The main problem that is leading to the downfall of our economic system is the
same for both government and the private sector.The problem is that
"those who cause the problems do not have to pay the consequences of bad
decisions". Too many people have a Bernie Madoff mentality - get mine and
let someone else worry about picking up the pieces.Politicians spend
us into oblivion, knowing they are set for life with comfortable pensions.
Corporate executives run a company into ruin and jump out of the plane with
their golden parachute before it crashes. Bankers play with risky bets, get
their huge bonuses, and bail before the whole house of cards comes crashing
down. Many voters will go for almost anything that benefits them personally,
without regard to who else is left with the bill.Until the pain of
bad decisions is tied personally to those who make them, we will get more of the
Prag - Seriously? It wasn't unregulation, but rather wrong
regulation that caused the meltdown.If lenders knew the only way
they got repaid was from the person they lent to, they would not have made
foolish loans. These guys aren't stupid. They aren't going to loan on
high risk, unless someone else is going to take the fall when the default comes.
The government (regulation) offered to be the fall guy, so they
could write the risky loans, make their bucks on the loan origination fees, and
then the government would take all of the loans that failed, saving them from
any loss. It wasn't lack of government that caused the
defaults. It was stupid government, and even more scary, power hungry
government. Without government backing, the bad loans would not
have been made. People of lower income would be in smaller houses, but ones they
could actually afford. I think that's a good thing. If I had
bought the biggest home I qualified for, I would have lost it in the recession
of 2002. Because I bought smaller, I weathered both recessions fairly well, and
now own my home outright, and I'm no rich man!
"For as long as so many people blame the wrong source for the recession,
there is no chance we can prevent our repeating it. Heck we can't even
recover from it.'As long as Republicans can't see
unregulated capitalism and specifically an unregulated financial industry was
the cause we will never return to a value producing economy and recover fully
from their debacle.
For as long as so many people blame the wrong source for the recession, there is
no chance we can prevent our repeating it. Heck we can't even recover from
it.Government intervention in the market, by guaranteeing loans that
were high risk, to gain votes, was the cause. Democrats have to deny
the truth or they would get no votes at all. But as long as they keep promising
people stuff they can't afford, the gullible will continue to believe them
and deny the truth to get that stuff.We would all be better off if
government would pave the way for people to earn what they need, instead of
pretending they can just take from some to give to others with no ill
consequences to the country.
@Nate – “Your mouse is not separate from your elephant -- they are
two views of the same animal.”Your point simply don’t
explain the magnitude of the downturn, the fact that it was global, and the fact
that all home prices plummeted, not just the low end stuff backed by Fannie
& Freddie.There are a number of books out chronicling what
happened and why, and I have yet to read any account that blames, at most,
perhaps 30% of the meltdown on federal housing policy… and most not even
that much.It played a part but was small next to the profit driven
(earning fees no matter they sold) machinations of the Finance industry. Others
(Roland, Pragmatist, etc.) have explained it better than I can, but for me the
interesting question is why the Right focuses exclusively on one small part of
the problem?To your point about the recovery, the article clearly
states that the two countries who have weathered the storm better than any other
have been Germany and us. This seems to bely your talking points about Obama.
I think it starter about the same time that Jolly Roger went to Yale.
@RolandIf Fannie and Freddie were not part and parcel to the system
where banks knew they could pawn off bad mortgages on them we would have
survived the crash. Yes there was corruption up and down the line. But Fannie
and Freddie were part of it and a large part because they helped start the idea
that if you sell subprime and it starts to tie up your balance sheet you can
sell it to Fannie and Freddie and take it off your books. Fannie and Freddie
allowed the subprime lending to go on longer and get worse because Democrats and
some Republicans (ie Barney Frank etc) largely blocked audits and investigations
into these pracitices in 2005-6 when the problem started surfacing.These institutions created a problem that the FDIC was unprepared for because
it created a liquidity crisis in banks that were normally well capitalized.
Lehman, Merrill Lynch and AIG and WAMU were very much affected by this.
"They were falling all over themselves trying to write them because they
were far more profitable than standard loans. "Blame aside, this
is the ABSOLUTE truth. I worked for a major bank at the time (one
that was forced into TARP), and worked in a loan area that made prime loans. I
personally sat in hours of meetings in major cities as the glory of sub-prime
lending was explained in preparation for the consolidation of the prime with the
sub prime business. Eventually there was virtually no prime lending.The mechanics of sub-prime lending was different depending on the product
(houses, cars, credit cards), but the rational was the same. The huge rates
charged would not only cover the known losses, but would multiply the profits.
There was a virtual blindness to the risks. A blindness caused by
the shiny penny at the end of the road, and the convoluted models they created
to evaluate/hide the risks. On the ground it was pure greed, and
fairly evident where it would end.
@the Hammer: Fannie and Freddie were late to the subprime party. They only got
into it because they saw how much money the other banks were making on it. They
actually held far fewer bad mortgages than most commercial banks did. Merrill-Lynch and Lehman were not banks and were not covered by the FDIC. The
FDIC had nothing whatsoever to do with their demise. AIG was actually the
biggest problem, which derived from their massive sales of credit default swaps,
which are essentially insurance policies on bonds. Unfortunately they were not
required to have funds to cover the insurance losses, which is why they needed a
the biggest bailout of all..Another major issue was the ratings
agencies who assigned AAA rating to many bonds that turned out to be junk. Many
organizations are only allowed to buy AAA rated securities, pension funds for
instance, and the crash would have been much less severe had the ratings
agencies not been corrupted by money from the banks they were supposed to be
@RolandHere is the timeline and why Fannie Freddie were the main
cause.Sept 7-The Feds take over Fannie Freddie (Remember these guys
provided guarantees on over half of our nations mortgages)Sept 14-Merrill
Lynch is sold to Bank of America (this sparked the liquidity crisis that sent
the FDIC straight to the president's desk telling him that without changes
to current law over half the banks in the US would fail, this was due to the
devaluation of all of the mortgage securities that fannie freddie had that were
now rated as junk which sent banks holding these securities ratio's into
the abyss)Sept 15- Lehman collapses (FDIC wouldn't step in largely
because it would have drained the reserves and nobody wanted to buy them out ala
Bearstearns)Sept 17- AIG (the other insurance company) needs a bale
out.Sept 19-TARP is unveiled to stop the liquidity crisis.Sept 23-
The FBI announces fraud going on at Fannie FreddieThey weren't
Bit players. They were largely the cause because they helped start the idea
that you can insure investment risk with insurance backed by the very
investments they are insuring.
So much revisionist history. Fannie and Freddie were bit players in the whole
meltdown, it would have happened even if they didn't exist. No bank was
ever forced to make a subprime loan against their will. They were falling all
over themselves trying to write them because they were far more profitable than
standard loans. There are even examples of banks pushing clients into subprime
even though they qualified for a regular mortgage. As to Nate's
assertion that banks were trying to get rid of the bad loans, why then did they
have so many on their books when the crash came? They thought they were cash
cows, that's why.Anyone interested in a thorough history of the
crisis should read "When the Music Stops" by Alan Blinder. Another
excellent source is "All the Devils are Here", I'm forgetting the
name of the author.
@Tyler DYour mouse is not separate from your elephant -- they are
two views of the same animal. The bad loans resulting from HUD/Fannie/Freddie
policy needed go somewhere...so they were packaged into worthless financial
instruments and traded off. No one wanted to be the guy who got stuck with them.
Participating in the fraud was wrong, but the root cause was what produced the
flood of risky loans in the first place -- federal housing policy. When you set
aside lending standards for one community, you have to set them aside for
everyone.This leads back to the original topic: why the slow
recovery? One of the reasons is that everyone knows the Obama administration
hasn't dealt with root causes. Nothing substantial has changed in federal
housing policy.Other reasons, we're all familiar with.
Obamacare is a nightmare of uncertainty. The law is on-again, off-again, until
no one knows what it will require of them. Job creators are standing by, waiting
to see what happens.Similarly, other job creators have decided to
just sit tight until Obama leaves office...the same thing that happened under
Roosevelt. This has slowed down the recovery by years.
@RedShirt – “…reign in Freddie and Fannie”When it comes to what caused the 2008 meltdown, the government pushing banks
to lend (and F&F to underwrite) to the poor/minorities is the mouse in the
room next to the Elephant (i.e., the highly leveraged (up to 30–1), fee
driven, financial products=things of real value, Wall Street/Finance
industry.What does F&F have to do with the bank collapse in
Iceland, the debt of Greece, or the decline in home values in Norway? And
F&F loans only became a problem when banks did not have to keep a portion of
their loans and Wall Street bundled them with good loans and got ratings
agencies to deem them AAA.Yet the solution on the Right is simply to
dissolve Fannie & Freddie (the equivalent of calling the mouse exterminator
while the Elephant destroys your house).And an accurate
understanding of history would demonstrate this collapse was similar in many
ways to the panics of the 1800’s and early 1900’s – before the
evil Fed and regulations you deem causal. You have the cause &
effect relationship here exactly backwards…
To "FT" once again, you are wrong.Read the following:"Fannie, Freddie asked to relax condo loan rules: report"
Reuters"How HUD Mortgage Policy Fed The Crisis" Washington
Post"Meltdown? Let's blame politicians" DN"Three Decades of Subsidized Risk" WSJ"The True
Origins of This Financial Crisis" American Spectator"Bill
Clinton's drive to increase homeownership went way too far" Bloomberg
BusinessThere are more articles out there that go into the
underlying rasons.Again, Bush tried to reign in Freddie and Fannie,
but your ilk killed that idea. See "New Agency Proposed to Oversee Freddie
Mac and Fannie Mae" NY Times. Bush wanted to reign in Freddie and Fannie in
2003. The meltdown would not have been as bad if they had enacted the new
oversight. Also see "President Bush Tried to Rein In Fan and Fred" in
the WSJ.The meltdown wasn't due to capitalism, but socialism
trying to control the banks.
I do think it is Obamas fault, and those who were brave enough to act decisively
in congress.... that the US fared this last GLOBAL recession the best, tied only
with Germany. There are far too many pointing out that we had a recession, and
too pointing out how our country rebounded better than most from it. It was
not a US recession, or just a western recession, but the last recession hit all
the economies of the globe. It even dented the hyper growth China and India
were experiencing. So before we run around blaming Obama, or even
Bush..... the what could have been had both these men not reacted would have
been far worse. Sure the medicine tasted bad going down.... but we would have
been far worse off had we not taken the medicine.
@ RedshirtWrong. Banks got greedy, had little regulation and invested in
high risk. Both Democratic and Republican parties particapated in the
deregulation of the industry. The goverment did not force any bank to buy the
junk that mortgage lenders were selling they decided that on their own. Our
trouble accerlated when Greenspan and political leaders decided to let
captialism run amuck within the banking system and they did not have the assests
to cover their own loses. Bottom line is the industry needed more regulation
and enforcement once society let them get to big to fail. Bush was the last one
holding the bag and had neither the competence or clout to fix it before it went
All this talk of blame. Shouldn't our focus be on repairing the damage?
There are blueprints of successful economic recoveries in our history. Pick one
and implement the policies. It's really not rocket science!
To "FT" the banking problems didn't start with Clinton. They began
in the late 1960s. Clinton forcing banks to issue sub-prime loans was just one
example.You should look into the history of the things you blame for
the financial melt down. Most were sanctioned or pushed by the government as a
way of reducing risk on the banks.Did you know that it was the
Federal Government that invented the idea of derivatives was created in 1978
under Carter. The Federal Reserve, which started 100 years ago has been
ineffective and has added to the regulations that banks have to comply with.Basically, what we saw in 2008 was the result of nearly 100 years of
government intervention in the banking industry.
@ Red ShirtI believe if you go back and research the financial melt down,
it was mostly due to banks playing with derivatives and speculation vs Freddy
and Fannie loans. They were selling junk, buying junk, trading junk and it
finally caught up to them. Whether it was the meltdown or 9-11, they both came
on Bush's watch and his administrations incompetence played a role in them.
At some point Bush supporters need to stop blaming Clinton for all their
What recovery? I'd hate to see a depression.
To "Roland Kayser" again, if you go into congressional records, you will
see that Bush and several Republicans attempted to take actions that could have
prevented much of the financial problems. They wanted to reign in Freddie and
Fannie, but the Democrats on the banking committe kept insisting that everything
was fine, up to a few months before the crisis hit.Next, the idea
that banks have been deregulated over the past 30 years is a fallacy perpetuated
by the ignorant. The fact is that the banking industry has been regulated more
than ever. In fact, under Clinton, they were regulated and bullied so much that
the Federal Government mandated that the banks engage in more sub prime lending.
During the 1950's and 1960's banks were less regulated, and made
significantly fewer sub-prime loans.
Clayton Christiansen wrote an article published in the DNews (probably a year
ago) that was very interesting. If my memory serves me, he proposed changing
regulations & tax code to discourage debt and encourage savings. He
extended this to individuals as well as corporations.It would be
interesting to see, over a long period of time (decades) what such a change
would yield in terms of economic stability.Currently, our nation is
built upon consumption (driven by debt). This ends us hurting many people and
businesses when downturns occur. Changing to a nation of balance, savings, and
self-sufficiency, in my mind, would create slower growth, but fewer and less
painful economic dips.
Tyler DYou know you can be pretty funny at times. You begin by
saying that the article does not blame anyone, so my point is therefore
irrelevent. Then only a few words later you begin to blame Bush, and
conservative ideology ect. I guess that makes your points irrelevent too. Roland KayserThank you for pointing out that there are many
Presidents, and I might add, Congresses that made policy that ultimately led to
the 2008 meltdown. So many try to put the whole thing on the doorstep of Bush
To SCfan: The banking collapse happened on Bush's watch, so he get's
the majority of the blame. Personally I think the collapse was caused by thirty
years of banking deregulation, started by Reagan and continued by everyone up
through Bush Jr. Bill Clinton also gets a significant part of the blame in my
view. It was Clinton that signed the repeal of Glass-Steagall and Clinton who
signed the Commodities Futures Modernization Act, both of which allowed Wall St
and the finance sector to go on a destructive rampage.If I had to
pick one single person to blame it would be Allan Greenspan, the chief proponent
of the "banks can just regulate themselves" school of thought. As Fed
chairman for 18 years he had the power to implement that vision, to catastrophic
@SCfan – “And to think, you guys were all so wrong to blame it on
Bush.”Since the article didn't mention causes, let alone
blame, your point is irrelevant.However, if you’d like to
discuss blame, let’s do…Let’s start with an
ideology that blinds its followers to the need or rationale for any regulations.
Or an ideology that believes the free market is 100% self-regulating and prices
always reflect real value.Then add a heaping dose of politicians who
have drunk this kool-aid and govern accordingly – this started in large
part with Reagan but there’s plenty of blame to go around (e.g., Clinton
signing the repeal of Glass-Steagall).As for Bush, he deserves blame
in so far as he was the “decider” during the years prior to the
meltdown, but Alan Greenspan (Larry Summers, etc.) deserves far more blame than
Bush. I doubt Bush was capable of understanding the 2nd rate philosophy (e.g.
Ayn Rand) that underwrote much of this ideology, let alone the 1st rate
philosophy that critiqued it.Morale of the story – blind faith
in ideology is bad (and dangerous in the hands of politicians).
And to think, you guys were all so wrong to blame it on Bush.
I’d bet a year’s pay we don’t hear one word about this study
over at Faux News – I’ll even give odds.
Instead of examining financial history and finding that we are doing a little
better than expected, some people find it easier just to say "it's all