Three Decades of Subsidized Risk (Exposing Government's Role in Financial Meltdown)

WSJ ^ | 11/6/2009 | Charles Gasparino

[mojito]

I recently sat down with legendary investor Ted Forstmann to discuss why, on the one-year anniversary of the financial meltdown, the press has largely ignored the role of government in creating the meltdown—and possibly setting the stage for another one—by allowing Wall Street to borrow cheaply and easily during the past three decades.

"I guess reporters think writing about greedy investment bankers is more interesting," Mr. Forstmann laughed.

[....]

The greed merchants needed a co-conspirator, Mr. Forstmann argues, and that co-conspirator is and was the United States government.

"They're always there waiting to hand out free money," he said. "They just throw money at the problem every time Wall Street gets in trouble. It starts out when they have a cold and it builds until the risk-taking leads to cancer."

Mr. Forstmann's point shouldn't be taken lightly. Not by the press, nor by policy makers in Washington. But so far it has been, and the easy money is flowing like never before. Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow to as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street's debt and declared every firm to be a commercial bank, from Citigroup with close to $1 trillion in U.S. deposits, to Morgan Stanley with close to zero. They are all "too big to fail" and so free to trade as they please—on the taxpayer dime.

[mojito]

It's not just Fannie and Freddie. And it's continuing.

[ChessExpert]

“Affordable housing” was government policy. Affordable housing = subprime loans. This mess was the result of liberal Democratic party (abetted by moderate Republicans) policy.

[SierraWasp]

The truth always comes out, even if it takes over a year for any major or financial news outlet to finally publish it!!!

"Lies have speed, but truth has endurance!!!" (I can't remember who said it)

P.S. Bring back the Glass-Steagle act!!!

[dalereed]

I Congress had kept oout of it there would never have been a home loan made that didn’t have a minimum of 20% down payment and there would have never been a financial melt down!!!

Everyone that didn’t put down at least 20% on a home should be thrown out in the street!!!!!

[Trailerpark Badass]

Thought you might find this interesting.

[Shermy]

“It’s not just Fannie and Freddie.”

A lot of people need to keep an image it is a bunch of loans to poor black people that caused the mess, Rush L. was pushing that. It helps them maintain the business-cultist fantasy that Wall Street needs no laws, eeevil “regulations”, and fantasize they will benefit. The useful libertarian idiot Alan Greenspan had a public emotional meltdown admitting his ideas were wrong, but nothing will change the adherents minds, their business cult is religious in passion.

[dirtboy]

Ideologues on all sides largely refuse to acknowledge their respective roles in the meltdown. Something this screwed up is always a group effort, and the core cause is a lack of personal responsibility on all levels, from the person who took out a loan they couldn't afford to the agent who wrote the mortgage to the government agency that pushed for relaxed rules for mortages to the ratings agencies who whitewashed the risk to the pubbie who said none of it needed regulation to the Wall Street houses who didn't want the regulations getting in the way of making boatloads of money in the short haul.

If you study the Candadian banking system, which didn't melt down, that is what they have that we do not - personal responsibility at all levels.

[MosesKnows]

I can't remember who said it

"A lie has speed, but truth has endurance." Edgar J. Mohn

[grateful]

We put 0% down on our home and have managed to comfortably make our mortgage payment (plus extra against principal) every month for over 5 years now. We even refinanced earlier this year at a lower rate and didn't take cash out no matter how hard they tried to sell us on that.

Should we really be thrown out on the street?

[dalereed]

Yes!

[grateful]

What is your reasoning? I can afford my mortgage. I have not been irresponsible. Where I live, the average home costs $200k to $300k. Most people do not have $40k to $60k to put down on a home, but can afford the monthly mortgage payments. If they have excellent credit, a good number of assets for collateral, little debt, are generally responsible people, and don’t buy more home than they can afford (like us), why shouldn’t they be able to buy a house?

If we had waited to buy until we had the 20% down, we would have ended up paying $100k more for our house AND would have had to wait even longer to save that extra $20k more for down payment. Instead, we have a wonderful, affordable house that we’re building a lot of equity in and we’re getting tax deductions for instead of flushing rent down the tubes every month.

That money that would have gone into the down payment is in our retirement and brokerage accounts working for us. We keep contributing and investing carefully every month and growing our assets.

I understand your reasoning, given the vast number of irresponsible people who took out zero down loans they couldn’t afford, but not everybody who took out zero down loans is irresponsible.

[dalereed]

Every bank that ever gave one is irresponsible!

I had no problem saving $8k for a down payment in 7 years earning $3.25/hr at the start when we got married to $3.75/hr 7 years later when we bought our home for $34k.

Tht is the only loan I have ever had in my 72 years including buying all our cars, our condo, and my airplane.

As far as i’m concerned everyone living on credit should be wiped out!!!

Even in the 57 years of our business we never borrowed a cent and did over $2million a year average with an average of 25 employees.