Chris - what do your comments have to do with anything about this opinion piece?
Liberal - equality - huh?As was already pointed out, there were
many factors that drove the housing bubble. Amazingly S&P seems to feel
qualified to place a rating on governmental credit worthiness - somehow being
able to have clarity on the complexities of the US economy, yet should be
absolved from colluding with banks to sell off sub prime loan packages as highly
rated securities. I fail to see how in the world this is a partisan
issue. If those agencies that the public trust to accurately report on the
quality of equities violates that trust - why should they be exempt from
responsibility for their actions. Why the pass for their contribution to the
problem... large or small.
Nate, cause is an interesting term. I'm sure both of our facts are
straight and in my world view sub prime lending is a natural extention of a
finace driven economy. Maybe not a good one but an inevitable one. Sub prime
lending croped up all over the place in the late 80's and 90's. It
was very prevelent in the auto industry even in the the largest and most stable
of banks. It croped up without any government encouragement, just an
opportunity for profit. This is the reason I personally don't think the
principle of subprime lending in and of itself "caused" the melt down.
It held it's own and was contained within reasonable limits until wall
street figured out how to abuse it.
@pragmatistferlifeI don't dispute your numbers, but they
don't say anything about original cause. What caused the mess, was that
mortgage underwriting standards were lowered. Groups like ACORN pressed Congress
to make housing accessible to more people, and they in turn used their authority
to impose new requirements on the GSEs. Before 1992, Fannie and Freddie had been
required to buy only prime mortgages. After 1992, affordable housing laws
required them to meet quotas set by the housing administration. Say goodbye to
underwriting standards.Yes, once the gate was down, Wall Street
drove a bus through it. But the original cause was federal housing policy.
Nate, Mr. Samuelson doesn't discuss Freddie and Fannie for two reasons.
First of all they are completely irrelevant to the point of the article, and
second they weren't the prime cause of bad loans. Freddie and
Fannie certainly played an eventual role but they were late to the party and the
game was well under way with the outcome certain.. led by the Wall Street greed
described by Mr. Samuelson. At the start of 2007 Freddie and Fannie only had 6%
of it's mortgages more than 90 days past due while the wall street backed
mortgages were around 20+% 90 days overdue. By the end, late freddie and fannie
mortgages had increased to about 15% but the wall street mortgages were well
above 40%. Freddie and Fannie were simply not the cause. They
jumped in to survive but they certainly didn't lead.
I know Samuelson probably has limited space, but he leaves unexplored the theme
of government intrusions into the housing market. Federal housing policy helped
to drive the collapse.The implicit guarantee of taxpayer backing to
loans approved by Fannie and Freddie led investors to take risks that they
otherwise would not have taken. (This illustrates one of the major weaknesses of
socialism -- when all bear the risk together, individuals make different
decisions than they would make if the risks were theirs alone.)In
addition, lending standards were eroded by "affordable housing" laws
demanding that quotas be met on the percentage of loans going to low-income
borrowers. The quota began in 1992 at 30%, meaning that 30% of the loans bought
by Fannie and Freddie were required to be made to people below the median income
in their communities. Under Clinton the quota was raised to 50%, and under Bush
it was raised again to 55%. (This was a bipartisan fiasco.) In this scenario, it
was inevitable that lending standards would decline.Going from
there, Samuelson's description of mass psychology effects is accurate, but
he left out this portion of the background.
From the article:"S&P rigged bond ratings for its own gain
— providing artificially high ratings on the mortgage-backed securities
that inflated the credit bubble".No. S&P claimed to be risk
experts who could guide the less informed about how risky the bonds they were
buying were. S&P in fact had little to no understanding of those complex
instruments and therefore were blowing smoke at their clients and the markets in
general.Note - this was not an instance of them simply turning out
to be wrong on a forecast (that is just business). This is them saying they
understood these instruments enough to rate them as excellent, when in fact they
didn't understand them hardly at all.If you don't know,
then your fiduciary responsibility is to say "I don't know".
Clients and the economy were hurt by their hubris (and greed). Clients and the
economy took a strong whack. S&P and the other bond rating agencies deserve
a strong whack in turn.No sympathy.
"Don't blame S&P; we all had a hand in the economic
collapse"Disagree! I kept personal spending within a budget and
did not assume debt other than a mortgage which was paid off early. I also
trusted state/federal regulators to do their jobs. Furthermore I expected
politicians to act in the best interest of the country.
At least three credible authors disagree with and refute the arguments made by
Samuelson in this article.Gretchen Morgenson, author of
"Reckless Endangerment", Andrew Ross Sorkin, author of "Too Big to
Fail", and Michael Lewis, author of "The Big Short." Each zeroes in
on the rating agencies - not just S&P, but Moody's and Fitch as well -
as having given fraudulent ratings to mortgage-backed securities and CDOs,
making billions in fees doing so.Those fraudulent AAA ratings led
public employee pension systems, which, by law in most states, are forbidden to
invest in any securities other than AAA - to invest heavily in mortgage backed
securities. When the market collapsed, the public employee pension systems were
left holding the bag, losing billions. This included Utah Retirement
Systems.But who got the blame? Wall Street? The Bond Raters? No,
public employee unions got the blame, accused of extravagant pension plans.
Read the books referenced above and see what you think. They are non-partisan,
heavily documented, and deeply probing. It will be worth your time.
Liberals would rather that Mitt Romney and other rich people were poor like the
rest of us.Then we'd be equal, which is the pinnacle of success
in their minds.Even if that equality means overall we're worse