Paulson Compares Financial Apples And Oranges

July 23. 2008

Treasury Chief, Henry Paulson, today compared apples and oranges in stating the current U.S. economic crisis is nowhere near as bad as the Savings & Loan scandal of the 1980’s, which I previously wrote about on this site.

During the S&L crisis, an unprecedented number of Americans did not lose their homes, which is what happened with the current economic disaster. In addition, millions of other U.S. homes have been devalued, when property prices plummeted.

People that bought homes a couple years ago, are faced with the terrible conundrum of sticking with a mortgage and staying in a home that is now worth 40-60 percent less than what they bought it for.

You are now finding individuals walking away from their homes and mortgages, reasoning the payments have become too high or the house isn’t worth what they’d previously paid for it. The level to which this has now happened is unprecedented in U.S. history.

Therefore, how can Paulson compare the two or apply the same principles the government used to rebuild after the S&L crisis of the 1980’s. If you apply those principles, the problem will not be solved and restructuring the economy will be a pipe dream.

It is the equivalent of giving someone a shot for one disease when their medical tests say they have another. This is not a problem the current administration will solve by the time Bush leaves office, as the damage is so far reaching. A follow up a few months from now by analysts and market speculators will reflect that.

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Paulson also voiced confidence on government's ability to deal with the recent string of bank failures. "Our regulators are on top of it. This is a very manageable situation," he said.

He said 2008 has seen only five banks fail, compared with about 250 failures seen in a single year during the height of the savings-and-loan crisis of the late 1980s and early 1990s.

Speaking later on CNN's Late Edition, he added that "99% of the banks with 99% of the assets" were in good shape in terms of capitalization.

http://www.marketwatch.com