Resisting the financial panic. Barely.

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  1. We deregulated financial markets, and they did exactly what one would expect.
    There’s nothing too surprising about any of this, really; this is exactly was the GOP has been promising us, and we’ve been voting for, so… let’s all enjoy it!

  2. I should elaborate.
    It is really worth reading about how financial markets have functioned in the last 8 years. Basically, under the GOP mantra of deregulation, enforcement of all kinds of things has gone by the wayside; the SEC is pretty much a joke, with the (Bush loyalist) head basically saying, “We are not interested in having any power to do anything about this.” Firms are not required to disclose all kinds of material items that indicate trouble ahead. Even as this meltdown has proceeded, the response has been, “Oh, the markets will sort it out.”
    So you had new financial instruments based on crappy mortgages showing up, being rated by agencies who are paid by the people they are rating (and thus those companies would shop around till they got the rating they wanted), and the federal “regulators” watching and saying, “The markets must be left alone! All hail Grover Norquist!”
    And so when it fell apart, quite predictably, the bailout came, which is what you and I will be paying for for quite some time. Because markets rule, until the people benefitting from deregulation no longer are making out well, and then you and I get to bear the burden.
    None of this has been a secret. The Bush administration has never been vague about intended this kind of approach. All of this has been reported. In 2004 we, as a country, indicated that we were comfortable with this by voting to continue the same regime. Because you know, that John Kerry looked sort of French.
    Whether we will repeat the same mistake remains to be seen. None of this is hidden from view; it’s all brazen. That our voters are more interested is the sassy quotient of Sarah Palin vs the elite quotient of Barack Obama gives an indication of how much we really care. Sure, we’ll all complain when things go south, but if we can’t be bothered enough to pay attention in between elections, this certainly can’t be blamed on Bush or his party or anyone other than the public.
    We are getting exactly what we were promised and signed up for. .

  3. John,
    Even if I thought the entire governmental responsibility could be laid only at the feet of Republicans, your theory completely discounts any culpability on the part of those who took these crazy, nutso loans.
    They way I see it, there’s plenty of blame to go around.

  4. The crazy, nutso loans wouldn’t have been written without a regulatory environment that permitted them. That is why for many years, you didn’t see those loans.
    Those crazy nutso loans couldn’t have done so much damage if they weren’t getting bundled into new, previously prohibited financial instruments that make it very hard to figure out where they actually are.
    Those crazy, nutso loans wouldn’t be doing all this damage if the SEC had insisted on a rating scheme in which financial institutions didn’t get to pay someone to give them the rating they want.
    I’m not sure why it’s reasonable to look at this mess and decide culpability lies more with individuals who believed those who told them that they could afford these mortgages because the value of their home would magically increase fast enough to make everything OK, versus the institutions we have created to keep the market honest, and the people who are profiting out of gaming them.

  5. John, we seem to be hanging up on relative culpability.
    I’m not trying to say individuals are MORE to blame. But I’m getting really frustrated by the populist whitewash. There is culpability all around.

  6. I’m not talking about relative culpability; there’s no point to it. I’m thinking about how you prevent these things from happening – and that trail leads right back to the regulators. One nutso mortgage does not create a financial crisis, and you’d have trouble finding many people who have had more than one. In fact most of us have had none.
    So sure, people shouldn’t take out mortgages they can’t afford, but one of the reasons that they did so less often in the past is that the way the industry was structured made those mortgages worthless investments, and thus they didn’t get written.
    If I leave my gate open and the dog runs out, I don’t get mad at the dog, I get mad at myself for creating a situation in which the dog will do what a dog wants to do. People are anxious to buy homes. They want their dream homes. Someone in a position of knowledge and authority says, “Look, there is a way you can have it,” and so they go for it. This isn’t wise, but in the scale of bad actions, it hardly rises to the level of people who have the deep knowledge of financial markets to know better and who are being put into positions of power and responsibility to manage these things letting it happen.
    And ultimately, if you don’t want these things to happen, what’s the best way to prevent them? Educating every home buyers in America on why overextending themselves might lead to financial crisis if everybody else does it too while financial institutions simultaneously find ways to hide those mortgages in complex instruments… or sensible regulation (like we used to have) that prevents people from getting those mortgages?
    By the way, banks have ALWAYS used the funds people like you and I deposit in them to cover their liabilities. Of course, until legal changes about a decade ago, the kinds of liabilities they could rack up were limited by regulation.
    You can that advocates of those changes (like a certain Arizona Senator) for some of the trouble we’ve got now.
    The only blame I’m interested in is blame that can be affixed to people who failed us and are still around in a position to do it again. Blame them so they can be run out of town and prevented from doing more harm.
    Beyond that, I could care less about blame.

  7. We agree here:

    So sure, people shouldn’t take out mortgages they can’t afford, but one of the reasons that they did so less often in the past is that the way the industry was structured made those mortgages worthless investments, and thus they didn’t get written.

    If nothing else comes of this fiasco, we need to make sure that regulations and systemic oversight are overhauled radically. And if somebody tries to kick the can down the road in Congress, we need to boot their butts outta there.
    But I continue to have a problem with the analogies. Myself, I see consumers as much smarter than dogs.

  8. People are smarter than dogs, if less honorable. It’s an analogy. The point is that people will do what they can get away with, especially when someone in a position of authority and knowledge tells them that it is a good way to go. Most people don’t understand finances very well; if someone is saying ,”yes, you CAN buy that house!” they want to believe.

  9. Voting the bums out will do us little good, if we simply replace them with more bums – or if we tell their replacements we expect to continue as before. If we take responsibility (which I think we should), then we will work with/through our elected reps to implement real fixes for what ails us. In this case, there were a who lotta holes that had to line up to produce the result. While some of them (e.g. deregulation of the financial markets, tax breaks for vacation/second homes, “no-doc” loans for real-estate speculators) may be easy to fix, it won’t do us much good so long as we don’t get rid of the rotten cheese (e.g. change the reason for home ownership away from wealth-building, and make sure we provide adequate supplies of truly affordable housing.)
    Ultimately, we need to reset our expectations as a society. That will require true political leadership (something I haven’t seen a whole lot of on this subject.)

  10. BTW – Why affordable housing, you ask? When all the new construction is McMansions, and all the old houses are bought up and bulldozed to make way for more McMansions, what do we expect those in the lower income ranges to do? Tried getting a house for less than $150K in the SF Bay, LA, Wash DC, or even Houston area? How many folks earn less than $75,000/year (which is the old “standard” for home ownership)? Where do they live?

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