It just goes to prove that no matter which side you are on, it's much easier to interpret the facts to fit your own preconceived notions of what's happened than to actually try to connect the dots and figure things out for yourself.Read the second-to-last paragraph again (and again, and again, until it sinks in) and answer me this: Do we really want the same government officials that allowed this mess to happen to be the ones to "solve" the problem? Sorry, my confidence level is zero.
First, to those of you who constantly refer to the Sept 1999 NYT article about the Clinton administration pushing loans to people who normally wouldn't qualify: it might help if you read the full text of that article. You see, what Clinton proposed and Fannie implemented was a plan to INSURE (not make, but INSURE) loans made to people who were JUST UNDER the normal line of acceptability, in exchange for a one-percent increase in the FIXED INTEREST RATE on the loan for TWO YEARS. These are not the loans that are failing. The loans that are failing are the creation of banks: three, five, and seven-year balloons, two-year ARMs, no-doc loans that you don't even have to prove your employment to get, zero-interest loans. A whole raft of loans being made BY BANKS, not by Federal requirement. The definition of a sub-prime loan is one that Fannie and Freddie won't buy.
Why did banks create these risky loan types? Because changes slipped into a 1999 budget bill at the last second by Phil Gramm overturned Glass-Stegall and allowed investment houses to buy, sell, and trade mortgages like securities. This new market was totally unregulated. This led to the rise of Mortgage-backed Securities. Wall Street investment houses made tons of money buying and selling these. The would take out loans (sell commercial paper) to get the money they needed to buy them. Executives made huge bonuses on them. As a result, they were hungry to get more of them, and put pressure on banks to sell them more mortgages. This allowed banks to make riskier and riskier mortgages, since the bank never had anything at risk - they would just sell the mortgage to the investment houses. After 9/11, Allan Greenspan lowered interest rates, which made mortgages even cheaper to get into. With all these mortgages being made, the housing market got tight and prices began to rise quickly. That allowed individuals to buy homes as an investment, taking out a loan with a low introductory rate in the hopes of selling the property before the piper came to be paid.
Eventually, home prices rose to the point that no one else could get into this Ponzi scheme. And then the thing that everyone feared happened. Home prices started to re-adjust downward at the same time that ARM levels started to re-adjust upward. Suddenly, people could no longer afford their payments, couldn't unload the property for what they owed on it, and couldn't re-finance. So what did they do? They defaulted and gave the property to the banks.
Investment banks started to see a growing number of defaults. So they began to buy investment insurance from AIG and other lenders. AIG insured these Mortgage-backed securities fairly inexpensively, since mortgages had always been one of the safest investments in history. So rating agencies like Fair Isaac continued to give these investments Triple-A ratings, and AIG insured them accordingly.
And that's where we were six months ago. House prices started to fall. Home buyers started to default. Investment houses stopped buying mortgages. Investors stopped buying mortgage-backed securities. AIG stopped insuring the investments.
And then people looked around and noticed...
No one had any clear idea what these Mortgage-backed securities were worth.
AIG had insured 35 times more bad mortgages than their entire company was worth, and a large number of them were in default.
Investment banks had borrowed 50-70 times more money than they had assets to cover in order to by mortgages, and a large number of them were in default.
Banks were still holding many mortgages that the investment banks would not buy, and many of them were in default.
Freddie and Fannie had backed trillions of dollars of Triple-A rated loans, only to find they were nowhere near as solid as they had been led to believe.
All our nation's credit capital was tied up in mortgages that might not pay off.
So, everyone please note that NOWHERE IN THIS ENTIRE LITANY DID I MENTION GEORGE BUSH, BILL CLINTON, CHRIS DODD, BARNEY FRANK, JOHN McCAIN, or BARAK OBAMA.
Government did NOT cause this crisis. Reagan, Clinton, Phil Gramm, Allan Greenspan, and many, many others set up a climate wherein this crisis could happen. But it happened because investment bankers found a way to make huge sums of money buying and selling mortgages. And while many people, including both John McCain and Barak Obama, have spoken out in warning of this impending disaster, no one has done anything to avert it.
Who could have done something? It's a long list...
Ben Bernake could have raised interest rates and make mortgages less inviting as an investment.
Henry Paulson could have instituted or enforced checks and balances already on the books.
Congress could have changed the laws to regulate this behavior.
President Bush could have appointed regulators who believed in regulations, not hands-off free-market types, or taken a lot of other steps to head it off.
So while Wall Street created this mess, there were any number of government agents who could have stopped it, but did not. Some refused for ideological reasons. Some didn't have the power. Some didn't see the need. But they all failed in their duty to put the nation's best interests above their own or those of a narrow group of people.
And so here we are. And all the pointed fingers in the world won't plug the hole in this dike before it collapses and floods us. So could be concentrate on the SOLUTION please, and leave the BLAME to the historians?
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