Sorry, but you lack much of an understanding of what happened. We did not have an economic meltdown with a near collaspe of the world's economic system over a housing policy to make housing affordable. If that were the case, the S&L crisis of the 1990's, which dealt with commercial real estate would have been far more devasting that this. Perhaps you would like to explain how AIG failed if we are talking about a few people that bought too much house?
Sorry, but your apparent understanding of what happened is overly simplistic and contrary to common sense. I had some first hand exposure to what happened here as I did some strategic planning work for a mortgage producer in the middle of the decade: This was a supply-side problem that was allowed to happen because of lack of regulatory oversight. Investment banks created sophisticated financial instruments around mortgages, then pushed mortgage companies to place money with large signing bonuses and kick-backs. These mortgage companies created boiler-room sales operations to push their product out. This house of cards was allowed to happen largley because our individual tax rates were too low and hedge funds were able to get liberal intrepretions of capital gains treatment on otherwise earned income. The low tax rates promoted bonuses and encouraged the concept taking money out of companies (rather than re-investing it). This is also a crude explanation of the meltdown, but a bit more illustrative. A meltdown of this magnitude could only happen if the very fiber of our financial system were threatened, as was the case in 2008, the problem was so sophisticated the very integrity of the world's banking and insurance system was in question.....
What liberal policy are you citing as causing this problem? I have heard some people mindlessly cite the Community Reinvestment Act of 1977. Please don't let your ignorance show if you are on that bandwagon. Again, it defies common sense to think that a piece of legislation enacted 31 years prior would cause a problem this grave .. That is on par with nonsensical as believing Obama is not a citizen.
This is what happened, and in order:
1. Regulatory lending disciplines were relaxed due to a complicit government.
2. Regulatory oversight of Wall St. was virtually non-existent.
3. Investment banks, Bear Sterns, Goldman, Bank of America etc.. found a way to make money off their risky toxic debt.
4. The debt was mounting, and as with all ponzi schemes the influx of new
customers generally offsets how much a bank is exposed.
5. As foreclosures were mounting circa 2007 Banks needed a way to make their toxic debt attractive.. enter AIG's AAA rating.
6. AIG began insuring all this debt to the tune of about 547
trillion dollars, giving the potential investor/buyer of this toxic debt the illusion that it was backed by a triple A rating.
7. In late 2007 (If memory serves) defaults on mortgages were up 93% over the previous year. Banks began to notice, hedge Fund managers began to panic, everyone began to panic.
8. 2008 Hedge Fund managers began naked shorting Bear Sterns placing 5-day
puts that the stock would fall to less than 50% of its value in five days. (the fix was in)
9. Late March Bear Sterns loses something like 80% of its net worth in five days due to this naked shorting, the fed steps in..
10. The Fed offers JP Morgan a deal of a millennium selling Bear Sterns stock at $2.00 a share, two days later opens up the stock to auction, by that time way too late, Bear Sterns was finished.
11. That same month, and for three months after naked shorting (Read Hedge Funds completely unregulated even to this day) was responsible for the drop of Goldman Sachs, and destroyed Lehman Bros.
12. Naked shorting attacked Citigroup, BoA, and various other institutions, but by this time, the banks caught on. The
gig was up, and the Hedge Fund managers knew it before the banks did, and were trying to profit off the collapse that everyone knew was coming.
13. Paulson, and Ben ask congress to bail them out, congress said no.
14. Banks spent inordinate amounts of money lobbying congress, and one week later congress bails out the banks in the first TARP.
Now here's the problem. The
new Financial reform bill doesn't address Hedge Funds, it does not eliminate naked shorting, and it ignores a lot of the same regulatory measures that would have stopped this scheme before it started, so make up your own mind why they didn't address it. My guess is that they know the debt is still there, and government insiders (The Fed and the treasury, along with Obama and congress) must leave open a way for them to launder this debt, and slowly absorb it. That means that mom and pop investor is the one that will get hosed again with the next scheme.
They traded paper folks.. They traded something that had zero value, and made trillions of dollars doing it. They encouraged, and down-right forced loan originators to push loans on people that could not afford them, just get them to sign. The
banks promised to take their risk from them, just get us the paper to trade..
It was if not illegal, it was unethical, and in my opinion it should have been illegal, and the vehicle that caused it still exists for the next big bubble..
Tim-
