Here is one:
To the Editor:
Thomas L. Friedman sets aside political correctness and boldly states that many subprime borrowers are, to an extent, responsible for the current financial crisis. Most talking heads and people in Washington continue to lay most of the blame on Wall Street, which intelligent observers know is inaccurate.
So, who are the responsible parties? The aforementioned borrowers. The solicitors who did not care whether borrowers could repay so long as they received a fee. Banks that did not apply longstanding credit standards to determine if borrowers could repay. Packagers ”” investment banks ”” that did not concern themselves with credit as the paper was rapidly sold to others.
And finally, let’s not forget Congress and the last three presidents, who promised the “American dream” to millions who could not afford it.
Salvatore J. Bommarito
Bull. People borrowing money when they shouldn’t do not cause banks to stop lending to one another.
Banks not lending to one another is the [i]sine qua non[/i] of the current crisis.
The cause was malfeasance among originators and underwriters (thereby pouring thousands of dishonestly specified mortgages onto the secondary market) and malfeasance among those who developed, sold, and bought the opaque financial derivatives which leveraged the phony mortgage paper.
No, Marion, Mr. Bommarito has a point.
I completely disagree with those who chose to speculate on bad credit and badly-made loans; that is wrong. But it is also wrong when the masses are trying real hard to live beyond their means and take out loans they can’t afford; not to mention that too many adults are instead acting like out-of-control adolescents with new sportscars and unlimited credit cards, neither of which they can pay for.
There’s a reason why “there’s no such thing as free lunch” is a cliche. Best many out there start heeding it…
DUH
GiD
When a train crashes because the driver let the brakes off, that crash and the ensuing deaths and injuries are the driver’s fault, not the passengers’, who trusted the driver, and not the train’s for sure.
The economic crash had ‘train drivers’, named Rubin, Greenspan, Leavitt, Summers….they willfully, determinedly took the brakes off. Their vehicle crashed, eventually. The background revealed in earlier NYT and other articles about the efforts of one Brooksley Born, and some others, to warn and prevent what eventually happened with the unregulated markets in novel instruments of finance is disturbing, and condemning of the train drivers.
There may be as much tragedy as guilt among all those whose financial ‘life fundamentals’ like a house and enough to eat have been consumed in this train wreck – we don’t actually know and can’t for some time to come. But the drivers are clearly identifiable. For Thomas Friedman, Eastern elitist extraordinaire (I have never forgotten his reaction to the results of the 2004 election), to level a finger at any one else is just, well, further ugly evidence of said elitism. Someone else could usefully help ignorant people who have been taken advantage of learn whom to trust and how to manage better, but not TF.
“When a train crashes because the driver let the brakes off, that crash and the ensuing deaths and injuries are the driver’s fault” —TACit [#3]
Which makes it very odd indeed that you blame the current crash on Rubin and Summers, who left office nearly a decade ago. Rubin left office in 1999, Summers in 2000. Did no one take their place at the wheel?
_ _ _ _ _ _ _ _ _
For a far more important case of “taking the brakes off,” look at the combination of Bush mega-deficits with Greenspan-Bernanke loose monetary policy. That combination fueled the speculative mania of the past six years. Derivatives were significant mainly as tools of a broader market delusion that prices would rise indefinitely and that high-rollers had risk under control.
I included the others because they are clearly complicit as bullies, really, with Greenspan, who confronted Born and made her back off. If one can believe the reports as written, that is. No disagreement from me about the contributions from Bush and Bernanke but it would be awfully interesting to find out what they knew and when – like, did they know how Rubin, Greenspan and Leavitt together had pushed Born around in the late 1990s?
In case you haven’t you need to read background material on Born, easily googled.
#3, your analogy is simply unsound, because in the case at hand, the “passengers” are themselves the primary cause of the crash. The people who went after mortgages they could not pay, have no one to blame but themselves, and their lack of good judgment, their greed that overrrode self restraint, is the primary “letting go of the brakes.” Not the only cause to be sure, but the primary one. Had they exercised self discipline and good judgment, this particular crash would not have happened in this devastating way. It would have happened to be sure, sooner or later, iin some other form, for the overwhelming greed and absence of principle on the part of international Big Money would have lead to disaster, but for now, we have only to look to ourselves and the culture of immediate gratification to look for the criminals. Larry
Greek in Dallas,
No one can argue with you about whom you do or do not disagree with. You are the master of that.
But that is not the question.
The question is not “who was behaving immorally”? Nor is the question “who was behaving [i]really, really[/i] immorally?”, Or even “who was behaving [i]the most[/i] immorally?” Immorality is universal and perpetual. Your index of immoral people is no more relevent than anyone else’s, and is simply inapposite to the issue of “how and why”?
Rather, [u]the question is: “whose culpable behavior caused the crisis?”[/u]
And to repeat: The crisis is [i]not[/i] a sharp drop in home sales or housing prices or employment rates. These various rates and indices have had sharp drops and rises of one sort or another dozens of times over the past three generations. However painfully, they smooth out.
[u]The crisis[/u], rather, [u]is that financial institutions are not lending to each other[/u].
They have not stopped lending to each other because one index or another has dropped or increased. [b]They have stopped lending to each other because [u]no one knows the value of the assets in question[/u].[/b]
[u]The blame is to be placed squarely on those who knowingly, for the purpose of simple gain, hid, changed, destroyed, or made impossible that information[/u]. Many of these people quite literally belong in jail.
I agree that where mortgagors themselves lied on an application that they would be living in mortgaged houses when they were really just financing a house to flip it, they belong in jail. Mortgage fraud, after all, is illegal, and note they would clearly be included in the paragraph above.
But the larger fraction of people who honestly hoped to give their families roofs over their heads are guilty only of poor judgement and wishful thinking. Neither of these caused banks to cease lending to each other and neither of these is illegal.
I have serious doubts about the “opaque” financial derivatives… Why is it “opaque”? Somebody has calculated the risk and a formula for assessing these financial derivatives. All one would need is to estimate mortgages that are financially not viable in these derivatives.
Marion, I am saying the problem is both/and.
The masses cannot and should not be prosecuted for sheer stupidity, especially if their stupidity happens to be legal.
But I still believe that this give-me, something-for-nothing culture is culpable in this mess.
If the knowing, willful speculators have done things that are illegal and they can be prosecuted, then they should.
And I agree with you that financial institutions have ceased to lend because of 1) as you said, a failure or inability to calculate and then report amounts to lend; or, even worse, 2) no cash to lend.
In general, too, I believe that people with half a brain are fully aware of what they can and cannot afford. Just because some lender is telling you you can afford “this sort of loan” or “this amount of a loan” it doesn’t mean that you should believe it. And, when loans are made to people who can’t pay, things tend to go belly-up, as they have done here.
So thus, Wall Street, Main Street, and Washington now have had a good gander at the wisdom of massive subprime lending. Let’s just hope the system can limp along till it’s fixed, and everyone in the picture learns from their mistakes.
GiD