Who were guilty men and women that created the great housing catastrophe that wrecked the US economy in 2007-8. Today, we expose the guilty.
The first in the dock must be the Fed and in particular Alan Greenspan. Reducing short-term interest rates to just one percent was an almost criminal act of inflationary irresponsibility. This wild deed laid the basis for the credit boom that fired up the inferno.
The second indictment must go to financial market regulators. These men and women permited lending standards to become so lax that anyone, regardless of their credit history, could obtain a mortgage. They ignored the dangers of unfettered financial innovation. They failed to prevent highly specialized products - such as the interest only mortgage and adjustable rate mortgages - from being mis-used and abused by mortgage lenders.
No, the lenders do not escape judgement. They took advantage of the weak-willed regulators. They recklessly sold mortgage products to people who did not understand the risks. Through misleading advertizements, they sought out the vulnerable and when they found them, they defrauded and deceived them.
The next indictments go out to the realtors and appraisers. Despite understanding the long run dynamics of local housing markets, they conspired to overvalue and inflate property prices. Through the callous engineering of bidding wars, they spread fear among first time buyers. They were the dark magicians that conjured lies about housing shortages. They promised untold riches through real estate investing. It was never about serving their client; it was always about the commission.
Finally, we have the media. Local newspapers, across this country, talked up the bubble. They accentuated the fear, and confirmed the lies and distortions spouted by realtors. Rather than seek out the truth, they searched for ad revenues, and the realtors were willing to buy them off.
Now, it is all over. Prices are coming down; markets are crashing. There no lies left to tell. There are no more distortions can disemble the truth. All that is left is foreclosure, despair and ruin.
Nevertheless, should the ordinary American also bear some responsibility for this calamity? Did not greed also play its part?
Greed is an intrinsic part of human nature. Society needs to create institutional constraints to protect us all from our own evil nature. We ensure that protection by creating institutions and by entrusting individuals with responsibility. We ask central bankers to protect the value of our national currency. We require our financial regulators to ensure the viability of our financial enterprises. We demand honesty and integrity from mortgage lenders. We expect realtors and appraisers to work in the interest of their clients. We hope that the media will always seek out the truth.
Over the last five years, institutions failed and individuals evaded their responsibilities. Now, there is a terrible price to pay for that failure.
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6 comments:
Anonymous said...
Ouch, powerful stuff......
Do you work as a prosecutor? You must do this kind of thing for a living.
Anonymous said...
You are being too soft on the American homeowner. They mistook their houses for ATMs. They went out and got loans and bought unnessary luxury goods. this created a consumption bubble and built up personal debt.
The fed didn't ask any american to take out a HELOC.
The average american is as guilty as hell.
Anonymous said...
The average American is guilty mostly of trusting people who were supposed to be trustworthy. They were fleeced like a flock of sheep.
Anonymous said...
"Society needs to create institutional constraints to protect us all from our own evil nature."
Perhaps we also need a strong man to maintain order.
Anonymous said...
Who is to Blame for the Mortgage Carnage and Coming Financial Disaster?
Unregulated Free Market Fundamentalism Zealotry
http://www.rgemonitor.com/blog/roubini/184125
Anonymous said...
Agreed, move the homeowners that bought into these to-good-to-be-true loans up on your list. How come being responsible and reading the fine print puts you at a disadvantage these days? There is a reason not everyone got a ARM that they refinance every other year. The whining game of claiming that they didn't know what they signed up for is utter BS. Ignorance of the law doesn't put you above it. Neither should the government persue any sort of bailout for these greedy homeowners that were living beyond their means.