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so in essence, everyone is to blame for the problems we have now.
Some are far more to blame than others. I think we'd agree that the investment bankers who concocted and traded all those increasingly absurd "exotic" credit instruments using increasing amounts of leverage bear perhaps the most responsibility, since their actions provoked the crisis to begin with.
I would say both. I would argue this goes as far back as Regan, who started a trend (that seems to have happily been followed by both parties) of cutting certain taxes without cutting an equal amount of spending.
That has absolutely nothing to do with the financial crisis.
The cause is pure and simple: the collapse of the housing bubble. Once the bottom dropped out of the housing market, investors, banks, and other institutions saw the value of their assets plummet. The obvious response was for those same institutions to try and cut their losses by ridding themselves of the devalued assets. Once that was no longer feasible, the major banks began a nosedive, taking the stock market with it. The rest of the economy came tumbling down in the ensuing panic.
If you want someone to blame, choose Alan Greenspan. Extremely low interest rates during and after the early 00s recession continued fueling the housing bubble. We had a major housing bubble for nearly 10 years. We all knew it was going to bust eventually.
#1 - In 1992 Congress changed the law to increase homeownership for minorities and low income Americans. (After all, everyone deserves a trophy.) The US economy was improving and interest rates were low. The housing markets expanded, the economy gained and demand for mortgage backed securities grew.
Both political parties jumped on the band wagon with a more-is-better attitude toward minority and low income homeownership. Interest rates were still low so demand for mortgage backed securities exploded - especially since they were considered to be federally guaranteed.
Congress demanded that Fannie Mae and Freddie Mac play a leadership role in the mortgage business so lending standards were lowered, "affordable housing goals" were increased and mortgage brokers popped up on every street corner. The federal government (through Fannie and Freddie) bought or guaranteed sub-prime and alt-A loans as fast as they could be written.
Home builders, contractors, developers and realtors were making money hand over fist. Everybody was making money. Homeowners were thrilled to take advantage of federal programs that allowed them to buy a house with no income, no assets, no money down and cash out at closing.
Banks and mortgage brokers were thrilled to give loans to anybody with a heartbeat and then sell the loans to Fannie, Freddie or Wall Street for a quick profit.
Investors (including individuals, pension plans, financial firms, insurance companies, foreign governments, etc.) were thrilled to buy "safe" mortgage backed securities - and various derivitives thereof - even if they really didn't understand what they were.
Congress was thrilled because they were taking credit for everything.
#2 - In 2004 Congress (through the SEC) lowered the capital reserve requirements of the 5 largest banks in the US. They were allowed to leverage their assets 60 to 1 or more. What could possibly go wrong?
Accounting irregularities at Fannie and Freddie and the political finger-pointing that followed indicated the party was nearing its end.
When the housing market slowed mortgage defaults and foreclosures increased. Investors questioned the true value of the assets they held. Credit dried up as financial firms and their federal regulators worried about their capital reserve requirements. Some firms failed (Bear Sterns, Lehman Brothers, etc.).
Credit default swaps and other complicated "bets" on the housing market threatened to cost financial firms Billions. Fannie, Freddie, AIG and others were on the brink of failure.
That has absolutely nothing to do with the financial crisis.
The cause is pure and simple: the collapse of the housing bubble. Once the bottom dropped out of the housing market, investors, banks, and other institutions saw the value of their assets plummet. The obvious response was for those same institutions to try and cut their losses by ridding themselves of the devalued assets. Once that was no longer feasible, the major banks began a nosedive, taking the stock market with it. The rest of the economy came tumbling down in the ensuing panic.
If you want someone to blame, choose Alan Greenspan. Extremely low interest rates during and after the early 00s recession continued fueling the housing bubble. We had a major housing bubble for nearly 10 years. We all knew it was going to bust eventually.
Unfortunately, there were enough people - many of whom should have known better - who thought the bubble could go on forever.
but lets also look at ourselves. when people who make $50k per year sign up for a $700k mortgage, something is wrong. yes the government pushed the banks to make the loans, and yes the banks loosened up the loan requirements, but at some point the people signing the papers should have stopped and thought can i really afford this loan? if the answer comes back as no, then they should NEVER have signed the papers.
so in essence, everyone is to blame for the problems we have now.
another reason that the people need to accept blame is that we dont hold our elected officials to their promises. we heard obama and the democrats say they wanted fiscal responsibility, we heard them say they wanted transparency in government, they hears when pelosi said she wanted to drain the swamp of corruption, and we sat back and said ok we will fire the republicans, and hire you. now we are giving the republicans a new chance, and if they screw it up, there will be a third party that will take over from the republicans. but WE THE PEOPLE have to do our job as well. we can no longer sit back and tell our elected officials have at it, and wait for the next election.
Great post.
We, the people, should definitely be held accountable for our role in this. Maybe not all of us but there are plenty of people out there who signed mortgage docs they could never honor after the ARM adjusted or if they lost their job. I agree that predatory lending is partially to blame, but people should be smart enough to figure out how an ARM works (or whatever) and they should never have taken on that responsibility to begin with.
I agree also with the sentiment that we allow our elected officials to take the reins and then we go ahead and reelect them even when they screw up! That makes no sense. I think people's eyes are starting to open to this and that's part of why the Repubs had so much victory this past election.
Who's responsible for the US financial crisis; Republicans or Democrats?
Both, but not equally.
Deregulation, favored by most Republicans and many Democrats, led to the meltdown. I have no doubt that none of them intended that result. An irresponsible and greedy private sector used that deregulation to pay themselves first while neglecting their responsibilities to their investors. Deregulation made it all legal.
Further more, while the great unwashed (that's you and me) squabble over who is MORE to blame the carpetbaggers in Washington do nothing to fix the problems and continue to rob us blind.
As long as politics is driven by corporate money, its going to serve corporate interests.
This country is no longer "By the people for the people" it's "By the corporations for the corporations"
That has absolutely nothing to do with the financial crisis.
The cause is pure and simple: the collapse of the housing bubble. Once the bottom dropped out of the housing market, investors, banks, and other institutions saw the value of their assets plummet. The obvious response was for those same institutions to try and cut their losses by ridding themselves of the devalued assets. Once that was no longer feasible, the major banks began a nosedive, taking the stock market with it. The rest of the economy came tumbling down in the ensuing panic.
If you want someone to blame, choose Alan Greenspan. Extremely low interest rates during and after the early 00s recession continued fueling the housing bubble. We had a major housing bubble for nearly 10 years. We all knew it was going to bust eventually.
But I would argue that this still has political roots. Once upon a time, something like this couldn't happen. I still say this goes back to politicians who make changes to policy and don't think about the consequences of their actions.
but lets also look at ourselves. when people who make $50k per year sign up for a $700k mortgage, something is wrong. yes the government pushed the banks to make the loans, and yes the banks loosened up the loan requirements, but at some point the people signing the papers should have stopped and thought can i really afford this loan? if the answer comes back as no, then they should NEVER have signed the papers.
I agree with you on this to a point. People have been really stupid with their money. BUT a lot people truly don't understand how buying a house works. Their fault, yes, but during the housing bubble there were a lot of "experts" out there telling people they could afford things they couldn't. I worked for Bank of America at the time, they were doing things like having tellers push first time home loans on anyone who paid more than $500, telling those people that, yes, you can afford to buy a house. (And this is not in a cheap housing market.) A lot of people go to mortgage brokers and ask them to help them figure out how much house they can afford. You can't totally diminish that many financial experts out and out lied to people about this when they sought advice.
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Domino Theory: #1
) The US economy was improving and interest rates were low. The housing markets expanded, the economy gained and demand for mortgage backed securities grew.
