-- The Community Reinvestment Act caused financial institutions to lend to people who weren't credit worthy. This is crap. The CRA was signed into law in 1977 -- over 20 years before the current crisis. The second problem with this theory is the CRA only applies to banks and thrifts. Most of the mortgage lending during the last boom came from -- mortgage lenders who aren't regulated by CRA.
-- The theory that not putting Fannie and Freddie under a new super-regulator in 2005 caused the problem. The problem here is this administration is notoriously lax with any regulatory oversight. They're been asleep at the switch for 8 years (how many food recalls have we had? Or toys? How many mortgage brokers are being investigated by the FBI for fraud?) This is also laughable.
There are two real culprits that deserve a ton of blame.
The Federal Reserve for lowering interest rates to 0% after adjusting for inflation. Lower the price of anything available for sale and people will buy more of it. That's exactly what happened. Household debt exploded. Total household debt outstanding increased from $7.6 trillion in 2001 to $14 trillion in the second quarter of this year. That's a huge increase. Most of it was .... mortgage debt, which increased from $5.3 trillion to $10.6 trillion over the same time period. All of that debt had to go somewhere -- namely the balance sheet of every financial company on the planet.
Here's a great summation:
The Federal Reserve, which has encouraged excessive borrowing, is to blame for the credit crunch that has gripped world markets for more than a year, Marc Faber, the author of the Gloom Boom & Doom Report, told CNBC on Tuesday.
"About 15 percent of U.S. households have negative equity. Who supplied the leverage into the system? It's called the Federal Reserve Board," Faber said.
"If I'm the drug dealer I'm not responsible that everybody takes drugs, but I facilitate it, especially if I give it out free of charge, I can enlarge the market share, and that's what the Fed has done."
Any economist who says "I had no idea low interest rates would lead to this" is lying through his teeth.
The Federal Reserve was warned about the effects of lack of regulation several times over the last expansion:
Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.
But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.
In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade subprime lenders to adopt a code of "best practices" and to let outside monitors verify their compliance. None of the lenders would agree to the monitors, and many rejected the code itself. Even those who did adopt those practices, Ms. Bair recalled recently, soon let them slip.
And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.
John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.
"He never gave us a good reason, but he didn't want to do it," Mr. Gnaizda said last week. "He just wasn't interested."
I should add the ratings agencies are also extremely culpable in all of this. They said all of this paper backed by mortgage was AOK. Well, it wasn't. And this paper isn't just blowing up in a few instances -- it's blowing up at alarmingly high rates. That indicates someone was asleep at the switch.
Add these three together and you get serious trouble.
2 comments:
Another one of my naive musings:
Since essentially, Wall Street is to blame for the financial crisis we are in, and we are being told that the only salvation we have for the "dire consequences" we face if Wall Street collapses is an historic infusion of taxpayer dollars, why would we want to reward and attempt to keep afloat a system that has so utterly disregarded common sense as to destroy itself to make a bigger profit?
What if the government allows the free market to fail freely, and instead invests $700bn in infrastructure and health care? At least the average American would reap some benefits: better roads, schools, health care, and the jobs that would be created to provide them.
Granted, the economy would stumble, but if this was done as quickly as Paulson wants his bailout done, the stumble wouldn't last the 10 years that the depression did, and Wall Street might be chastened enough to begin functioning properly again. Greed would, for perhaps a generation or so not be thought of as a virtue.
My point is that if we're going to shit away nearly a trillion dollars, can't we think of a better place to spend it than to give it to the people who destroyed themselves with their own greed and stupidity?
Lose, lose, and lose.
Give in and give this extortion to these gangs (that's what the bailout is - make no mistake) and you will soon be HATED. BECAUSE - I GUARANTEE you by October 20th the gangs will come back and say, "You've ponied up a Trillion - we need more - another Trillion OR you've have wasted the first and all your Pension Plans will collapse."
Don't give into the extortion and when the crash comes - and it WILL. We will have lost our Pension Plans, our nations equity and disaster will reign.
I say - don't give in! AND when the S*it hits the fan - AND IT WILL - then spend the Trillions it takes to help the REAL victims of the collapse - not enrich the gang leaders that have put us here.
The Republicans have destroyed: Our nations reputation, they have waged illegal war, they have spied on all Americans, they have shipped abroad every middle class job they could find, they have destroyed the value of our houses, their base believes the world is 7,000 years old and that man walked with dinosaurs. They are BRAINLESS SH*TS - pure and simple BRAINLESS S*ITS! AND - worse of all - despite everything they have done to demean and destroy this great country they may very well win again in 08.
Americans are oh so close to being forever branded as, plain and simple - BRAINLESS SH*TS!
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