BloggersBase - Comments for article The Blame Game

By myqute

Fri, 10 Apr 2009 16:08:53 GMT

By anonymous

Fri, 10 Apr 2009 17:54:30 GMT

Dude does bring up some pretty good points!

RT
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By anonymous

Fri, 10 Apr 2009 17:59:34 GMT

From the homeowner aspect - you have to also take into account the prevailing unreality 2 years ago: You use a 5 year ARM to finance a junker of a house beyond your means, slap paint on it, and flip it for 30% profit in 12 months. It was a virtual certainty, old-school fiscal conservatism be damned.

By anonymous

Fri, 10 Apr 2009 18:16:31 GMT

This is joke, as if the American economy is that fragile that homeowners taking "excessive" loans would do this sort of damage, did you know that once banks give out loans they consolidate them and sell them as funds domestically or internationally so they get their money back alot sooner than just 30 or 40 years.

There is alot more cash in the American sharemarket and yes the reporter is correct about Wall Street, they had it all worked out from the beggining money doesnt just "vanish" into thin air it either changes hands or its hindered from the circulation and once latter is done in large sums then its big hole.

By anonymous

Fri, 10 Apr 2009 18:19:40 GMT

You're right, economics is all about incentives. With all the banks making bad loans, and with so many consumers taking out bad loans, it seems pretty clear that they were both responding to the same set of economic incentives.

What set of incentives could both borrowers and lenders, across the entire US economy, respond to at the same time? Put another way, what institution has the power to create economy-wide incentives?

The main culprit is the Federal Reserve, which kept interest rates below market levels for a sustained period of time. This guaranteed that there would be malinvestments leading to some kind of asset bubble.

At the same time, the federal government (both Executive and Legislative branches) was encouraging banks to make mortgage loans to low-income borrowers with programs like the Community Reinvestment Act and the Ownership Society. These programs directed the malinvestments into real estate, giving us an asset bubble in housing.

To top it all off, Fannie and Freddie were bundling risky Mortgage-Backed Securities and selling them to investment banks. Ratings agencies allowed the GSE's to maintain Aaa ratings because of the implicit guarantee of a federal bailout if things went sour (we can see now that this was a safe bet). The MBSes fueled the creation of credit-default swaps and other risky financial products, which brought down the investment banks when the underlying securities lost their value.

There is plenty of blame to go around, but the root cause of the current economic crisis--and of every asset bubble over the last century--is none other than the Federal Reserve. If you're looking for the ultimate culprits, look no further than Greenspan and Bernanke.

By InvestaMania

Fri, 10 Apr 2009 18:37:44 GMT

@ last anonymous post.

And that's what I meant when I said "I'll leave that one for another day" in regards to incentives.

You've taken away my next post now :)

Great comment!

By InvestaMania in response to anonymous

Fri, 10 Apr 2009 18:39:33 GMT

And that's what I meant when I said "I'll leave that one for another day" in regards to incentives.

You've taken away my next post now :)

Great comment!

By InvestaMania

Fri, 10 Apr 2009 18:51:30 GMT

comments are flying high on Digg. Check them out.

By confuciusness

Sat, 11 Apr 2009 07:06:31 GMT

IM, you are spot on here.

I have persistently claimed that the "blame game" is just a Hollywood distraction, so to speak. The blame cannot be placed on any person or single entity, but is one of a collective matter.

Don't forget that the government virtually insisted on giving these mortgages. The execs at Fannie and Freddie were rewarded for "financing" low income folks.

Great post, my friend!