According to the articles I’ve read, yes, they did believe Fannie paper was implicitly “insured” (and, as I’ve also pointed out, they were right, weren’t they? The U.S. government did swoop in a pay the claims when they defaulted).
Also there was an idea that the U.S. housing market had never crashed, and that the government would not “let” it crash. This was a more general view of the matter, not just focused on the risk associated with the actual paper.
Because of this, it’s my view that it is not the investment banks that are to blame so much as it is almost 100% Congress’ fault in how they handled “affordable housing” and Fannie and Freddie.
The banks and corporations did what they were born to do: take advantage of almost free money in the marketplace. Sure, they had an obligation to limit risk for the sake of their shareholders. But look at it from their perspective: no matter how risky the paper was standing alone, it *wasn’t risky* if it was backed (implicitly or explicitly) by the U.S. government.
Moreover, the U.S. government (through “affordable housing” scams) was more or less FORCING lenders to literally give money away to people who could never pay it back. The lenders had some “right” to proceed as if the outcome for that government give-away (for which they were only a conduit, albeit making money along the way) was NOT THEIR PROBLEM.
The more we focus blame on Wall Street, the more we play into the Rats’ playbook that “corporations are evil,” “kill all the fat cats” and other forms of lethal class envy. Moreover, we help perpetuate the despicable myth that the Rats are “for the little guy” and “better on the economy.”
If that Depression-era anachronism is passed on once again to the next generation, that is what will truly take our country to Marxism.
This mess was 100% CAUSED by the U.S. Government, through the Democrats. Others took advantage of the situation, but without the Democrats enlarging and propping up and protecting FANNIE and FREDDIE, none of this would have happened.
I guess I can partially agree with you, but, I’d think some of these investment banks and such would see that the housing market problems were becoming so big that even the U.S. gov’t couldn’t really keep the bubble from bursting. And, if the outcome of something a business is doing will eventually harm that business itself, it is their problem.
I also think I can largely, though not entirely agree with you about the banks’ position. I just think they were so busy trying to get rich that they forgot the word “Tanstaafl”. Or they forgot about some form of self-discipline or self-regulation. And, what about AIG? They were not being pressured by the Gov’t, to insure contracts without having the collateral to do so, so far as I can tell.
It looks to me like there is some blame on “Wall Street”, some blame even on Republicans in Congress & maybe even the Administration, for not tackling a problem that at least a few of their number tried to work on (Shays, McCain)... and a whole LOT of blame on the people who protected the FM’s.
In arguing this with people, I’d be inclined to concede that part of the problem is with the former 2 groups, but that the MAIN cause, and so far the really unpunished party, IS the Party who pushed loans that couldn’t be paid for.
As an aside, I see that 60 Minutes is doing a segment on the credit default swaps. Oh, I’m sure it will be fair... (sarc)