As much as I admire Sarah Palin, I can not let stand her answer to a question regarding the financial crisis. “Darn right,” she said, it was all the fault of those greedy Wall Street types. Greed, like the poor, is always with us, but this whole mess would not have happened without the active involvement of the Federal government.
Congress started pressuring Fan & Fred back in 1992 to make more loans to low and moderate income borrowers. In 1996, the Dept. of Housing and Urban Development (HUD) told F&F that 42% of their loans had to go to borrowers with below median income for their areas. This mandate was increased over the years until it reached 52% in 2005.
Then there was The Community Reinvestment Act (CRA) of 1977, which “encouraged” banks to make more loans to shaky borrowers. Such loans, as a percentage of the total, increased in more recent years with rising home values.
Then there was the Fed, pushing the Fed Funds rate down to 1.25% in 2003 to revive the stock market. This made possible the low “teaser’ rates on adjustable rate mortgages. For more details, see “How Government Stoked the Mania,” by Russel Roberts in the Oct. 3 WSJ, from which facts herein were drawn.
These government intrusions, and others, into the market economy set the stage for the excesses that led to current situation. It is not the proper role of government to pressure private actors in the market economy to violate sound business practices and risk taxpayer (F&F) and depositor (banks) money to achieve a political objective, i.e., increased home ownership.
Also, if the Fed would stick to its role as defender of the currency, instead of arrogantly trying to manage the stock market and the economy, we would not be here today.
I fear that one aspect of the rescue plan may be setting the stage for the next crisis. That is the “temporary” increase in FDIC insured deposits to $250,000. Recall that it was the increase from $40,000 to $100,000 that led to the S&L debacle 20 some years ago. It encouraged depositors to go for the highest rate, ignoring the banks financial soundness. Don’t we ever learn?
1 comment:
Lou ~
Sadly I don't think we ever do learn.
I believe many of the people who decided to start investing in the last decade via the numerous websites offering $5 trades and whatnot, did minimal homework, and truly may not have known what they were doing. This also inflated certain stock prices and theusly over-inflated the balloon.
Eventually this was going to either prove to be too much and thusly burst (the technology bust less than a decade ago); or would deflate significantly to avoid destroying itself (what we're going through today).
I am in full agreement that the government has continually and now seriously over-stepped it's bounds and must bear the lion's share of blame; but they won't. Instead they will grill the CEO of Lehman Brothers, a company which received absolutely no "bailout" while at the same time ignoring the atrocities that have taken place at F & F.
Ain't life grand?
Now, slightly off topic, but related...
I guess one good thing from all of this is that it takes some of the power and control away from OPEC, but now I wonder what Russia will do, they absolutely rely on high oil prices and without them, they will become desparate.
Post a Comment