Who or What is Responsible?

The vast majority of the actions which led to this crisis were not illegal. The system allowed, and even encouraged, this situation.

Enron and Worldcom didn't cause this crisis. Greed lurks in the nooks and crannies of every human endeavor, and always has, but greed wasn't what brought the system down. Something even more banal and insidious did it in. It was incompetence and self-delusion within our government(s) which allowed this to happen.

Let me put it this way, if an owner wants to breed hamsters, but he puts a hungry cat in the hamster cage and later on all the hamsters are gone, then it wasn't hunger that wrecked his plans, it was stupidity.

Foxy, I do appreciate your attempt to keep the mudslinging to a minimum on this thread. Thank you.

In fact, I was wondering how long it would take for the Democrats to start blaming the Republicans and vice versa. Does anyone here think this might go beyond party matters? Does it matter which party one is a member of if one consistently does something that's going to sink the ship in the long run?

Maybeso, but anything insured by the government, or bailed out by the government should be regulated by the government. Just as any government that can demand taxes can perform compliance audits.

Yes! The minute the government agreed to bail out AIG, for example, it should have been conditional on the executives relinquishing their golden parachutes, and the board and execs would agree to strict government oversight and regulations until the company was solvent and the company's debt was being repaid as agreed to the goverment. The company would regain full control of their own affairs and the government would relinquish control at such time as the company met specific requirements and attained solvency.

Instead apparently we taxpayers were left holding the bag while AIG execs went on a gazillion dollar retreat to conduct business that could have been conducted in their board room.

GREED

Glad to see you and C.i. agree on this, Miller.

You say that the majorty of the actions leading to the crisis were not illegal, Rosborne. But how does that counter c.i.'s argument that greed was a major factor? Can't greed lead to actions that are exceedingly imprudent without necessarily being illegal?

I also think that greed has driven us into this crisis, but I blame everyone from
the defaulting home owner who should never have bought a house in the first place if he cannot afford the payments, to the banks who granted mortgages without down payment and/or collateral up to the government entities deregulating S.E.C. measures that were implemented for a good reason following the great depression.

Unfortunately, we together are also victims in this crisis: the homeowner,
the banks and our government, not to mention the foreign investors (China, Europe) who have had financial stakes in Fannie Mae, Freddie Mac and
US Treasury bonds.

So to answer your question, Andrew: we are all responsible, and we are
all suffering. The only ones who are really screwed are probably the foreign
investors who had no control of the intial deregulation nor the outcome.
They did not see the train wreck coming!

I'm not Ros, but yes absolutely greed leads to actions that are exceedingly imprudent that are in no way illegal. It was perfectly legal for investors to use legally available low interest loans to buy property on spec. It was perfectly legal--in fact required--that banks make loans to people with little or no track record or proven ability to repay them. It was perfectly legal for the financial institutions to make as many loans as they could and not care whether they were good because they were backed up by the federal government. It was perfectly legal for large numbers of people to play the market and sell short and encourage the market to trend downward which caused huge fluctuations contributing to instablility in the market. Day traders gambling on increases were almost as bad causing the market to spike up and then tank when they took their profits. None of that invests in business and makes it or the economy stronger and it lowers confidence in the system.

In the day when investments in the stock market were mostly for the long haul, we could trust the values of the stock purchased. When people were required to demonstrate a decent credit history and put 10 to 20 percent of their own money on the line to buy property or take out other loans, they were much less likely to default and banks were strong.

When we had a government that encouraged individual initiative to attain prosperity instead of attempting to engineer that, people didn't depend on the government to bail them out of the messes they made and therefore they made fewer messes. People are less likely to take foolish risk when they know they will have to be accountable for the consequences of that risk.

All in all, the whole thing can be assigned to: a) unwise or corrupt intrusion of government into the system; b) people andinstitutions unwisely taking whatever personal advantage they thought they could get; c) greed.

But it was all legal.

Deregulation does have great merits in some cases, but not when it encourages stupid behavior. Step 1 for the fix is to put sufficient regulation back into place to again make the financial institutions and the people responsible for their own actions again.

There are two issues on greed; legal and ethical. There is also obscene, but that's more subjective to the observer.

Well put.

Money managers were not only allowed to do what they did, but by the rules of the system, they were obligated to make everything they could for their investors. They were Duty bound. How come we don't say that "Duty" was the problem, or "Loyalty", or "Responsibility" (to their investors).

Do we really expect the people on Wall St to say, "Oh man, I'm making too much money. But my investors are happy, my wife is happy, my family is safe, my bosses love me because I'm doing what I was hired to do. Maybe I should stop?". Come on.

These people didn't know they were slowly crushing the Global economy. Most of them were just doing their job.

People like to blame things on greed because it has a nasty sound to it and because it means that "those" people must be "bad" people. But the truth is that most of those people were just doing their job. Normally that's considered an admirable trait, but it's hard to point the finger of blame at someone and accuse them of doing their job.

rosborne, Yes, it was legal for brokers to push those loans, but it was not ethical. They did what they did because it was legal, but greed was the motivation; more commissions. They "knew" most taking on the loan could not pay it back. That's an ethical issue, even if legal.

No, Ros, I don't think they were "bad" people. I would suggest, however, that their zeal in making maximum profit for their clients was so shortsighted it makes them very stupid people. The word "greed" still applies.

I didn't mean to imply you specifically Merry. But in general...

If any of us were in their place, can we say that we would have seen a global economic crisis coming? Somehow I doubt it.

But they didn't "know" that. Nobody "knew" that. Had the larger system not failed, these people would still be fine. Many many people (homeowners) made lots of money by investing in mortgages they couldn't afford flipping the house and selling up (were they greedy?). It's only in hindsight that the lenders look like criminals.

There was and is no policy requiring banks loan to people that can't repay. There is a policy that banks can't refuse to loan to anyone in a zip code just because of where they live. The banks are supposed to look at factors OTHER than the zip code alone.

Lack of oversight and the ability to resell the loans without consequences is what made for no credit check loans. It was not the result of the CRA as you are implying

The biggest problem was the unregulated market that came about to bundle mortgages and sell them as securities. There was no oversight because that is the way the legislation was written.

Loans don't go into foreclosure in the first 12 months after they are written. The grace period for variable rate loans is usually one year before they go up and then it takes at least 3 months of non payment before foreclosure proceedings can even start. Foreclosure can then take 3-6 months before it can be completed. Often payments are made and the home goes into foreclosure a second time before it is actually taken over by the bank. The loans made after Jan 2007 when Dems took over Congress are not the loans that have been causing the foreclosure crisis. It is the loans from 2005, 2006 or ealier(before the dems took control) that would have started the crisis.

Then stop slinging mud and trying to blame one party when the facts you use are non existent. Yes, both parties are at fault but there is no reason to make up reasons to blame one party over the other unless your only trying to not be useful by slinging mud.

The point made here that lending to low income people who were not required to put up 10 to 20% of their investment made it more likely that those loans would default, especially if there was a downturn in real estate values. People who have little or no personal investment in the property they buy, and who don't care much about their personal credit ratings, are far more likely to default than those who have something to lose. The lenders were 'criminal' only in their ethics of lending to people that they normally would KNOW are likely to default, but the lenders also had nothing to lose. Fannie Mae and Freddie Mac and the entire U.S. federal government would take the hit, not the lenders. (They did eventually take a hit when Fannie Mae and Freddie Mac bundled a lot of high risk debt into mortgages sold back to those lending institutions--somebody was really asleep at the switch there.)

The U.S. government did put considerable pressure on lenders to make high risk loans. Fannie Mae's goal by the late 1990's was to achieve at least 50% loans to low income neighborhoods and they weren't real particular how they achieved that goal. Further, community advocate groups like ACORN were also putting their own pressure on law makers and lending institutions.

The collective dynamics in all this began loosening the foundation and, because the economy was strong, those who could have done something about it early on were reluctant to slow that down with increased regulation.

But it was all perfectly legal.