EastCoastMojo wrote:
It was the companies who decided to take the gamble and allow people who did not have good credit to finance their mortgage. It doesn't matter who made the whole mess possible, the companies who made it a reality are still the ones to blame. I don't blame this one on a political party, I blame it on risky business practices, and I am not in favor of bailing out the companies who shot themselves in the foot.
You are exactly correct. But, there's a bit more to it.
Congress, during the Clinton administration, enacted legislation which directed Fannie and Freddie to loosen underwriting standards. No sense going over all that ground again. But here's what happened: Mac and Mae back up the vast majority of mortgages in this country, meaning the companies which needed them to back up their mortgage paper had to follow the same guidelines. For many of them, it was sink or swim; if they cut loose the Mac/Mae lifeline they were bound to go out of business. So they complied with the new guidelines and in response the housing market accelerated (driving the rise in home prices and thus equity) until those bad loans started coming back to bite. All it took was a crappy economy in seven states to start the thing crumbling. Now no one wants to risk buying up the subprime mortgages and can you blame them?
As has been said before in this thread, there's plenty of blame to go around. One piece of fallout from this is that those who do not meet strict underwriting guidelines won't be able to get mortgages, meaning we are right back where we started before that famous piece of legislation got WJC's signature. BTW, the original bill was the Glass-Steagall Act, repealed by the Gramm-Leach-Bliley Act.
http://voices.washingtonpost.com/postpartisan/2008/09/obamas_faulty_logic.html
"Obama's Faulty Logic"
"Bill Clinton beat Papa Bush in 1992 by blaming him for economic woes, even though the downturn of that year was over by the time of the election. Now Barack Obama is hoping to blame that hyphenated adversary, Bush-McCain, even though the facts don't fit his narrative.
Obama is trying to draw a link between the Wall Street blow-ups and a lack of regulation. But the blow-ups have included Fannie Mae and Freddie Mac, two of the most highly regulated financial institutions in the country. They have included three out of five of the top investment banks, institutions that were also regulated. By contrast, there have been relatively few blow-ups at hedge funds, which are not regulated directly. This pattern of failure is not consistent with Obama's claim that deregulation caused the trouble.
Embarrassingly for Obama, the principal piece of financial deregulation over the past decade was the reform of Glass-Steagall, the law that separated investment banks from deposit-taking ones. This reform was sponsored by McCain's friend, former Republican Senator Phil Gramm, but ending the division between the two types of bank was a policy that the Clinton team also supported, which does not fit the Obama narrative. And during the current crisis, the Glass-Steagall reform has proved to be a boon. It has cleared the way for relatively healthy deposit-taking banks, such as JP Morgan and Bank of America, to rescue desperate investment banks, such as Bear Stearns and Merrill Lynch. Without that piece of deregulation, we would all be in more trouble.
The regulation-versus-deregulation rhetoric is appealingly simple, and both parties abuse it. Republicans like to say they will get the economy going by cutting red tape. Democrats like to say that they will make the economy more stable by demanding rational oversight. Neither claim is worth much.
The Republicans fail to acknowledge that the easy economic gains from deregulation were exhausted more than two decades ago, when clearly destructive restrictions on competition in trucking, airlines and so on were scrapped by Carter and Reagan. The Democrats fail to acknowledge that there is a limit to what government oversight can do. Modern financial institutions are so complex that government inspectors are hard pressed to understand their trading strategies. That is why an outfit such as Citigroup, a deposit-taking institution theoretically overseen by multiple government bodies including the Fed, could park billions of dollars of toxic mortgage securities in off-balance-sheet vehicles, with nary a protest from regulators.
Yes, Wall Street's woes reflect greed and reckless borrowing. And yes, some regulatory reform is necessary. But you can't blame the mess on either political party -- at least not if you want to remain honest."