Quote of the day: Moral Hazard

Thursday, August 16, 2007 | 12:22 PM

I don't agree with everything in this Op-Ed, but these couple of paras caught my eye:

"The current crisis is the result of the normal ebb and flows of credit cycles, and the free market will amply handle the correction that is already happening. Calls for Federal Reserve intervention or for other governmental involvement -- including an increase of the Fannie Mae/Freddie Mac lending limits -- must be rejected.

In the free market, those that made bad credit decisions must be allowed to pay the price, and only by paying dearly can lessons truly be learned. Borrowers who were unwitting and took on too much debt must learn that there are consequences for their actions. Homebuilders that built too many homes or overpaid for land need to face the consequences. Wall Street firms that provided credit to all of these activities with too much laxity must also pay a price. This is all part of a healthy correction.

All of these players reaped benefits during the housing boom that preceded the current crisis. Certain homeowners were able to temporarily live above their means. Homebuilder and bank profits have been exorbitant, and shareholders and executives of these companies have profited mightily in the boom. To not permit losses now would be a direct violation of the free-market ideals at the foundation of our economy."

Well said . . . 


Fannie, Freddie and the Housing Bust
August 16, 2007; Page A11

Note:   Mr. Penner is a principal with the firm Lubert-Adler and is the managing partner of PGP, a real-estate investment firm. In the 1990s, as CEO of Nomura Capital, he helped pioneer the application of securitization technology to real-estate finance.

Thursday, August 16, 2007 | 12:22 PM | Permalink | Comments (34) | TrackBack (1)
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» If You Play With Fire ... from Fiat Lux
... you tend to get burned. Noted in passing. Thanks, Barry.... [Read More]

Tracked on Aug 16, 2007 2:39:48 PM


Fundamentals and the Economy don't matter any more.

What matters right now is, at what discount are those folks that have cash ready to put that cash to work in stocks.

Posted by: Bob A | Aug 16, 2007 12:29:13 PM

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