Posted on 09/25/2008 5:31:21 AM PDT by Kaslin
When the mortgage bubble burst, Americans were “shocked” at how many Wall Street buccaneers had been gambling in a vast pyramid scheme with someone else’s money. Paper fortunes were made buying and selling questionable sub-prime mortgages on the silly assumption that such gargantuan inside profiting would always expand — even as the number of homebuyers able to buy overpriced properties was shrinking.
Now after the recent crash in sub-prime mortgages and the stock of several investment firms, a trillion dollars in “assets” could be nearly worthless. An already indebted American government must restore some sort of trust to banks and markets by either printing money or borrowing hundreds of billions of dollars from foreign creditors to guarantee loans.
All that remains of this Ponzi scheme is the election-year blame game. Republicans charge that important financial firewalls were dismantled by the Clinton administration while insider liberal senators got shady campaign donations in exchange for aiding Wall Street. Democrats counter that the laissez-faire capitalism espoused by Republicans for two decades encouraged financial piracy while tax policy favored the rich speculator over the middle-class wage earner.
But no one dares to ask what really drove the wheeler-dealer portfolio managers. Who re-elected these shady politicians of both parties? Who fostered the cash-in culture in which both Wall Street profit mongering and Washington lobbying are nourished and thrive? We citizens did — red-state conservatives and blue-state liberals, Republicans and Democrats, alike. We may be victims of Wall Street greed — but not quite innocent victims.
Let me explain. The profiteering was not just the result of a few thousand scoundrels on Wall Street or in Washington, as greedy and as bonus-hungry as many of them no doubt were. Look at the housing market as a sort of musical chairs in which everyone profited as long he grabbed a seat when the music stopped. Then those left standing — with high-priced loans and negative equity when the crash came — defaulted and stuck taxpayers with debt in the billions of dollars. But until then, most owners who had sold homes cashed out beyond their wildest dreams.
Thousands of dollars in past profits are still in sellers’ bank accounts or were spent on their own consumption. If the shaky buyer at the bottom of the pyramid should not have borrowed to buy an overpriced house, then the luckier seller higher up hardly worried that the cash-strapped fool was paying him way too much with unsecured borrowed money.
We created the cultural climate for this shared madness. Television shows advised how to “flip” a house after putting in cosmetic improvements. Real-estate seminars and popular videos convinced us that homes were not places to live in and raise a family but rather no different from piles of chips on a Vegas table.
We created the phony populist creed that everyone deserved to own a house. So lawmakers got the message to relax lending standards in service to “fairness.” But Americans forgot that historically nearly four in 10 of us aren’t ever ready, or able, to sacrifice for a down payment, monthly mortgage bills, home maintenance and yearly taxes — and so should stick to renting.
The problem went way beyond real-estate fantasies. Five-percent interest as a return on our money was once considered pretty good — especially inasmuch as a factory or farm on the other side of the banking equation could not really stay in business paying 10 percent in interest to banks for its necessary borrowing.
But soon retirement-account holders and institutional investors began to expect as a given 7, 10 — and even 20 — percent “return” on their portfolios. Wage earners and professionals alike compared the glossy brochures that appeared in the mail, and then jumped to this 401(k) investment or that mutual fund to “maximize” retirement portfolio earnings.
How Wall Street managers, eager for more multimillion-dollar bonuses, planned to deliver on their promised sky-high returns no one asked. But it often proved to be more by hook-and-crook shell games than by financing new productive businesses or by extending credit for the production of real goods in vital plants.
In a larger sense, this zeal for quick profits and easy money reflected an oblivious too-good-to-be-true culture in which we drove larger cars but demanded more oil drilling from everyone except ourselves. We expected both expanded government entitlements and lower taxes.
Our government borrowed ever more money from foreign creditors, because it was a collective reflection of our own profligate financial habits. Of course, we should reform Wall Street and Washington — and punish severely the crooks in both places. But Americans should remember that Frankenstein was not the name of the monster but of its creator.
Good commentary
“But no one dares to ask what really drove the wheeler-dealer portfolio managers. Who re-elected these shady politicians of both parties? Who fostered the cash-in culture in which both Wall Street profit mongering and Washington lobbying are nourished and thrive? We citizens did — red-state conservatives and blue-state liberals, Republicans and Democrats, alike. We may be victims of Wall Street greed — but not quite innocent victims.”
I’m surprised to see VDH go down this road. Sure, citizens elect the politicians and should make efforts to stay informed, but some things are so technical and specialized that it’s impossible for voters to be the watchdog for everything that government policies affect or regulate. Does he think citizens should have hired CPAs and real estate appraisers to dig into all this “bundled” mortgage paper to determine it’s true value? It’s the responsibility of the federal government to oversee and regulate these technical matters and it has been from the inception of the constitution.
Hanson might have looked to the influence of lobbyists (who actually write many of our laws affecting business) and at how often they get just what what they want for their clients, and he might have gotten closer to the answer. Congress passed the Community Development Act years ago and applied even more pressure to lenders during the Clinton years, and then this paper became part of the “assets” to support more and more leveraged “investments” in markets allowed to be as volatile as possible by loosened regulations.
The notion that voters should or could be knowledgeable about all the detailed and technical factors that affect financial matters is ridiculous. The problem is that Congress and presidents of both parties are reacting to the extreme interests of groups within their parties, and not serving as the level head to make sure things stay on a financially sound basis.
>>Congress passed the Community Development Act years ago
It’s the Community Reinvestment Act, and it’s one of the key items at the root of this financial event.
I just posted some interesting history on the subject here:
http://www.freerepublic.com/focus/f-news/2090118/posts
MUCH of this economy is smoke and mirrors. Nothing productive is created, while wealth is funneled upward.
I have seen this for years, but now, to borrow an expression, the chickens are coming home to roost.
Less talk more action. This means encouraging PRODUCTION here in the USA, not in China. This means oil independence. This means rolling up our collective sleeves and working hard. Unfortunately, this country seems to be better at talking than at working hard.
“MUCH of this economy is smoke and mirrors. Nothing productive is created, while wealth is funneled upward.
I have seen this for years, but now, to borrow an expression, the chickens are coming home to roost.
Less talk more action. This means encouraging PRODUCTION here in the USA, not in China. This means oil independence. This means rolling up our collective sleeves and working hard. Unfortunately, this country seems to be better at talking than at working hard.”
SPOT ON Red in BLUE PA! SPOT ON!
So too, greedy capitalists, greedy socialist, and greedy politicians will never stop stealing from the public trough. They are craven, filthy criminals. Yet NO ONE is going to jail or even being indicted in what is easily the largest financial scandal in the history of the world. No Wall Street executives being frog marched out in cuffs, Barny Frank, Chris Dodd, Franklin Raines, Jim Johnson are all vacationing on the Riviera or trying to implicate Republicans as the culprits to shield their own criminal activity. It will NEVER stop, NO bailout will stop future and continuing criminal activity.
We're somewhere between 4 and 5 in the process
BARF!
VDH can speak for himself. For me, NO! I did not take out loans I could not pay. I sold a house when I moved in 2004 - we made a modest profit, but only modest. Since I had LOST MONEY on my previous house sale in 1998, I didn’t feel ashamed.
Furthermore, speaking just for myself, I have NO IDEA what the buyer’s actual finances were. No one told me. I was told he had a mortgage. I did NOT have to approve his mortgage, nor did anyone provide me any details on his personal finances. Maybe he borrowed way beyond his means. Maybe he borrowed almost nothing.
I’m so tired of being told everyone has blame. For my entire life, I’ve believed homes should require a significant down payment.
I lost money on a house when the military cut back at the base, and Congress passed a program buying back ‘no money down’ VA loans and then selling the houses at 80% assessed value. It makes it tough to sell your house for what you paid, when the US Government is selling 300 homes at 80% of their value!
No VDH, I did NOT support this mess in any way.
I am a Hanson fan, generally, but this is too broad brush with the “We” bit. “We” didn’t do this. “They” did. As an historian, Hanson may be right, in general, but I prefer a forensic approach to this situation. The Democrats did this.
Anyone remember Hillary making $100,000 on a $1,000 investment in just a few months? What about her money guy (Whose name won’t come to me at the moment) turning a $100,000 investment in World Com into $18,000,000 as the company crumbled?
How about the High tech bubble that made millions for some people before bursting and leaving many other Americans holding the bag?
Why does the Left call our economic system Capitalism instead of Free Enterprise? Because they see it not as a free market but as a way for the rich to manipulate capital, usually with the help of the government, to get richer and more powerful. They see government and capitalism as a scam. They demonize it when they are out of power but fully exploit it when in power.
“I’m so tired of being told everyone has blame. For my entire life, I’ve believed homes should require a significant down payment.”
HERE..HERE!! Me too! Now..those of us who did things the right and sound way are being punished and lumped in with those that did not!
Enough already!!
That's it in a nutshell - our elected and non-elected officials do not have the best interests of the United States at heart.
Carolyn
I agree. Few Americans, myself included, probably never heard the word sub-prime before last year. I heard of balloon mortgages but never knew how many people had them. Most Americans go about their business with the understanding (misguided apparently) that the nation's financial underpinnings are in order. They weren't. But why we're all guilty is beyond me. A rare incoherent article by Hanson.
I agree. Few Americans, myself included, probably never heard the word sub-prime before last year. I heard of balloon mortgages but never knew how many people had them. Most Americans go about their business with the understanding (misguided apparently) that the nation's financial underpinnings are in order. They weren't. But why we're all guilty is beyond me. A rare incoherent article by Hanson.
That was a criminal enterprise, because while the winning trades went to The Beast, the losing trades went to other clients. I think he lost his license to trade securities for others.
“But why we’re all guilty is beyond me. A rare incoherent article by Hanson.”
It surprised me to read that from VDH, but it is a sentiment that is often expressed. In a general way it’s probably true, but not when it comes to the technical details of finance or any other industry. Following that logic, we should all be knowledgeable about how effectively all sorts of detailed government regulations are working. There still are some hazardous jobs in the US, so, are the OSHA safety regulations being adequately enforced and followed to protect the factory and construction workers in your state? I guess if there is a bad workplace accident and several are killed, then we’re all for responsible for that, too.
I don’t think VDH used it this way, but the “we’re all responsible” ploy is often used by the guilty party to deflect blame being place where it belongs: if everyone’s responsible, then no one’s responsible.
Somehow that's not in my copy of the Constitution. See Article I, Section 8, for the legitimate powers of Congress.
You responded to the wrong post. I didn’t post that.
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