Wednesday, October 01, 2008
The financial crisis in plain English
This is a rather clear and accessible summary of the present financial crisis, including how we got here and what the original Paulson plan was trying to accomplish. Having read the argument this way, it does seem to me that we should give some very serious consideration to outlawing "teaser rate" mortgages. Much as I dislike regulation, it is a bit hard to see how teaser rates are really anything more than a means to seduce the profligate and the stupid. Beyond that, the post gives us some sense of the magnitude of the problem and the prospect that even the Paulson plan in all its original hugeness was quite possibly too small to make a difference. That makes me think that we need to get very serious about repairing not only the government's balance sheet, but substantially revising our national attitude toward personal debt.
33 Comments:
By 
Papa Ray, at
Wed Oct 01, 05:11:00 PM:
"That makes me think that we need to get very serious about repairing not only the government's balance sheet, but substantially revising our national attitude toward personal debt."
You speak the truth once again.
I've always lived within my means and tried to use credit responsibly. You know, use the cards, pay them off within thirty days and make payments on cars and such, doubling up as much as I can.
I've taught my kids and grandkids the same. Some listened, some didn't.
America has been on an extended spending spree. Not only the ones that could afford it, but the ones who sure couldn't.
Credit card companies send out applications and will give out cards it seems to anybody breathing and who says they have a job. Once they get them on the hook, they keep raising the card's limit and the cardholder just keeps on charging, sometimes just making the mininum payment.
I know people that have twenty credit cards and pay the minimum payment.
How did those companies let these people get into that mess?
Well, we know the why, don't we.
Greed.
Life isn't fair in the first place , and you can make life as hard on yourself as you want to.
Many, way too many have done that.
Papa Ray
By MEANA55, at
Wed Oct 01, 05:22:00 PM:
No. Just no.
Blaming ARMs is a smokescreen for the root cause of this problem: The CRA.
The Clinton administration put teeth in the CRA and then directed the GSEs through HUD to jam this bit of bad social engineering down our throats.
Most weren't complaining because there was enough for everyone to get while the gettin' was good.
The few who tried to do something about it had the race card waved in their faces.
It makes no difference how small a proportion of the bad loans were written under the direct coercion of the CRA. The CRA forced origination of bad mortgages based on the false morality of civil rights overreach. The industry had to do something with these sewerage loans. The GSEs obliged, and the finance industry jumped on it by creating from thin air crazy instruments that would not exist in a sane world.
Once this soil pipe was installed for the *underserved* (and yes, that word does look a lot like "undeserving", doesn't it?), everybody and his brother lined-up to take his turn flushing waste down the pot.
I will concede without argument that teaser rate loans are worse than loans that can easily leave you upside-down, but I will also concede that it would probably suck less to be dropped in an industrial plastic shredder feet first than to be boiled slowly in oil. No loan with that high a risk of default should ever have been made.
This problem belongs at the feet of every legislator who was bought (Dodd, Schumer, Frank) to let the wolves (Raines, Johnson, Gorelick, Moses) loot the GSEs. In a just world, it would be three feet below their feet as these thieving animals swing in the breeze from the gallows.
By Elise, at
Wed Oct 01, 06:07:00 PM:
Thanks for the link - this is a good, clear summary.
I would argue that it's not just teaser rates but ARMs in general that have contributed to the problem along with waiving a reasonable down payment and a reasonable income to mortgage payment ratio. (I don't think waiving those two requirements was restricted to CRA loans BTW.)
By MEANA55, at
Wed Oct 01, 06:51:00 PM:
Why is there such an effort underway to circle the wagons in defense of the CRA?
The CRA said, "make bad loans."
Clinton's reg changes said, "make bad loans, or else."
ACORN said, "make more bad loans, or else."
HUD and the GSEs said, "we'll rig our underwriting programs to allow bad loans."
Once the market devised mechanisms to hide these bad loans amongst normal loans, the flood of bad loan originations (CRA-imposed or not) was unstoppable.
Yes. This is about greed. This is about people living beyond their means. This is about people preying on other people.
But the root cause of this mess is that the federal government pulled the financial equivalent of legislating that π is equal to exactly three.
By Escort81, at
Wed Oct 01, 07:02:00 PM:
I agree with Elise if she is saying that it is not only CRA related loans that are to blame. There is too much anecdotal data out there about homes with relatively higher purchase prices (mid six digits) bought with high loan to value mortgages that owners just walked away from when they realized they were deeply underwater a short time later. I've heard a number of these stories about investment properties as well as primary residences. The attitude was basically: "why should I make mortgage payments when I have almost no chance of ever having any equity in this house." This toy is broken, I am moving on to the next thing.
I suspect that over the next few years there will be numerous studies done by academics and economists that try to sort out and proportionalize the damage done by CRA type sub-prime loans as compared to other loans that were outside the scope of that program.
I realize that easier credit is usually associated with higher rates of economic growth, but really, I'd rather have slighly lower GDP growth, better collateralized loans and more traditional lending practices than have this much crap hit the fan at once.
By The Leading Wedge, at
Wed Oct 01, 07:10:00 PM:
One contributing reason for the financial problems in the U.S., that I haven't seen discussed, might be that mortgages follow the property rather than the person who took the loan.
In other countries, you can't get off the hook by delivering the keys to the house you no longer can afford to the bank.
Since the bank still gets the property under this regime, but still has recourse against the person who took the loan, there is an incentive for the bank to recycle the property - possibly at a lower value - but still retain the hope of recouping the loan.
It would seem that that might help to keep things moving in the real estate markets, and still keep those who have borrowed too much responsible for their actions.
I keep reading how suburbia is destined to become the new slums of America as properties are abandoned that the banks are unwilling to sell or maintain.
I have personally observed properties in Chicago, in the middle of nice neighborhoods, that are deteriorating because they are vacant. The windows are shattered, the grass in the yards is up to your knees, and squatters eventually move in. It is a jarring juxtaposition to see these properties in the middle of otherwise nice neighborhoods.
By 
, at
Wed Oct 01, 07:29:00 PM:
Let's not forget President Bush's A Home Of Your Own" initiative, whereby he promised to increase the number of minority homeowners to 5.5 million by helping them overcome the barriers such as down payments or financing by "issuing "America’s Homeownership Challenge" to the real estate and mortgage finance industries to (as explained on the White House web page):
"Substantially increase by at least $440 billion, the financial commitment made by the government sponsored enterprises involved in the secondary mortgage market, specifically targeted toward the minority market;
Launching twenty-five different local initiatives across the nation, geared toward eliminating the specific homeownership barriers faced by minority families in those communities;
Raising $750 million in below-market-rate investments by 2007, which will work in collaboration with local homeownership initiatives and be targeted to heavily minority program areas;
Aggressively developing new mortgage products so that conventional market alternatives are available to combat the predatory loan products that are disproportionately targeted to minorities;
Creating new mortgage products to meet the unique needs of recent immigrants"
Guess that was one of the Bush policies that worked. Too well.
By , at
Wed Oct 01, 09:21:00 PM:
By Miss Ladybug, at
Wed Oct 01, 11:24:00 PM:
When I was buying my house in '98, I got a Fannie Mae sponsored loan (though I didn't make a mortgage payment to Fannie Mae). I was approved for a mortgage amount (before I found a house) that would have been $200 more a month than I felt I could afford. Lucky for me, I found a little starter house that was (relatively speaking) significantly less than I was approved for. I was also offered ARM options. I refused. Just because the bank is willing to give you $X and tries to wave that seemingly attractive ARM in front of you, you still need to take responsibility for your own choices. Yeah, your ARM rate could go down, but it can also go up... For my little 900 sq ft house in NW Arkansas, I paid $59,500 and, even with escrow, roughly a $500 payment. If I hadn't moved back to Texas, I'd still be in that house. However, I did move after 6 years in the house. Sold it in Jan. '05 for a little more than the asking price, for cash, and made about $25,000 (well, a little less, if you take into account the fresh paint, new carpet and the tile that replaced the vinyl flooring I did while I was in the house...). Lucky me, I was looking to sell before the bubble burst. Even then, I couldn't believe how much I made after only 6 years in the house...
By Georg Felis, at
Thu Oct 02, 12:24:00 AM:
Perhaps Dave Ramsey for Treasury Secretary?
By , at
Thu Oct 02, 12:43:00 AM:
What's wrong with an ARM or stepped-rate mortgage? Anybody who gets one knows their payment is going up in the future. As I despise paternalism, let people choose their bargains. Besides, typically the bank will lose more than the homeowner if the deal turns sideways.
By , at
Thu Oct 02, 02:06:00 AM:
America won't get right on our federal balance sheet and we won't get right on our personal balance sheets either.
People got greedy. Bankers. Politicians. Contractors. The Middle Man. The Little Man. Our very own US news in Hong Kong made the statement that without consumer confidence the market would slow down. The commentator didn't say the market would fall apart only that it would slow down.
Once this overblown crisis passes, we will get back to business as usual. The savings and loan debacle in the 90s was supposed to break us also. It didn't. Did it hurt -- yes. Could it have been avoided by honest business practices rather than regulation. Yes.
Look at how the Senate just voted. For the most part they voted in opposition to the will of their electors because the electors were too dumb to know what was best for them.
Dave
By , at
Thu Oct 02, 08:54:00 AM:
My father used to quote his father as saying the following: "You don't go into a restaurant with $5 in your pocket and order a $10 meal."
I've taken that to heart since I was in elementary school.
The Centrist
By , at
Thu Oct 02, 09:51:00 AM:
The investmant banking failures aside, Fannie and Freddie's failures had their roots in the fact that they were GSE's. Here's an excellent, and relatively short, piece from Peter Wallison that exhaustively covers that particular issue.
Andrew
By , at
Thu Oct 02, 09:53:00 AM:
It seems to me that "teaser rates" is only one of a cluster of techniques to get money into the hands of those who would not otherwise qualify. And, that was done for two reasons, affirmative action and allowing bad paper to be considered good paper and, then, leveraged.
The filthy politicians mandated that political logic supersede financial logic.
In the bailout legislation, I hope Doofus Dodd has acted honestly and included something to pay off Countrywide.
By Georg Felis, at
Thu Oct 02, 10:42:00 AM:
No, the teaser rates had a legitimate purpose: People who are expected to have their incomes rise over the next few years (provided they do not get stupid and spend it all and then some). Example: A. Recent Graduate and spouse leaves college with a solid job in Big City, and wants to buy a fairly small house in the suburbs. It would probably make sense for them to rent an apartment for a few years, but they’re young and dumb (been there, done that), and want a house no matter how small. By flattening out the payments at the beginning, the bank can make their money back over the next few years when the payments go up OR if they sell the house to get something else, the pre-payment penalties will make up the difference.
Where the market got hosed is when stupid/criminal people gave these mortgages to clients who had no real prospects of radical income inflation with the expectation that the house would just be sold in a couple years for more money when the payments got too high. Bank gets its money, client gets at least some money, everybody is happy. Until the market sank. And the bank sank. And those of us with good mortgages suddenly found ourselves holding a bag.
By , at
Thu Oct 02, 11:05:00 AM:
Let the free market work. Period. Amen. End of story. We are in a zero sum game and there will be winners and losers. It is called capitalism and it's gotten us this far in quite good shape thank you very much.
I just called my local banker - small regional. I have a mortgage commitment from him that I will have to extend due to permitting problems with the township. He tells me that there will be no problem with an extension (I have very good credit) and that the bank never got into the subprime business in any way. So they are well-capitalized and have low loan reserves. It may be that as the larger players default, some of their pain trickles down, but that is why there is a bankruptcy court system.
By Elise, at
Thu Oct 02, 12:25:00 PM:
Andrew, the Wallison article is very helpful. However, one thing Wallison does not talk about - and no one else who attributes the GSE problems largely to Democratic priorities talks about either - is HR 1427. This is the bill Barney Frank is claiming shows he *was* committed to GSE reform because his committee produced the bill as soon as the Democrats took the House (Jan 2007) and the House approved it (May 2007). The Senate never moved on it and the White House had serious problems with it. Pelosi is claiming the GSE regulation provisions of HR 1427 were "similar" to those passed in the July 2008 housing bill.
My gut feeling is that the Democrats are more to blame for the GSE mess than the Republicans but what I'd like to see is an article that examines the differences between the 2005 Senate bill the Democrats opposed (S190 (2005)); the 2007 bill Frank put together (HR1427 (2007)); and the July 2008 housing bill that finally regulated the GSEs (HR 3221 (July 2008)). My assumption is that the 2005 Senate bill and the 2008 housing bill were tougher than Frank's 2007 bill but I don't have any proof of that and Heaven knows there's stuff in the 2008 bill that I don't like the look of.
With regard to CRA, MEANA55, this point from Wallison is why I think it is important to not blame everything on affordable housing:
Affordable housing loans and subprime loans are not synonymous. Affordable housing loans can be traditional prime loans with adequate down payments, fixed rates, and an established and adequate borrower credit history. In trying to increase their commitment to affordable housing, however, the GSEs abandoned these standards.
I'm perfectly willing to believe that CRA encouraged or even forced some lenders to make some loans they would not or should not have but I also believe there were plenty of people who did not need CRA intervention to get risky loans. I'm still fuzzy on some of this but it does seem to me that Fan-Fred's willingness to purchase risky loans was more of a problem than CRA. It would be interesting to try to tie the GSEs back to the "Understanding Tax" article TH originally linked to: would banks have been so delighted to propose teaser rates if the GSEs hadn't been willing to purchase the loans? I simply don't know enough to follow the breadcrumbs - or even know if there are breadcrumbs to follow - but I did notice the UT article doesn't talk about *why* teaser rates became so popular.
By MEANA55, at
Thu Oct 02, 01:08:00 PM:
Elise,
My point about the CRA is that without the government coercion and incentives that led to the GSE-created loopholes for hiding lousy loans amongst good loans, the other lousy loans (100%+ LTV, interest-only, teaser ARMs, no-documentation, fraudulently obtained, etc.) that are not directly related to the CRA would have had to have some other mechanism by which their toxicity could be camouflaged else they would never have been originated.
Whether this unknown other mechanism would have been conjured out of thin air without the CRA is moot because the CRA did provide that mechanism.
The CRA was the necessary component for the construction of this house of cards. Given my admittedly dismal but seldom disappointing view of greed's tendency to grow to fill its bounds, accommodating the core paradox of the CRA was also sufficient.
By Elise, at
Thu Oct 02, 02:06:00 PM:
MEANA55,
I don't necessarily disagree with that and I think your point is what I was getting at when I wondered if lenders would have been so eager to do stuff like teaser rates if Fan-Fred weren't taking in risky loans as a result of its mandate for affordable housing. Neo-neocon has a recent post called "For want of a nail" in which she says:
the Congressional mandate that lending institutions make subprime loans to buyers who couldn’t afford them was the first nail that was lost, as it were. It took away the brakes on lenders, and made them see that, in the current rising housing market and with the current low interest rates, it might be profitable to expand risky loans to more and more buyers.
She is making the same point without need to reference the GSEs - as long as housing prices were going up and money was easy, risky loans didn't look risky and the Congressional mandates showed the way. I think you can also see this from the video that's floating around showing clips from the Democrats defending the GSEs from their regulator. Maxine Waters (I think it is) praises the innovative methods the GSEs have developed for getting people into houses - including zero down mortgages. So I'll certainly agree the CRA methods created both psychological and structural incentives for other institutions to make risky loans.
What I don't agree with is the idea that the goals of CRA caused the problem. There may (or may not) be perfectly good reasons why society would want to help, say, the working poor to buy a home. The problem arose not because we wanted to help struggling people buy homes but because we didn't wall off their risky home-buying from the rest of the mortgage market. We could have done that walling-off by having the government itself make the loans rather than coercing private lenders into doing so. As a bonus, we would also not have been putting what looks a lot like enforcement power and responsibility into community groups liked the ever-popular ACORN.
By MEANA55, at
Thu Oct 02, 02:32:00 PM:
Elise,
I will not argue that the goals were not well intentioned. Of course they were well intentioned. But intentions have no place in the discussion until after the blame is fixed where it belongs.
If government-backed loans could have been valuated, transparently added to budget legislation, and administered with limitations subject to public debate as the manufactured sausage that it should have been, then we would have stood a much greater chance of achieving CRA's goals without having the risky loans market explode as it did.
But that is not what happened, and in my opinion (unprovable, of course), such legislation would never have passed in Speaker Gingrich's "Contract with America" Congress that gave us the 1996 welfare reforms. So, the left snuck it through the back door in the form of implementing regs for the DoJ, HUD, and the GSEs, and bought-off everyone else with coercion, incentives, and the naked threat of pulling the race card on anyone pointing at the man behind the curtain.
At its heart, the problem is that the government declared the fiction that risky mortgages were as good as normal ones to be the law of the land. How good the intentions motivating the CRA may have been and how much of the blame should fall on those whom the CRA was not intended to benefit does not excuse the abject wrongness of this reality-divorced fiat.
From a free-market-ish perspective, the lesson is that denying reality doesn't make things so no matter how many people buy into the insanity.
By Elise, at
Thu Oct 02, 02:35:00 PM:
From a free-market-ish perspective, the lesson is that denying reality doesn't make things so no matter how many people buy into the insanity.
That's something I can agree on with no reservations. Although I'd say that's true from all perspectives not just a "free-market-ish" one.
By , at
Thu Oct 02, 02:54:00 PM:
Elise, the nuance you want brought to the discussion over affordable versus sub-prime credits is perfectly valid and shouldn't be lost on anyone, but I do think only as an after-the-fact point to consider. F&F's was mandated to have bad lending standards, and those standards caused excessive portfolio deliquencies, eventually destroying all the capital in both companies. It seems incontrovertible that the loans in question were created as a result of explicit Congressional direction, whether through CRA or otherwise.
If we're assigning blame, we should also blame large mortgage originators, like Golden West and Countrywide, who pushed Congress to expand F&F because it allowed mortgage bankers to ramp up their fee stream.
The GSE's were created by Democrats. The CRA was created by Democrats, and the widely maligned 1995 regulatory revision is blamed on the Clinton Justice Department. But I fully agree Republicans are to blame here too. There was never a consensus among Republicans that this was a crises in the making. I'm no legislative historian, but I'd bet money that too often (especially in 2004-2005) GOP support for reform was more like a strawman, trade-away issue they wanted to promote specifically to give up in negotiation for things more important to the House caucus.
Any fair minded person looking at the F&F political donation list has to realize that John Boehner and other Republicans got all that money for a reason.
Andrew
By , at
Thu Oct 02, 03:18:00 PM:
You want the federal government to underwrite mortgages and then manage them? I think not. Name me just ONE THING the federal government does efficiently. They've bankrupted Social Security. I don't want them getting their hands on mortgages for people's homes.
Where in the Constitution does it give the federal government the power to do ANY of this? That's how we got into this mess - by Congress passing legislation and Presidents signing (or Congress overriding vetos) for things that truly are NOT Constitutional. Now, they want to make more UNConstitutional legislation with a "trust us" to fix it? I just don't think so...
By MEANA55, at
Thu Oct 02, 03:25:00 PM:
Andrew,
I am 100% for hanging all the guilty regardless of party, but the low-hanging fruit out there is the video of Franklin Raines' testimony that there is *no* risk to risky mortgages, the video of democrat congresspeople berating the head of OFHEO for calling-out the GSEs, and the video of Barney Frank's insisting that there is no problem.
This needs to be taken to Armageddon in the courts with charges of bribery and looting. The right has been so scared of the criminalization of the political since Watergate that they have let the left cloak criminal venality as simple politics.
By , at
Thu Oct 02, 03:49:00 PM:
Well, meana55, that's my problem with this whole conversation (national conversation, not just here). In the private markets Dick Fuld lost 95% of his net worth, and many lost even more at Bear, AIG and even Lehman. These managers screwed up and paid the price the markets demanded of them. It was quick too.
Since the Congress decided to start and grow GSE's, some of which are still out there, no one has ever been discilplined for screwing up. Not only is it not happening here, but Barney Frank and Chris Dodd are being lauded for their "knowledge" if you can believe it. These people lost more money than anyone in the history of the world, by orders of magnitude.
It's incomprehensible, but they still sit on committees, go to hearings, are welcome in restaurants and decent people speak to them in passing. As naive as I no doubt sound, I ask how is this possible? Have we lost all morality and good sense? Throwing them in jail is a stretch, since they were defining their job as legislative stalwarts working to protect favored programs and they like many Republicans failed to take any of the huge numbers of very public warnings seriously, but public judgment in light of what we're seeing now should dictate that these people get thrown out of the present hearings, out of Congress, and driven into the snow, tarred and feathered.
At the very least, these events should become Exhibit A on the dangers of socializing risk. But I would feel better if Barney Shumer Dodd could be made into a very public example.
Andrew
By Elise, at
Thu Oct 02, 04:23:00 PM:
Miss Ladybug, if this:
You want the federal government to underwrite mortgages and then manage them? I think not.
is in response to my suggestion about having the government be the lender, rest assured I understand your horror. My point, though, was that if we as a people want the government to ensure that high risk borrowers get loans then the government should do the lending not stick the private sector with it. Then it becomes like any other government program to help the disadvantaged. I'm certainly not suggesting the government make all loans. Shudder.
It's incomprehensible, but they still sit on committees, go to hearings, are welcome in restaurants and decent people speak to them in passing. As naive as I no doubt sound, I ask how is this possible?
Andrew, count me as naive, too. Every time I see the video of their comments or read the list of them my blood pressure threatens to do me in. How can people who a few years ago insisted Fan-Fred was just fine be lauded as experts who have worked heroically to save us?
By MEANA55, at
Thu Oct 02, 05:11:00 PM:
Andrew,
Throwing them in jail is a stretch, since they were defining their job as legislative stalwarts working to protect favored programs and they like many Republicans failed to take any of the huge numbers of very public warnings seriously, but public judgment in light of what we're seeing now should dictate that these people get thrown out of the present hearings, out of Congress, and driven into the snow, tarred and feathered.
Hence my frustration with the reflexive deflection of blame from the CRA based on intentions. Dodd-Schumer-Frank could just have easily been intending all along to line their pockets with bribes and sweetheart mortgages by shielding Raines-Johnson-Gorelick-Moses-Countrywide-GoldenWest while they looted the GSEs and the treasury. We will never know one way or another because we cannot see into their souls, but they get the bleeding heart pass on this so long as people defend the CRA's goals as good policy just because…well, just because.
The CRA is the Dodd-Schumer-Frank teflon armor, and it needs to be repudiated so that we can get to the likes of them.
By , at
Thu Oct 02, 05:37:00 PM:
Focusing on CRA ignores the elephant argument: regardless of which law, the Congress, led by Dodds Shumer Frank, dictated the rules by which Fannie and Freddie lost over $3 Trillion.
Follow the money, you win the ideological argument by default. Follow the ideological argument, and the money is forgotten in the rush to defend housing for all. It's the money that matters most, even to those who want to preserve and defend low income housing.
By MEANA55, at
Thu Oct 02, 06:09:00 PM:
anonymous,
Yes. I agree 100% that you have stated the argument as it should be made. The GSEs created an enormous loss of capital while the quasi-public stewards were looting the place.
What I am railing against is the Jedi mind trick of "the CRA is not to blame, don't go there." Heck, the article that TigerHawk linked even puts this argument in a parenthesized paragraph as though it's an aside in a screenplay.
Linking the GSEs and Schumer-Frank-Dodd to the CRA and then asserting that the CRA is not to blame is a subtle throwing of the race card. Anyone who reflexively defends the CRA needs to ask himself why he lets himself be mind-tricked in this fashion. The corollary to accepting CRA as a civil rights thing—thereby making it automatically *good* no matter what the outcomes—is that the Fannie and Freddie shenanigans were also a civil rights thing and the guilty parties deserve a pass because their hearts were in the right place.
People are going to refuse to see the elephant on the table until the CRA can be impeached in polite company. Until then, the CRA is a 100% effective racialism cloaking device, and the elephant may as well not be there.
By , at
Thu Oct 02, 11:50:00 PM:
Meana55, no one made companies buy the CDOs or other derivative mortgage instruments and pad their balance sheets. No one made these companies value them at ~par. No one made banks lend to one another, relying on the value of these securities.
The free market did all of that for us, proving once again that people cannot be trusted to not do stupid things in large numbers. This magical, culpable, dastardly regulation you seek that brought this situation on us doesn't exist, because there existed too many junctures for personal choice on the road to where we are now.
If you want to blame someone, blame the invisible hand. Blame won't prevent it from slapping our financial sector around, however.
By Elise, at
Fri Oct 03, 12:21:00 AM:
Follow the money, you win the ideological argument by default. Follow the ideological argument, and the money is forgotten in the rush to defend housing for all. It's the money that matters most, even to those who want to preserve and defend low income housing.
Can I hire you as a ghost-writer, anonymous? You managed to say in less than 50 words what I've been struggling to articulate.
By MEANA55, at
Fri Oct 03, 10:44:00 AM:
eric the red,
You are right. It was the invisible hand that acted as it always can be trusted to do. All the individuals making their personal choices along the road that got us here were maximizing for themselves as best they knew how with the truths they had at hand.
The failure came because the invisible hand functioned as expected in a government-created bizarro world where bad loans were just as good as not-bad loans because the law and exercise of government policy declared them so. What is stupid in an absolute sense was smart in that CRA-created alternate reality, and there you go.
Every pig who grabbed slop from the trough shares some of the blame and deserves whatever ills befall him. Those of us who knew to stay away will get hit with a lot of this, and I am resigned to that. But the root cause is bad social engineering, and the social engineers need to pay for what they have done.
