What Caused the Financial Crisis?

JeffWartman.com ^ | 1/25/2009 | Jeff Wartman

[wartman]

We’ve all heard it. In the last couple months, the refrain of “deregulation and lack of government intervention” caused the financial crisis we’re currently working through. However, a quick look back shows that this wasn’t the case. In fact, it’s pretty clear that the real cause is the exact opposite: the crisis was caused by too much government intervention.

The fairy tale usually goes like this: greedy financial companies gave unfair subprime loans to borrowers who couldn’t qualify for standard mortgages and hid in the fine print the real terms of the mortgage in an attempt to fraudulently enrich themselves.

There are so many logical fallacies and outright laughable stupidity in that above fairy tale it’s almost hard to take seriously anyone who actually believes that. But, I’ll try.

1) The first fallacy that needs to get out of the way is that the mortgage companies handed out the subprime loans because they didn’t care whether the person would be able to stay in the home or not. That idea shows a strong ignorance of the way credit institutions work. No one wanted the borrowers to stay in their homes more than the lending companies. If the mortgage goes into default, the lending company stands to lose a lot of money. Foreclosure is a losing proposition for the lending company.

2) The subprime loans we’re given out in the first place because the Democrats demanded it. This is a historical fact. It shouldn’t be hard to follow the logic:

* Democrats demand that poor borrowers be given access to mortgages. * Because they have poor credit, these borrowers cannot qualify for standard mortgages. Hence subprime interest rates. * The banks then bundle these mortgages into securities which are purchased by a government sponsored entities nicknamed Fannie Mae and...

[Jacob Morgan]

Don’t forget that the media would, on clock work regularity, print articles about this or that study about how hard it was for certain minorities to buy a house and that the government had to do something about it.

[pyx]

What Caused the Financial Crisis?

Barney's Frank.

[wartman]

Hmmmmmm.... That wasn't there before. Well, there should a lot of points here on this thread that you can use to put the blame on Bush and his admin as well.

No, but this was: "There is another aspect of the financial crisis that generally goes unreported. The reason? Both the Republican Party and the Democratic Party are to blame for the other reason. I’ll get to that in Part Two."

I guess that wasn't obvious enough, so it had to be laid out for those with sub-par reading comprehension.

[raybbr]

No, but this was: "There is another aspect of the financial crisis that generally goes unreported. The reason? Both the Republican Party and the Democratic Party are to blame for the other reason. I’ll get to that in Part Two." I guess that wasn't obvious enough, so it had to be laid out for those with sub-par reading comprehension.

Oh, please. You used quasi yellow journalism to get people's attention. You also knew that your first part would blame the dems and hoped that everyone would jump on board.

That that little disclaimer is at the very end shows your intentions.

If you truly had wanted us to know that you put the blame squarely on both sides then you would have (or should have) stated that at the onset of your post.

I have done nothing but provide you with information and have been polite about it. The fact that you have to attack me shows that I have pulled your covers and you are not happy about it.

[grey_whiskers]

You might enjoy this recent vanity.

Cheers!

[TalBlack]

“..and lack of integrity of notifying the public of the problem.”

But you see, that is the REAL danger of PC. Not that, say, someone who is not qualified is hired or lent money, but that everybody “see no evil” in the matter. It is the acceptance of a dual reality that gives PC it’s power to, eventually, bring down an entire society.

[wmfights]

But you see, that is the REAL danger of PC.

You make a great point.

[VRWC For Truth]

Frank, Dodd, and the criminal enterprise named Democrats.

[GOPJ]

The Dems got their sub prime loans through deregulation wanted by the Repubs, they both got campaign contributions for re-election, the bankers made great a great bonus on every new transaction and we got screwed.

Bingo - and yes, we got so screwed...

[org.whodat]

2. Fannie Mae is expanded during the Clinton Administration. B. Clinton claims he tried to rein it in, but Democrats blocked it.

That has to be one of the biggest lines of green BS I've seen posted. Are you speaking of the Fannie Mae, Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government sponsored enterprise (GSE), but founded in 1938 during the Great Depression.

[org.whodat]

Meant to reply to items 1 and 2 together but was laughing at your post to much.

[org.whodat]

The banks wanted to do this and saw to it that people were elected who would do their bidding, like Clinton and Bush.

Correct and the scam has made a hell of a lot of bankers very, very rich.

[wartman]

If you truly had wanted us to know that you put the blame squarely on both sides then you would have (or should have) stated that at the onset of your post.

The fact that this portion was titled Part One with a portion at the end saying that Part Two would deal with the problems that Republicans have also caused renders your point that I am somehow a partisan Republican moot.

[meyer]

And, George Bush.

Agreed. His domestic policy has been quite socialist - and thus wrong.

[sirchtruth]

If you want more details about what Bush did during his first term to cause this, see my FR homepage.

Nice try! Just like with Amnesty and it's obvious ill effect, I don't think Bush had a clue this could happen.

Bush is a moderate namby, but there's no way he was trying to bankrupt the economy. He just had the same idiotic mindset as the foolish dems.

[raybbr]

The fact that this portion was titled Part One with a portion at the end saying that Part Two would deal with the problems that Republicans have also caused renders your point that I am somehow a partisan Republican moot.

Okay, now you are putting words in my mouth. I never said you were partisan. I said you left out some very important issues that deal with Bush and his administration's involvement in this.

I am not the only one to point that out on this thread.

I guess that wasn't obvious enough, so it had to be laid out for those with sub-par reading comprehension.

Perhaps it's not my (and others) comprehension but rather your composition that is the problem.

[ataDude]

“How did the democrats “demand” poor people, people who could not afford these loans, be given these loans?

What forced banks to underwrite these loans? A banks does not have to lend to anyone who can not afford the payment!”

---

Study up on the Community Reinvestment Act. It goes back almost 30 years and was “supercharged” during the Clinton debacle. It did, indeed, force financial intermediaries to lend mortgage money to folks who did not have the credit worthiness to otherwise qualify for loans. It was originally intended to prevent banks from “redlining” areas from loans.

Too much government intervention strikes again.

[mrmargaritaville]

the funny thing is that the deregulation that everyone is blaming on the Rs was pushed by Robert Rubin. Rubin’s fingerprints are all over the current financial “crisis” and of course all over citigroup-but no one is asking any questions about him, in fact his “disciples”-Summers and Gehtner are the current power in Washington.

[wartman]

Okay, now you are putting words in my mouth. I never said you were partisan. I said you left out some very important issues that deal with Bush and his administration's involvement in this.

It's not my fault you failed to understand that the title had "Part One" included and a portion included that said Part Two will deal with problems the Republicans caused.

[raybbr]

It's not my fault you failed to understand that the title had "Part One" included and a portion included that said Part Two will deal with problems the Republicans caused.

LOL. Okay, I'll check it out (if you ping me) and see if you come up with anything new.