What Caused The Financial Crisis Of 2008?
By Pinyo • Sep 22nd, 2008I think we can sum up the cause of our current economic crisis in one word — GREED. Over the years, mortgage lenders were happy to lend money to people who couldn’t afford their mortgages. But they did it anyway because there was nothing to lose. These lenders were able to charge higher interest rates and make more money on sub-prime loans. If the borrowers default, they simply seized the house and put it back on the market. On top of that, they were able to pass the risk off to mortgage insurer or package these mortgages as mortgage-backed securities. Easy money!
My Greedy Real Estate Agent
My own experience with these greedy lenders and real estate agents happened about two years ago. My wife and I were thinking about upgrading our home to something slightly bigger, and in a better neighborhood. As we go through the process, we resolved not to do it because it would double our monthly mortgage payment and add another 20 years to our mortgage term.
When I told the real estate agent I couldn’t afford the monthly payment, he said I could go for a 40 years mortgage with 5% down payment, and apply for more than what I needed so that I’ll have an emergency fund. Basically, he advised me to decimate my cash flow and savings so that I can pay mortgage into my 70s. And while I am at it, I should pay private mortgage insurance (PMI) for a couple of years. Now, that’s irresponsible and greedy.
The sad thing about the scenario above is that I am certain there are borrowers who didn’t know any better and went along with a similar plan.
What Went Wrong With Our Financial System?
The whole thing was one big scheme. Everything was great when houses were selling like hot cakes and their values go up every month. Lenders made it easier to borrow money, and the higher demand drove up house values. Higher house values means that lenders could lend out even bigger mortgages, and it also gave lenders some protection against foreclosures. All of this translates into more money for the lenders, insurers, and investors.
Unfortunately, many borrowers got slammed when their adjustable mortgage finally adjusted. When too many of them couldn’t afford to make their payments, it causes these lenders to suffer from liquidity issue and to sit on more foreclosures than they could sell. Mortgage-backed securities became more risky and worth less causing investment firms like Lehman Brothers to suffer. Moreover, insurers like AIG who insured these bad mortgages also got in trouble.
The scheme worked well, but it reverses course and is now coming back to hurt everyone with a vengeance.
The Bailout And Who Should Pay
I don’t like the idea of government bailout, because the government is using my money to help out greedy bankers. Unfortunately, it may be the only option we have right now, but I hope these greedy lenders won’t get away scot-free. Somebody made a lot of money leading up to this crisis and they should pay for it — at least the government should make them.
In my opinion, the government should force conversion of bad mortgages into 30 years fixed rate mortgages. The interest rate on these converted mortgages could be higher than normal. This way it’s more affordable to more borrowers resulting in a lower default rate. Yes the lenders will make less money, but in my opinion, they already made too much. By the way, the borrowers aren’t completely innocent either, that’s why they should pay a little more as well.
Since it was fine from them to play with our economy and our lives, I think this is the least that they could do to take part in the recovery effort. Why should my tax dollars go toward helping these greedy bankers who already made billions out of the scheme? I am sure no one will come to my rescue if I my greed got me in trouble.
Other articles about the crisis and the bailout:
- Fed Bailout Could Cost $1 TRILLION Of Your Tax Dollars at My Two Dollars
- The 2008 Financial Crisis - Causes and Effects at Cash Money Life
- Emergency Economic Stabilization Act of 2008: What it does, what it will cost, and whether it will work at The Dough Roller
- “Bring Out Yer Debts!” - Ben Bernanke Does Monty Python at Credit Withdrawal
- Me too, Secretary Paulson! at Wise Bread
- Thoughts on the Financial Crisis from an Actual Economist at Get Rich Slowly
- Inside the Economic Rescue Plan: One Giant Bailout at Five Cent Nickel
All posts by Pinyo
Don’t forget the greed on the part of the politicians who insisted that sub-prime borrowers be given loans and then dreamed up all sorts of programs to fund them and back them with guarantees. They were greedy for votes and power.
We threw all the normal parameters for getting a mortgage out the window because we wanted to increase home ownership among certain voting blocks.
@Ron — It’s supposed to create opportunities, but I guess too much opportunities is a bad thing, especially when people aren’t prepared to receive them.
I agree with a lot of your observations Pinyo! Those who had created this mess should have some kind of penalty.
I agree, lots of greed on both sides. It’s the cause of so many financial problems—everything from subprime mortgages to falling for the 419 Nigerian scam (how many people genuinely want to help some person in trouble?).
I hate to say it but 9/11 and the tech bubble have a lot to do in this too. The Fed has kept rates very low since which enabled so much lending at such low rates. It was not sustainable. Like you mentioned once rates moved up it hurt all those with adjustable mortgages.
What I don’t get.. did humans suddenly become more greedy the last few years? People say there is greed on Wall Street. Yet there was greed on Wall Street for hundreds of years. And there was always greed on Main Street, too. Who does not want to make higher returns? There has to be more to it. My litmus test… if we blame greed, do the solutions minimize our likelihood of recurrence? Heck, greed’s anytonyms can have unintended consquences on par with greed itself!
What keeps all of us from chasing the most ridiculous returns possible? Risk.
Rather than blame greed, what if we refine our risk management parameters so the greedy cannot dump their risk on the unsuspecting (including taxpayers), and the average person is less likely, or less able, to be an accomplice? If goverment regulates what should be regulated, yet does not encourage what should not be encouraged, I don’t think the rest of the actors can cause nearly as much trouble.
The good news… the discussion being generated is so much better than if we were back in the days of television/newspaper and no internet. The better our collective understanding of risk, the less risky our system becomes.
@Laura — I would hope so. I saw a news today about the the government wants a piece of the company for taking on the bad loans. I think this is a good idea in a sense that we are not just giving away money, but there’s a chance for us to recoup the bailout money by later on selling the equity back, or to the public.
@Sean — No, greed always have been with us. Greed has many guises. Here we are seeing it as mortgage lenders taking on bad loans to make money. When the dot-com burst, it was greed on the part of venture capitalists, Wall Street, and investors driving up the prices on speculation.
Because greed has many guises, there won’t be a universal test that could prevent something like this from happening again. People likes money and wants to make more money, so it bounds to happen. There are a lot of smart people on this planet and they will come up with a new mouse trap.
Of course greed on the part of all involved but I think we can add bad management on the part of those making the rules. Everyone was allowed to indulge their greed without limits. The regulations were eased, there was no control.
You hit it on the head with this post. GREED GREED GREED. I agree, why should my tax dollars go towards these peoples messing up? The market is going to be crazy the next few months as they sort out this mess, I just hope with the election here that people learn from past mistakes and realize we need some changes in the way everything works. Hopefully someone gets the picture!!
Since we are spreading the blame around here (and there is plenty to spread), I would like to add that the entertainment industry has certainly played their part. Just look at all the shows on television (from reality shows to moronic sitcoms); how many are set in main street America? Very, very few. In movies, and on TV, everyone drives big cars, lives in big houses, wears flashy clothes, etc, etc. We quickly became a culture chasing bigger and better. Average home sizes have nearly doubled in thirty years. Nothing is ever enough.
Perhaps the pendulum is swinging back in the other direction, and being frugal will once again become en vogue, either out of necessity, or because these events will scare straight those constantly outspending their paychecks.
Isn’t the government going to make money in the long run though by taking on these debts?
In a way the government is making a huge investment!
The LENDERS didn’t even have to worry about borrowers defaulting. The lenders bundled their mortgages and sold them into the secondary market (Fannie and Freddie).
By the time the mortgages adjusted and the borrowers defaulted, the lenders had long recovered their money.
Pinyo, I’m not a fan of the government bailout either. I like your idea for converting mortgages to 30 year fixed mortgages at a standard rate. I think that would clean up a lot of the problems people are having with the exotic mortgages they signed up for - either out of ignorance or greed. I also agree with Sean’s statement about risk management. There was a massive failure that was endemic of almost the entire mortgage and loan industry. Stricter standards need to be adopted and enforced - otherwise this problem will repeat itself in a few years.
Republican Greed and deregulation
And now Bernanke and Paulson wants $700 billion with no oversight, protection of taxpayers, or guarantee of result. Crazy! At least the Congress is doing something good this time.
@Jason — Lack of frugality and irrational exuberance definitely plays a role here too. Agreed. But I don’t know if being frugal will ever become a fad…more like a necessity.
@Uncommonadvice — With the “as is” bailout proposal, the answer is no. We are just assuming bad loan. Paulson even propose we pay premium for these bad loans.
@Terry — Exactly, that’s why AIG is in trouble and Lehman went down. AIG insured these bad loans and Lehman invested in the derivative financial products based on these bad loans.
@Patrick — Yeah, I think it’s a practical solution. So what if these mortgages will be less profitable for the lenders.
Stabilizing the financial system should be the primary goal. We’ve been told for years by the rich that Government is bad…..now they want Government to bail them out….kind of ironic, although I don’t think we have a choice.
What I want to see is the leaders of Freddie, Fannie, AIG, Lehman Bro’s, etc, stripped of their assets and sent to Jail……
Greed is exactly what has happened. Sure, greed has always plagued some people…it has just consumed more and more people in so many different aspects. Example: Someone sells their home for a much higher amount. The next thing you know, that entire area or neighborhood is priced much higher. Buyers are swindled to believe they can afford the mortgage because their equity will keep building according to the Agents and lenders…they want the sale to go through. Appraisers are included and make the $’s match. And of course the city or county has to get in on it and raise property taxes.
The stock market is controlling our gas prices. GREED! GREED! GREED!
I could keep going however it is just upsetting and overwhelming!!!
If it’s not greed then what is it…Our government? I heard a lot of people say if the Dems control the house and senate, we will be in big trouble… They control it. You decide. Although GREED is in fact a BIG part of the problem of the entire world.
We can blame the government all we want but its truly ignorance and greed on the homeowners part. If they were more educated about the actual terms of their loans, maybe they would think twice. Maybe they wouldn’t because they really want that big house and all those nice things you can buy if you borrow over and into your equity, which is just a fictional amount anyways because homes go up and down and never just go up…..
It is greed, but on the parts of stupid homebuyers and the lenders taking advantage of them. Just because you can get a loan, doesn’t mean you can afford it. We should learn to be a society less based on credit anyways.
Lani, maybe so, but Americans have been sold on home ownership as the corner stone of the American Dream.
Loan officers, lending institutions and some of the other “gatekeepers” were handing out mortgages to people who had no business being qualified for these notes. They are to blame, not your neighbors who are being thrown out of their homes
Dead on correct. It looks like we might have real relief on the way that ties into what taxpayers want instead of the people who benefited from the tragedy. Dave Ramsey of all people suggested many of the components that are now being considered in a new swing at fixing the problem.
This sure is a game of power and control motivated by greed, absolutely. The whole world is feeling the effect of this economic crisis, and it’s not as if the world is short of disasters to pick from. There are crises happening every which way you look, and they are hitting us faster and harder every time. Is there a way out of this mess? I can tell you there is. To get some light on this situation take a look at what Michael Laitman says at http://www.kabbalah.info/engka.....e/ynetnews.
LOOK AT THE DATE!
Read the rest of the article…
Frank, are you telling us that there are no rich democrats in office and on wall street and that the “Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing” had nothing to do with it?!?
Blame lies in three different laps, the government for BAD regulation (regulation is needed, bad regulation is not), partisan politics (see the killing of the Federal Housing Enterprise Regulatory Reform Act of 2005), and turning a blind eye (”These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis,” [Barney Frank - 2003 - Financial Services Committee]), the greed and excessive risk that the mortgage brokers and lenders practiced, and the individuals who borrowed FAR more than they could afford. I am still baffled as to how someone can think that they can afford a $300k+ home for $400/month.
Now we have a bunch of politicians, a few of which were directly involved in the cause of this crisis, panicking and trying to come up with a so called fix that is full of more pork and not so well thought out regulations that in the end will do far more harm than good. One example of something in the bill that has nothing to do with the financial crisis is the following. “To amend section 712 of the Employee Retirement Income Security Act of 1974…to require equity in the provision of mental health and substance-related disorder benefits under group health plans…” Perfect timing for something like this!
The point is that our future is in deep trouble. This Congress will make things worse, greed is inevitable, and no one is willing to take responsibilities for his or her own actions. Until we get people to take more responsibility for their own decisions and hold leaders, be they politicians or corporate, accountable for incessant mistakes, there will be no fix to our problems. Good luck!
The cynic
Be a cynic and fiddle while Rome burns………the reason we have a government to act (however unpopular) when it is needed….. I read that AT&T is about to layoff up to 20% of their workforce………the long slide to depression is beginning…how many cynics will there be on the breadline with you?
I do not think I stated my point in the best fashion. We have an opportunity to act coming up very soon. The representatives from both parties have not made things any better. The Repubs, when in charge, lined their pockets, and the Dems have done the exact same thing over the last two years. There has been nothing but bickering, blaming, and belligerent, pompous blather coming from both sides and a whole lot of special favors going to a select few at our expense.
Vote out the incumbents! We are the ones that decide who gets to make decisions and negotiate for us. We are the ones that keep putting the same crooks in charge. We need to make sure that these crooks are held accountable. Vote them out. If it takes two and six years before we get another chance to put someone better in after the current reps are ousted, so be it. Vote them out.
Great article Pinyo, and I agree with you on who should pay for this crisis. In a way I think that it is really stupid of these banks to lend mortgages to people who can’t afford to pay their bills. I know that the U.S. has put these “American Dream” fantasy in our heads to advanced the economy, but really these banks SHOULD know better. It’s like a wise adult letting their children do whatever they want and going along with them in the plan.
I just hope that this crisis ACTUALLY wake these banks (and the entire disorganized money system) wise up. I am starting to feel really disappointed at the U.S. financial system
Good reading. Interesting article - thank you! You should all look at this as well is also worth reading:
http://peekablog.net/2008/10/w.....al-crisis/
I think these greed firms should be changed into public firms where the public have the right to know before some policies were implemented. With these method, I think the public are more secure interm of borrowing money. Now, this disease was widely spread into my country and becoming worse. Do you think we should this existing system into Islamic Financial system?
Did The US president (George W. Bush) have anything to do with the financial crisis? I mean where provoking those other countries is concern. I mean Gas went up mostly because of that, did’t it?
I think its ironic that everyone wants to blame wallstreet. There was hardly a market for sub-prime mortgages before the GOVERNMENT forced Freddie and Fannie to increase the percentage of subprime loans in their portfolio. This created a large lucrative market for sub prime loans thanks to the government in the early 90s. Freddie and Fannie were paying a lot of money to buy up sub prime loans. Lenders were just providing what Freddie, Fannie, and the democrats asked for. Sub prime loans for anyone and everyone.
As the housing bubble approached quite a few folks warned us about it. Some republicans even tried to regulate freddie and fannie but were blocked by the democats which were receiving large donation from freddie and fannie. Yes republicans are anti regulation for the most part but when they did ask for proper regulation it was the Democrats and a few Republicans that defected that blocked the legislation.
It does not seem like anyone here wants to go to the root of the problem. I say start with the politicians who created the market for this and continued to profit off of it for over 16 years. Every politician who laughed at the regulators raising alarm about this crisis should be put in jail. Especially considering they blocked legislation to regulate sub primes so they could continue to get donations from Freddie and Fannie. Check their campaign contributions and then check and see how those politicians voted. They voted to create the market for sub prime loans and then to block the regulation.
Investment companies just bought MBS which were improperly labeled as AAA rating when they should have been BBB-. Yes they should have known better but the ratings were supposed properly help them judge risk not slip them high risk MBS rated as safe investment or “virtually riskless” by Franklin Raines. And how is he not in jail? Oh ya because he is Obamas economic advisor. The number 1 CEO of Freddie or Fannie that is responsible for this is going to be helping Obama restructure our Financial system? Wow please educate yourself on who caused this before you vote for us to do it all over again.
Good God how can anybody sit and blame anybody but who is in office, 8 years of George Bush bleeding the economy to the tune of 150 billion in Iraq and Afganistan? The second “do nothing” Bush to be in office. Do you all forget he has the final say with his vetoes? It’s been 8 years of Republican rule, Republican deregulation (yeah right, Democrats did it? quote the bill number and the those who voted for deregulation before you toss that nonsense out there!)
Have we all forgotten Neil Bush, George’s brother who caused the collapse of the Silverado Savings and Loan in the late 80’s costing us tax payers nearly a trillion dollars in the bailout then? That’s a Republican.
Everybody that voted twice for Bush, will vote for McCain, and vote for your Republican legistators deserve what you get. Another Recession. Ever see a Republican President that hasn’t caused a Recession? This one’s going to be closer to a Depression. When you paid and pay 3-5 dollars for gas because Bush stirred up the middle east and had no plan for it’s conseqences, when you have to help pay for unregulated predatory lending practices by 750+ billion dollar bailouts, when your businesses and families suffer because of lop-sided free trade agreements that pour products into our economy, and when your 401k’s, savings, and investments have lost up to half their values and you have to work well past retirement or hand to mouth, I hope all who voted the way they have also enjoy spiralling health care costs. Because everybody will need healthcare in their old age along with prescriptions. Enjoy wondering how you’re going to pay for gas, doctors and medicine, heat for your house if you even have one left, groceries, and just plain living. You all deserve it. You voted for it. At least when you hit retirement we can call your idiotic reasoning that some how it’s not Republican policies that did it dementia and alzheimers. But what we can call it now is ignorance and stupidity.
Wikipedia.org explaines the Raines/Obama connection like this, with citations.
Question of Raines and Obama connection
On July 16, 2008, The Washington Post reported that Franklin Raines had “taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.” [20]. Also, in an editorial in August 27, 2008 titled “Tough Decision Coming”, the Washington Post editorial staff wrote that “Two members of Mr. Obama’s political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae.”[21] On September 18, 2008, John McCain’s campaign published a campaign ad that quoted the Washington Post reporting regarding Raines and Obama. The ad also notes that “Raines made millions and then left Fannie Mae while it was under investigation for accounting irregularities”.[22]
Though they had not disputed the Post’s reporting before the ad, after it both Raines and the Obama campaign denied that Raines was or had been a provider of advice to Obama or the Obama campaign.[23][24][25]
In later commentary, the Washington Post characterized McCain’s attempts to connect Sen. Obama with Franklin Raines based on their reporting as “A STRETCH,” and said that all reporting they did about the matter stems from a single conversation a reporter had with Raines, in which she recalls Raines said he “had gotten a couple of calls from the Obama campaign.” When the reporter queried Raines to the nature of the calls, he said “oh, general housing, economy issues.”[26]
Up above Ron says this:
“Don’t forget the greed on the part of the politicians who insisted that sub-prime borrowers be given loans and then dreamed up all sorts of programs to fund them and back them with guarantees. They were greedy for votes and power.
We threw all the normal parameters for getting a mortgage out the window because we wanted to increase home ownership among certain voting blocks.”
Nice thought Ron, but a perfect parallel. The reason the big money party wanted to push the subprime loans, was that their constiuents, the rich bankers and lenders wanted the free and easy money that came in the form of the fees and mortgage points. They could then abuse the mortage insurance institutions by shoveling the destined for failure loans onto them getting off with the fast money up front. Republicans deregulated the banking industry because (and your right on this part)
1. Big money banks lobby heavily to their congressmen that they voted in, those politicians vote on bills that will keep them their jobs and perks.
2.It was the Republican administration which directed Fannie Mae and Freddie Mac to more aggressively serve risky markets, and threatened their charter if they did not do so.
On December 16, 2003, President Bush signed into law the American Dream Downpayment Act of 2003, which will help approximately 40,000 families a year with their down payment and closing costs, and further strengthen America’s housing market. This legislation complements the President’s aggressive housing agenda announced in 2002 to dismantle the barriers to homeownership.
(From White House Press Release “American Dream Downpayment Act of 2003 – Expanding Homeownership Opportunities for All).
The American Dream Downpayment Act of 2003 followed Bush’s admonishment that capital must be made available to “low- and moderate-income families, individuals with blemished credit, and families who have little savings for a down payment.”
The Republican administration had HUD offer “zero down payment” mortgages, and risky 3, 5, and 7-year ARMs.
It was the Gramm Leach Bliley Act that allowed banks to deal in mortgage-backed securities. Without passage of the GLBA by a Republican-controlled Congress, the subprime mess couldn’t have happened. Chief architect of the GLBA? John McCain’s economic adviser, Phil Gramm. Yes, that Phil Gramm. The GLBA was passed on a vote split along party lines (John McCain voted “aye,” by the way).
The GLBA eliminated regulatory oversight that was essential to prevent the sorts of naked fraud that have fueled the current crisis. As a result of the GLBA and Republican love of deregulation, the banking industry was allowed to “opt out” of regulation, something that SEC Chairman Chris Cox now blames for the current crisis
So let’s have the rundown, here.
Were the Republicans responsible for (and did John McCain vote for) the Gramm-Leach-Bliley Act that allowed this deregulation that created this problem, way back in 1999? Yes.
Does John McCain currently have Phil Gramm serving as his economic adviser on his campaign? Again, yes.
Did the Republicans, in control of sending S190 to the floor of the Senate for a vote, fail to do so? Yes.
Did the White House, putatively desiring to see the risks of Fannie Mae and Freddie Mac ameliorated, fail to take action when comprehensive regulatory legislation failed to emerge from Congress? Yes.
Did McCain support reform of Fannie Mae and Freddie Mac? Not in any way that mattered, and certainly not when it would have done any good.
Did McCain presciently predict problems with either GSE? Nope. He simply regurgitated the findings of the report created by the OFHEO.
Given a second opportunity in the current Congress to address reforming either Fannie Mae or Freddie Mac, did McCain act or even speak toward convincing his compatriots to assert more regulation in order to avoid disaster? Clearly not.
The clear indication is that this mess is primarily the result of the Republican love of deregulation. The Democrats, of course, deserve their fair share of approbation, having done nothing, themselves, to address the problem, either. But in the face of consistent finger-pointing laying the lion’s share of the blame at the feet of Democrats, the facts of the situation contradict that assertion. This crisis was engineered by Republicans, permitted by Republicans, and now that the chickens have come home to roost should be owned up to by Republicans.
I hope that some of you find this informative. It explains alot.
http://www.youtube.com/watch?v=NU6fuFrdCJY
Ok you wanted some specifics of how we got in this mess… here are a few for ya rollo =)
In 1995, as a result of interest from President Bill Clinton’s administration, the regulations for the CRA were strengthened.
These revisions were credited with substantially increasing the number and aggregate amount of loans to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
This required Freddie and Fannie to increase the percentage of sub prime loans in their portfolio which increased the demand for the sub prime loans by CREATING a lucrative market for them. Why wouldn’t a lender give a loan when it can just sell it to Freddie and Fannie for a profit?
A September 11, 2003 New York Times article shows that President Bush proposed “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” His proposal: An agency within the Treasury Department to supervise mortgage giants Fannie Mae and Freddie Mac. here is the link to check on the article http://query.nytimes.com/gst/f.....nted=print
Or here is another link to check on the 2003 block of regulations for freddie and fannie. Please note its a democrat leading the block. notinmygreenhouse.hypocrisy.com/…/rep-franks-rejects-bush-admin-attempt-in-2003-to-regulate-fannie-mae-and-freddie-mac/
And yet again in 2005… And, in case you were wondering, John McCain co-sponsored a bill requiring greater Fannie Mae / Freddie Mac regulation in 2005. It was also blocked procedurally by Democrats.
http://hotair.com/archives/200.....it-crisis/
And here is my favorite. Barney Frank and numerous Democrats talking about how strong Freddie and Fannie are and how there is not a problem at all!!!
http://www.youtube.com/watch?v=xyspCRmJv7w
Not to mention the top 10 recipients of campaign contributions from Freddie and Fannie are Democrats!!! That makes sense I guess Freddie and Fannie pay em to keep regulations off of them so they can make their numbers and get their 90 million in 6 years for running our financial system in the ground.
I hope we have a investigation into this and put EVERYONE who screwed the American public in jail for this.
Wasn’t it the Democrats that REQUIRED banks to give sub prime loans?
Wasn’t Democrats that REQUIRED Freddie and Fannie to increase the percentage of their subprime mortages in their portfolio?
Wasn’t it Demorcrats that blocked regulations of Freddie and Fannie for the last 10 years?
Wasn’t it Democrats that received Campaign contributions from Freddie and Fannie for blocking the regulations?
Wasn’t it Barney Franks boy friend that worked for Freddie and Fannie from 91-98 helping to setup this sub prime mess?
The answer is YES. Democrats had a lot to do with the cause of this mess.
The republicans have partial blame as well for not forcing the appropriate regulation of Freddie and Fannie while they were the majority. Unfortuneately a small percentage of republicans sided with Barney frank and the Dems =(
As a rule of thumb I am pro deregulation like most conservatives. Its the government involvement that created the market for sub prime loans and got us into this mess. More governemnt is not the answer. Now I do agree with some appropriate regulation along the lines of what republicans proposed over the last 10 years.
Last time I checked our free market capitalist society is what made us the Economic power in the world.
Now we have the 2nd highest business taxes in the world. In a global economy which we have no choice but to participate in. Business will naturally go where it can make more money. That means jobs leaving America and going overseas where they are not taxed as excessively.
Am I the only one that has a problem with socialist societies out there having lower business taxes then our “free market”?
http://www.youtube.com/watch?v=xyspCRmJv7w
Dems own words on the financial crisis in 2005 when the regulatory agency raised concerns of freddie and fannie!!!
Last time you checked Samuel? Everytime something was deregulated, it allows crooks from any party to flourish. Perhaps in your fair city they should deregulate the police force? What I mean is, get that big ole goverment right out of the way. You can’t talk out of both sides of your mouth. You can’t pick and choose what you want governmet to get out of the way of. So, let’s see. Lets deregulate our U.S. Mail system, our schools and education, get private mercinaries to take over our military, and lets save some of YOUR taxes by not funding any home projects like highways. Lets go back to the frontier days and let the citizens just save some taxes and take care of paving their roads on their own, home school your kids, and save up your tax money for your retirement instead of participating in social security taxes and forgo any checks in your old age.
Get that dang old government right out of the way when businesses save tax money but fix your own building when a natural disaster like Ike or Katrina comes along.
There isn’t any sensible American that wants Socialism.. but no intelligent American would insist on a free for all capitalist environment where if there weren’t boundries and regulations, your tax worries would be over because somebody would break laws just to put you right out of business. Whether it be by plain old looting, or by some scheme to attack your business financially. Perhaps calling in your federally insured or backed small business loan when you could least afford it, raising interest rates so high without government protections?
Maybe on a local level, mess with the zoning laws or patent rights.. Lets deregulate those. How about you pay no taxes! Not a penny. Then be proud when our military is out gunned, the immigrants that Republicans import to pick berries in their monopoly businesses invade us. Drive in the ditch instead of a highway that was funded by OUR taxes. But then again it would be somebody elses land you’re driving on, and not an easement protected by government that “got in the way” so stay home. Your customers can stay home too. That’s me and “Joe the Plumber” that buy your goods and services so YOU CAN PAY TAXES.
So… the outsourcing’s a sore spot? Then you go overseas and not get taxed. Let big ole govenment get out of the way so there’s NO limits on imports. What ever it is that’s your business, lets let communist countries like China have free run over here, let Japan own every building around your business with NO restrictions. They’ll be glad to have the opportunity to replace you on the tax paying rolls to force you right out to Korea.
Yep, let that big old goverment get right out of the business of governing, let the United States go back to the era of the wild west and get completely out on your own. Let me know how you fair when you have to compete totally unprotected with whole countries.
Your links link to Republican based blogs, or conservative backed falsehoods. Enjoy the misery of the recession after recession Republicans have each and every time they’re in control.
Just stop paying taxes. Vote for no restraints and no boundries or protections for your business. Then enjoy the memory of the business you’d lose.
I agree. Greed caused this Financial crisis !!
Its not a matter of what caused it it is a matter of how we fix it
Those who do not learn from the mistake is doomed to repeat it. This very same type of greed and risky lending caused the great collapse in 1929, and it’s what caused it in 2008. Do we want to see it repeat itself for our grandchildren?
It needs to be fixed alright, and fixed permanently. And part of fixing it, is knowing who caused it, and making them pay restitution. Continual deregulation of laws and rules that rein in greedy bankers, borrowers and politicians are a sure fire way to guarentee it happening again. I agree with Rollo up above. Seems the Saving’s and Loan collapse and crisis was swept under the rug and forgotten.
Well Todd I have checked. History shows that a free market capitalist economy outperforms heavily regulated economies. All through history our economy has outperformed everyone elses for any extended period of time.
Also when our government gets involved in our economy they have a great track record of causing problems our free market has to work out on its own.
Its not talking out of both sides of my mouth to think there is appropriate regulation which prevents fraud. And unecessary regulation which is usually what our government implements.
You can not honestly think our government is as efficient as the private sector. If you do … well… no point in talking to you =)
So Todd I am curious how do you propose we deregulate goverment agencies? Thats not possible buddy the fact that the government owns controlls and runs our mail, police, and military makes them impossible to deregulate? … just an observation of how flawed your argument is.
Regulation is government rules imposed on private agencies. You can not deregulate government agencies that would be privatising.
As far as taxes are concerned I have no problem paying my taxes all I ask is for a fair tax rate. I am a huge fan of a higher minimum tax and a flat percentage to make it fair taxation instead of penalizing folks for being succesfull. Also for capital gains taxes keeping them low encourages saving which we obviously need, a tax increase on capital gains would actually make it harder for middle class folks to build wealth. And as for business taxes its simple. Companies look at tax rates, labour, and infrastructure as their main points in deciding where to move their business. We have the 2nd highest tax rates, and Obama will strengthen unions so that 2/3 that will be against us… wonder why they are going over seas? and Obama wants to increase business taxes and strengthen unions like that will help the situation =(
The best way to strengthen our economy has been proven over the last 100 years. Its called free market capitalism if you dont believe me read up on it =)
BTW its the conservatives that are pro-military research and developement, and have been trying to invest in our infrastructure with nuclear plants etc which have been blocked by democrats =(
Basically I expect my government to build our military, infrastructure, and allow our free markets to function. I dont need our government to keep increasing taxes for handouts to the lower and middle class. Obama is going to be implementing the largest welfare addition in our history. His “tax cuts” are not tax cuts. They are hand outs to folks who do not pay income taxes for the most part anyways. His answer to everything is more government and income redistribution. Thats communism plain and simple and we know it doesnt work if you dont believe me ask Russia how it worked for them. Or check out all the other communist contries and see how they are doing.
I just wanted to point out that who ever voted for George Bush twice, and plans on voting for his clone, John McCain should be made responsible and pay for all the current budget deficit when President Clinton had it balanced, along with the damage the economy has suffered at his hand..
Are you all going to deny that Bush has been one of the most failed and destructive presidents in the last couple decades to our economy? What makes republicans so sure that John “Maverick” McCain isn’t going to give America the Coup de Gras in the the financial head?
Let’s decrease out taxes by not giving “handouts” to other countries. Seems it’s ok to give a blank check for billions of dollars to let our “big government” meddle in the affairs of other countries. Do people not notice those tax dollars going up in smoke? At least if tax dollars are spent at home, it’s spent on U.S. citizens. For mostly good. Not a peep out of Republicans about the billions in waste to run the GOP war machine.
I do agree with Todd above. Republicans can’t have it both ways. It’s ok to tax and spend on what THEY want to spend it on. Billions for war.
Penalize the poor for being poor with a flat rate and higher tax minimum. A sure fire way to collapse the whole infrastructure of the country.
There are quite a few countries that have a very, very successful economy and system. Norway, for instance has an excellent health care system, and everybody lives well. Very well. I’ve spoken with many of their citizens and those of quite a few other countries that have systems that keep their quality of life quite high.
So who is responsible for the current mess? The tax situation etc. Ask a Republican and they go brain dead on who is the President with the veto pen. Who had control of congress for many, many years.
Now to address the nonsense up above, it’s a far stretch to compare any presidential candidate to imposing communism. That’s just plain ridiculous. Paying taxes on income is the same as paying taxes on property and vehicles. It’s based on value. It’s the lower income and middle class that have the least tax deductions, loop holes, and depreciation to deduct.
It’s the rich that have countless opportunities to dodge their “fair share”, so in proportion to what they make, the poorer and middle class are paying more in ratio to what they make.
The funny part is, that when Obama does beat a toddering old fool and a straw brained woman, everybody will benefit from healing that will result, Democrats and Republicans alike. Just too bad it will be a big task and many years to recover from failed Republican policies, their greed and financial manipulations.
Don’t be so quick to pretend that George Bush didn’t happen. You all voted for him, and we are all suffering because of your choices, past, present and future.
I think the blame has to be equally shared between us as the consumers and also the banks. Some people are just happy to blame big banking institutions for irresonsible lending and this is certainly the case, however as consumers we have been ready to take on more and more debt without fully understanding the consequences of that in the future.
Wow Stacy where to start with you… If you had read my comments above you would see that I dont go brain dead when you want to talk about the economy or taxes. Funny thing is the financial professionals and financial professors most seem to agree that the current crisis is not George Bush’s fault.
I did not see anything in your numerous paragraphs that point to anything Bush did to hurt our economy? Lower more fair taxes had nothing to do with it. The war in iraq has to do with our deficit yes but not our economy as a whole.
As for the bailout I am firmly against it and last time I check 66% of the democrats voted for it while only 33% of republicans did.
I see you really want to try to champion norway as your example for universal healthcare and that they have a “great economy”. Last time I checked we still have the number one economy in the world! actually our GDP is over 3 times our closest competitor and I have not seen Norway on the Top 10 current GDP’s or even the top 10 fastest growing economies…
Not to mention we have had some of the most costly natural disasters, terrorist attack, and financial mess left to George Bush. I dont think he has been a great president but I do know the majority of the financial problems started under Clinton. Not to mention the spending under Bush was influenced dramatically by democrats. Yes republicans were in the majority but not a decisive majority. The Democrats have been able to block bills from even making it to the floor for a vote because it was such a minor majority. Like the regulations for Freddie and Fannie they blocked repeated. =( This also helped democrats add in extra pork and spending to a lot of good bills.
Also on healthcare every time folks try to point to a country with universal healthcare and say its such a great system, people look into it and realize that yes they are all covered but it takes forever to get treated and their treatment is sub par especially compared to our healthcare.
As for the War I am pretty sure it received a vote and it was about 90% of the congressman, and public that agreed with it! As for how to handle it now we should deffinately finish the job. Leaving them high and dry after we have destroyed their infrastructure and letting them slip into a civil war is unacceptable. We would really be screwing them over worse then by pulling out early.
On taxes we already have a progressive tax system. Every step towards taxing the wealthy more then they are and giving it to the poor is socialism. Sorry I have to disagree with you there that is not what this country was founded on and it does not work! Dont believe me ask Russia how it did for them when they competed against our free market.
I really like the idea of a flax tax with no write offs for individuals it doesnt get any more fair then that =)
90% of the congressmen and public that agreed with the war were lied to by George Bush the Republican liar. Weapons of mass destruction? He lied to congress, lied to the American public, and lined both his pockets and the pockets of his pal Dick Cheney and Haliburton with all the military and oil contracts.
What a fallacy to think the majority of the financial crisis started with Clinton. What was he? A time release capsule? Eight years of George “Do Nothing” Bush, who had plenty of time to correct or guide the economy toward anywhere but a huge budget deficit when the budget was balanced by Clinton, and he lead it straight into a financial disaster, once again a Republican Recession. Bush was the one that pushed the American Dream Downpayment act.
On December 16, 2003, President Bush signed into law the American Dream Downpayment Act of 2003, which will help approximately 40,000 families a year with their down payment and closing costs, and further strengthen America’s housing market. This legislation complements the President’s aggressive housing agenda announced in 2002 to dismantle the barriers to homeownership.
(From White House Press Release “American Dream Downpayment Act of 2003 – Expanding Homeownership Opportunities for All).
The American Dream Downpayment Act of 2003 followed Bush’s admonishment that capital must be made available to “low- and moderate-income families, individuals with blemished credit, and families who have little savings for a down payment.”
The Republican administration had HUD offer “zero down payment” mortgages, and risky 3, 5, and 7-year ARMs.
It was the Gramm Leach Bliley Act that allowed banks to deal in mortgage-backed securities. Without passage of the GLBA by a Republican-controlled Congress, the subprime mess couldn’t have happened. Chief architect of the GLBA? John McCain’s economic adviser, Phil Gramm. Yes, that Phil Gramm. The GLBA was passed on a vote split along party lines (John McCain voted “aye,” by the way).
Obviously Samuel, as Stacy states, goes brain dead when confronted with facts.
Blame Bill Clinton for 8 years of Republican Bush disasters? Unbelievable.
Call Democrats Socialists, but Republicans are hoping for a new Nazi party. Intolerance of other humans because of gender choices, skin color, and voting for perks for the rich at the expense of middle and lower class people. Thump their right wings on the Bible, screech against abortion, but it’s a wonderful thing to murder our young in the military and innocents in other countries we invade for their oil. Instead of sensible gun control, the GOP encourages poor gun legislation, but when shootings occur because of lax controls, it’s and eye for an eye and George Bush/Republicans love to watch a death row execution.
You can tell when it’s spring time in Texas, as they begin having the executions outdoors.
Well Tammy every one of those congressmen and Bill Clinton had access to the same intelligence that Bush had and they came to the same conclusion! If you are saying they just took Bush at his word and did not read the intelligence reports it sounds like they did not do their job?
The fact of the matter is Military intelligence is not always right its a very hard task. Especially when Sadam was intentionally trying to make it look like he had WMD’s. If you dont believe me look up his last interview where he talks about it. Not to mention I have personally spoken to one of his former generals who believed he had the WMD’s.
As for the Financial crisis lets look at the numbers. Bill Clinton had Freddie Mac and Fannie mae increase the percentage of their portfolios being held in sub prime loans dramatically. This accounts for Trillions of dollars in sub prime loans and also created a lucrative market for the banks to sell sub prime mortgages to freddie and fannie without having to bear the full risk of the loans.
Now you pointed out Bushs program to help people with downpayments. You said it helped 40,000 families per year. Lets say they all bought 200k dollar homes which is a high estimate probably. That puts the tab at 8 billion dollars a year in sub prime loans. Even if it happened all 8 years of his administration that only totals 64 billion dollars. Nothing in comparison to the Trillions of sub prime mortgages caused by Bill Clinton and democrats. Not to mention by stacking up those trillions in sub prime loans before Bush got in leaves him holding the bag for the irresponsible lending encouraged and even mandated by the Clinton Administration.
On the Balanced budget issue have you ever looked at the author of those balanced budgets clinton signed? It says Newt Gingrich. It was the Republican leadership in the house that wrote the balance budget =)
As for the GLBA that did not cause the crisis the sub prime loans were there anyways. That allowed them to be packaged and sold. Selling MBS is a good idea as long as they are rated properly. If Barney Frank and Chriss Dodd both democrats which blocked any regulation of Freddie and Fannie durring the Bush administration because republicans did not have a major majority to push it past them.
Mortgage backed securities are not the problem it is the sub prime mortgages being defaulted on and the improper packaging of sub prime mortgages with normal mortgages and given incorrect risk ratings putting them at AAA. When confronted with this Barney Frank and Chriss Dodd agreed with Franklin Raines that the sub prime loans when repackaged were “virtually riskless” … so why are they sub prime?
Tammy I agree Bush has made his fair share of mistakes but this can’t be blamed on him. If you dont believe me try asking some financial professionals like I have. So far the Masters and Doctors of Finanace and Economics I have talked to have given me the opinion 9-1 that this mess was caused by Clinton more then Bush. Or maybe check the Wall Street journal who has been talking about this since 2001. You can also watch the committe meetings with the OFEO regulator who called for action in 2005 and was supported by republicans and blocked by… Barney Frank and company.
Sorry Tammy I dont go brain dead I look at the big picture. You are talking about a few billion dollars of a Multi Trillion dollar problem. And you are lumping all MBS’s into one generalized statement when the only problem with MBS’s is the sub primes and improper mixing of sub primes with normal mortgages and improper ratings applied to them which Republicans tried to address and were blocked by democrats.
Let me know if you have any questions =) I would love to hear back from you after you do a little more research.
Dear Mr. Greed,
I am but a humble worker with three children. I have to feed them. Would you please give me a job.
Sincerely,
Humble worker
Dear Mr. Humble Worker,
A real man would make something of himself instead of plead and beg for food. Get out there and start working. Why the Chinese even do it, and they don’t complain. But since I’m not a wholly cruel man, I may be able offer you a position that will pay you a pittance, tax you nearly to death, and still make me money. If you are interested, submit your application, and make sure to include a self-addressed-stamped envelope for my board’s final decision.
Sincerely,
Mr. Greed.
Hello humbles, know alls, republicans, democrats, ……
Some already got the riches and laughing.
Some trying to make a (political) gain out of this.
Some still trying to make even more riches out of this.
and us, the majority, bewildered, talking nonsense.
the riches, the problem, the solution has absolutely got nothing to do with us, other than us being the meat on the bone between the teeth of “some”.
Think !!!! Who is biting and eating you?
that is one of the reason ,just like years ago, I mean the financial crisis of 1929 to 1933 , that is also one of the reason, but economic goblization also make our economy more unstable..
Just we should do sth, and face challenges bravely, thouth I am still a studeng in high school ,I’m concerned about it too. The financial crisis of 2008 is a special experience for me. My mom told me that they, teachers could not get money from government next month, I know this is a serious one.
Mr Greed thanks what you said for our Chinese people. BTW I wanna tell you that being tolerated is our quality, special quality
Let’s smile towards it, we believer everything will be better
Couldn’t have said it better myself Pinyo. While it’s hard to definitively pinpoint the root cause of the financial mess we find ourselves in, I do believe that a major contributing factor was greed on the part of the Wall Street elite.
The fact that hardworking, fiscally responsible tax payers are footing the bill for these bailouts is absolutely maddening, but it makes me wonder - what’s the alternative and will those consequences be any better?
You detailed assessment sounds very reasonable and believable. But to summarize the problem as GREED is to short circuit your entire article. Greed, in the minds of the general public, is an issue of personal character, a moral judgement. It suggests that what is needed is criminal culpability. But the problem cannot be blamed on Greedy bankers. The desire to buy a house is not moral greed. The desire to offer loans is not moral greed. The desire to get ahead is moral greed. Getting ahead at the expense of others is a problem. It is not seen or accounted for in a competitive market place. It must fall on regulators who oversee the processes.
I pray I am wrong . We my be experiencing a copu d’e tat (coup). We may have been taken over and this financial mess is what it looks like in the 21st century.
THE MOTHER OF ALL TAKE OVERS. Now this country has become the largest prisoner of war camps!! I pray I am wrong.
It is the flaw of the Captitalism that causes this Global Financial Crisis! The people in western tend to use the money of future today, but they cannot pay off the debt.
There is plenty of blame to go around and there has been plenty of greed as well. God has much to say about usury and none of it is good.
The banks levered themselves up over 40/1, the govt’s of the world allowed it, including ours. They reasoned the US would not be able to compete since everyone was doing it we needed to also. The banks gambled and lost and now we all get to pay for it and the central banks get to print themselves more money to lend to replace what they have lost/stolen. Before the bailout the central banks of the US, Europe and UK were for all practical purposes bankrupt according to Nouriel Roubini @ rgemonitor.com
Nov 28 Headline
Can Central Banks Go Broke? Fed Refuses To Disclose Collateral Composition And Recipients Of $2.8 Trillion Loans
chrismartenson.com has a great crash course and I highly recommend it. On a slower computer there is a bit of a delay, but the audio is still worth it. We finished watching it this past weekend on the new computer my son built us for our Christmas present. It screams and cost less than $225. I paid for something I needed, he gave me the gift of his tech skill and time and I am unregretfully now a PC, something I never thought I would become.
Instead of shopping after the holiday, we stayed home celebrating hearth and home and watched the Crash Course between courses. In it Martenson states, “the next 20 years will be nothing like the past 20. He then explains why. He makes some very good points.
“I don’t like the idea of government bailout, because the government is using my money to help out greedy bankers.”
Ok, now lets take a step back and introspect - try to find who’s been “greedy”:
1. The government - in not stepping in to regulate a market that’s been called by leading experts the “financial weapons of mass destruction”. Perhaps out of fear that tax revenues would reduce by a significant amount.
2. The United States Government - in particular for delinking money and gold. This is one of the root causes of this current crisis.
3. The people who couldn’t afford coveted items leveraging in order to buy said items - this could be houses, cars, general loans for high-price electronics etc.
4. The people again - who couldn’t afford yet didn’t sit back to think about how they would repay their leveraged positions.
5. The people yet again - for not being responsible adults and weighing affordability against covetability.
6. The bankers - for sustaining an illusion that anything is within reach of anyone, regardless of the collateral they can post or their income. Note that current income in no way indicates income over the term of repayment.
So yes, the bankers are definitely at fault. But lets not forget the market that the bankers were serving. Lets not forget the governments that allowed them to do what they did. And finally, lets not forget the people who played a very active part in that market.
While we obviously need massive restructuring to get us out of this mess, it’s still somewhat satisfying to point fingers. History, after all, is all about learning from past mistakes to prevent future ones. This article I just read on the culprits of the collapse really has my head spinning. Clearly I’m not alone in my thinking:
http://www.wealthdaily.com/rep.....crisis/375
Great artcile and commentary. Greed and Leverage were the causes of the financial crisis in my opnioin, though some thoughts in your reader comments are very apt.
I have come across the whole story and i understand what make the economy worst, i would like to know how much time it will take to come to the normal state.
The problem is that people are used to spending money that they haven’t earned yet.