkin’s grandson says. “To do nothing right now is to do what was done during the Great Depression.”
The only evidence for this grave situation presented is that Wachovia went under. Wachovia indeed went under, was bought out, and all depositors' money is safe. All we seems to get from the "financial press" is hyperbolic restatements of the bailout backers.
On "public" (whole lotta advertising there) radio yesterday, there were two interesting stories. The first was with local bank officials, who say they have been unaffected. As long as Fannie and Freddie are still in busines, one banker said, his mortgage supply is unlimited, and his lending practices have not changed. The president of Chittenden Bank pointed out that Vermont banks have continued to follow prudent banking practices, knowing their business customers, and staying away from mortgage securities. He anticipates no difficulties.
The second story had to do with the drying up of credit for consumers looking for loans. This was a national story. The report said, echoing a New York Times piece from the day before, that people with sub-prime credit ratings were having a hard time getting an auto loan. And. the report said, if your credit rating is bad, you may not be able to get a mortgage without a downpayment, of as much as "three to five percent."
This is something I actually found worrisome. It seems like the irresponsible practices of the last decade or so--of lending money to risky borrowers with inadequate collateral is going to be established as the normal state of affairs. It seems insane, to me anyway, for a banker to make a long term loan funded by short term borrowing (demand deposits, savings accounts etc) without some substantial skin in the game from the borrower. If the "restoration of credit markets" means the resumption of making high risk loans, then our troubles are not going away any time soon.