Click here for the July 15, 2008 show. Twenty minutes in.
Dennis: "If there’s a stupider group in America than bankers, I would like to meet them. I’ve come to the conclusion that banking is too important to leave in the hands of bankers. It is the most self-destructive class of capitalist Americans."
"’Oh, look they are all making money giving irresponsible loans to Americans who can’t afford it… And we know because we are bankers that real estate can only go up. There will never be a bubbles that bursts."
"What Chuck Schumer did was not hurt the bankers but the depositers and the economy, four to eight billion dollars worth."
Here’s David R. Henderson’s website.
David: "Fannie Mae, Freddie Mac are government sponsored enterprises that are semi-private. If you look at the salaries its executives get, you’ll know its private. They earn multiples what the president of the United States get."
Dennis: "They are private corporations backed by the government?"
David: "Everyone has understood for years that there’s this implicit guarantee which is not the same as explicit. If the federal government took a hard line, which I advocate… These are private. We should not bail them out. Let the investors take the loss."
Dennis: "If they were allowed to crumble, what would happen to the economy?"
David: "There’s a word people use as a substitute for thinking. ‘Systemic.’ People say, ‘Oh, there’s this systemic risk, this systemic problem with the economy.’ I don’t think so. If they were allowed to fail, they would file for bankruptcy and their assets would be sold off. There would not be a huge effect, just a huge wealth loss to stock holders and bond holders (they are the ones being bailed out).
"I think it is a good idea to let them fail.
"Because branch banking laws have been reduced, we do have the ability for banks to diversify their mortgage portfolios. There’s less of a need for a secondary market, and to the extent that there is a need, the private market can provide it. Fannie Mae and Freddie Mac had an advantage in that market. They could get a better deal because everyone assumed there was this government guarantee (and could get better rates)."
Dennis: "My respect for the term ‘banker’ has gone down more steeply than the steepest ski slope."
David: "You’re reacting as a collectivist. You’re lumping all bankers together. Some of them deserve this and some don’t."
Dennis: "Bankers have no reason to be smart because they’ll be bailed out."
David: "They have less reason to be smart. If you are bailed out from the consequences of risky decisions, you are going to make more risky decisions and the consequences will be bad."
