Posted on 05/18/2012 9:01:25 PM PDT by neverdem
The American Enterprise Institute’s Peter Wallison on how government, not greed, was the essential ingredient in the 2008 meltdown.
In January 2011, a bipartisan, 10-member, government-created body called the Financial Crisis Inquiry Commission (FCIC) issued a comprehensive report assigning blame for the 2008 financial meltdown. The main culprits: “widespread failures in financial regulation and supervision,” “dramatic failures of corporate governance and risk management at many systemically important financial institutions,” “a combination of excessive borrowing, risky investments, and lack of transparency,” a government that “was ill prepared for the crisis,” and “a systemic breakdown in accountability and ethics.”
The four Republicans on the FCIC issued two dissents from the commission’s findings, the splashiest of which was a 93-page solo response from American Enterprise Institute (AEI) scholar Peter Wallison. The crisis, Wallison said, was caused mainly by the systemic failures of government housing policy.
Some of the public response to Wallison’s dissent was withering. Stanford University political scientist Francis Fukuyama, in a January interview with the online-only publication The Browser, charged that it “takes what is a very complex crisis that has multiple roots and lays it all at the door of Fannie and Freddie and government intervention. It seems to me transparently designed to exonerate free markets.…But this crisis has proved that financial markets are not self-regulating. To draw from this complex analysis that particular conclusion I just find astonishing.”
Fukuyama was not alone. New York Times columnist Joe Nocera had previously called Wallison’s work “loony” and accused him of helping to concoct “what has since become a Republican meme.” Even the free market George Mason University economist Russ Roberts took Wallison to task for downplaying the role of investment banks.
Wallison, who co-directs AEI’s financial policy studies program, is unrepentant...
(Excerpt) Read more at reason.com ...
THANK YOU FOR THIS THREAD!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Finally, somebody is ignoring the “Bash the Banks” smokescreen and follows the money!
Government essentially forced banks to make loans based on demographics instead of the ability to pay it back. They threatened banks that did not have the right spread on their portfolio. When the banks balked at making bad loans they told them not to worry and grew Freddie and Fannie to back up the banks. Sound banking rules went out the window and the real estate frenzy was created. The increased demand led to an increase in prices and the bubble was born. The banks had little to lose. They made the money for originating the loan and then dumped all the risk on the taxpayers. They packaged the risky loans into investment instruments, gave them a great rating, and everyone bought them.
Government increased their involvement in student loans and college instantly got more expensive as more people accessed the market inflating everything and creating a college bubble as well as a new debt bubble that will be owned by... yep, the taxpayers. That one has not blown up yet, but it will.
Has there ever been a financial effort led by government that did not end in disaster? The money spent on green technology is a pittance compared to mortgages and student loans, but again, it’s complete failure.
Everytime the government gets involved in the economy they gamble with our children’s money. Their track record if horrible. We would all be better off if our fellow citizens understood this.
The four Republicans on the FCIC issued two dissents from the commission’s findings, the splashiest of which was a 93-page solo response from American Enterprise Institute (AEI) scholar Peter Wallison. The crisis, Wallison said, was caused mainly by the systemic failures of government housing policy. >>>>>>>>>>>>>>>>>>>>
True Dat!
And every one with more thna two clues to rub together, working in either banking or the stock market knows this truth. They have to know to do their work, and advize clients properly.
And the left wants it covered up, when in fact the whole world of banking and investing knows it to be true. WHAT A LAUGH!
You just made the case for Banks playing a major role.
-I agree that Gov't played the major role, but that was because of cheap credit.
-Gov't didn't force banks to use leverage.
-Commericial real estate bubble and crash. Gov't policy?
-Worldwide real estate boom from easy credit.
-Private Debt. Companies run higher amounts of debt than before
-The Economy wasn't healthy to start with. We've been using debt and cheap credit for decades. It had to end eventually, and eventually it will.
-Trade policy- Jobs aren't coming back.
-Private sector rating agencies failed.
-The Banks failed to actually do their job of checking the financial history and credit potential of the consumer. Gov't did't force them to do a that.
They forced Banks to not check the loan requirements?
They might have said to lower the requirements. But, its the job of the Bank to calculate the risks of the loan and the actual qualifications of said loan.
Look, I said Gov't is the major player. But, the fact that Housing was the main 'producer' is only a symptom of a weak economy.
my only problem is this is soooo obvious.
I mean, who would give a 700k loan to someone who makes 24k-without government backing??
Janet Reno under Bill Clinton's maladministration started Waco and she also started this super SNAFU!!!
Actually, Jimmy Carter started it with his stupid Communutty Reinvestment Act (CRA).
Why does everyone uncritically accept the premise that the government and the banks are discrete, unrelated entities?
They're not mutually exclusive. Not by a long shot.
A lot of people are missing the fact that Americans by nature are risk takers. These people got into mortgages that they could just afford with no leeway if things went wrong. When gas prices went up, people started to use their credit cards to absorb the increase. Soon they ran out of cards and faced with buying food (which went up in price), gas (you need it to get to work), or mortgage they made the natural choice. The Democrats were responsible for both the relaxed credit and the increase in gas prices. My $.02 worth...
Government essentially forced banks to make loans based on demographics instead of the ability to pay it back. They threatened banks that did not have the right spread on their portfolio”””
Exactly!!!
Within the last month, both Los Angeles & New York City councils have passed NEW LAWS in their jurisdictions REQUIRING banks to make more loans on a ‘social engineering basis’ instead of on a credit history and the ability to repay. More ‘blacks & Hispanics’ and people who ‘want to start small businesses’ MUST be in their loan portfolio. Commissions will oversee their loan documents. More stupidity.
Obviously, they are still in denial about how the CRA house of cards was created & fell.
I think investment in U-Haul would be a better financial bet than Facebook at this point, especially in California.
The Banks failed to actually do their job of checking the financial history and credit potential of the consumer. Gov’t did’t force them to do a that.”””
Sorry-—but Janer Reno did exactly that.
I still remember her press conference where she stood up and told the banks that she would use the Justice Department to sue them if they didn’t “ give people a chance to own their own homes”. Carter created the CRA and demanded that even welfare and food stamps were to be considered as income. Loans were given to people who didn’t have the credit history & work history & ethics to even buy a T-shirt on payments.
I can remember real estate people that cringed with all such activity. One said “IF you could fog a mirror, you had to get a loan,” Some people coming into title companies could only sign an “X” !!!!!! They could not read nor write!!!
A loan was given on a $650,000 house in Fresno, Calif., to an illegal immigrant who was a strawberry picker!!!
He & his family got irate & yelled loudly when the place was foreclosed on!!!
Every single bit of this whole mess can be traced back to Jimmah Carter and the CRA. Banks & depositors were victims.
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