It is remarkable to me that the people who helped get our country (and now our world) into this mess are the very same people who are screaming that it was simply Wall Street greed that got us here. There is plenty of blame to go around in this crisis, but let’s not forget that just a few years ago government backed entities (and the government itself) told the rest of the world that the rules had changed and that home loans had become “riskless”.
Early in the decade if you found yourself competing with the GSEs Fannie Mae and Freddie Mac (as did IndyMac, and all the major Wall Street investment banks) or selling to the GSEs (as did Washington Mutual, Countrywide and Wachovia) then that meant you had to react to the “new rules”. These new rules would be enough to make any loan underwriter from the 1980’s cringe. They undercut all three of the basic principles of underwriting. First, credit score quality was slackened; according to the new rules past performance of repayment was no longer an indication of future behavior. Second, loan to value ratios were ratcheted up beyond 100%; according to the new rules housing values would forever climb so we no longer need to worry about home equity or leverage ratios. And finally, income ratio requirements were loosened or ignored altogether; the new rules decided that the old rule that only 1/3rd of a person’s income should go toward paying for their home mortgage didn’t pertain any longer and now consumers should be able to spend 50% or even 60% on their home.
This thinking was hopeful, well intentioned and silly. We might as well jump off a tall building hoping that the rules of gravity will lesson before the ground arrives.
Watch this video and remind yourself that the blame for his mess goes well beyond Wall Street:
That video does seem pretty damning, and it corresponds with what I’ve read in other (fairly neutral) sources. Still, I think we’d be silly to conclude that responsibility for this lies completely on the side of the Democrats: you can do a lot with creative editing. This is better taken as a reminder that responsibility extends to all parties and all branches of government.
Oh, I couldn’t agree more. Like I’ve said before, there is plenty of blame to go around. I just get sick and tired of the populist, pandering message that we keep getting beaten over the head with by these same people on this video. They claim that they were taken advantage of and that they were somehow innocent in this entire thing. This is just a gentle reminder that they were right there at the trough like many others.