SW + 1
The banks had no business loaning money to those who clearly could not pay. They would never have done so had they intended to keep the loans themselves. They knew they were writing very risky loans and didn’t care because they saw a way to bundle and sell the bad loans and make a quick buck. Every manager that ordered his staff to ignore prudent income and collateral requirements should be fired. They ignored the basic principles that stood banks in good stead for centuries. The investment banks almost destroyed our economy, caused the loss of millions of jobs and ruined countless retirement accounts. They should pay a heavy price for that. Many Americans do not believe they paid enough or learned their lesson.
I find it incomprehensible that many politicians now want to roll back the new financial reform regulations. It’s clear that liaise faire did not work.
I'll disagree with your conclusion Dave based on the presumption that we operated in a laissez-faire market in the first place. Nothing could be further from the truth. Laissez faire is the enemy of the monopolistic banking houses that created the mess in the first place. They do everything in their power to consolodate their industry and eliminate competition, not the other way around.
The problem of the recent credit expansion is complicated and consists of many layers. Holding mid-level underwriting managers accountable for loan programs they have no say over isn't going to solve anything. Go back to my comments about who provided the Schnoppster for the punchbowl. Where did the money come from that allowed the investment banks to create billion dollar 30-day warehouse lines of credit for the originators? It certainly didn't come out of investment house capital, those guys are way too smart for that. So smart in fact that they made all their money on the predicted and inevitable collapse by investing in synthetic CDO's. No, why risk your money when you can risk someone else's? Say like, the taxpayer's.
First look at the repeal of Glass-Steagall that allowed investment banks to borrow from the Fed discount window. I won't even add the conflicts of interest the repeal created for investment banking clients. Then take into account that these investment banks could borrow billions at the discount window during this time frame for what? 0.25% - 1.25%? Throw in some CRIA requirements for Fannie and Freddie to securitize some low income mortgages, and VIOLA! A credit expansion problem is born.
So where did the money come from? From the Fed of course. Is it any wonder that the Fed ended up buying up all these toxic sercurities? They provided all the funding for them in the first place.
It irks me to no end to hear people say this was a failure of the free market. They said the same thing during the Depression and we ended up with policies that perpetuated the problem for another 15+ years, and world war after that. Now we are headed in the same direction and I fear we will learn nothing from our history.
A free market has rules and laws that must be followed and adhered to. What you refer to is anarchy. What happened is gov't legalized fraud, and then turned the other way when it happened. The Fed, the SEC, the ratings agencies, and the investment banks should take the lion's share of the blame. The gov't is complicit in that it has allowed the banks to own it's processes lock, stock, and barrell. Look no further than the appointments by the executive branch over the last 60yrs into the Treasury and Fed Reserve.
We are going in the wrong direction now. This "recession" will be played out over the next decade because we refuse to accept the consequences of our actions. There is no recovery without a little pain. The longer we prolong the misery, the more pain we are going to feel. No amount of Pollyannaism is going to change that.
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