It wasn't a Republican plot to rule the financial world that went astray. It was more that the money changers came up with more "oil' to grease the wheels of commerce and it became too much of good thing inasmuch as the money guys thought, fallaciously, that they could manage more risk.
The derivatives was just one part of the problem. The derivatives were used to package bad loans mixed in with good ones. That's why no one can figure out what they are worth. Plus, they have set up the loans so they are interlocked and difficult to separate. What the gov't will do will offer a blanket rate for say loans from CA.....$.10 on the dollar because CA was at the heart of the subprime meltdown while they may offer $ .30 on the dollar for loans from WA state because things are not nearly as bad there. Its a hell of way to do business but the gov't doesn't have much of a choice.
But that's not all. Since 2000, the rules that have guided the real estate and mortgage industries for decades were thrown out the windows. There was cheating on credit reports, appraisals, creation of loans with no money down, and with payments whose interest rates were subject to reset with an increase in the LIBOR rate. It was the equivalent of telling a classroom of kids their teacher is sick, expecting them to sit quietly all day without the presense of an adult. The Bush administration was a huge proponent of laissez-faire gov't.........with limited regulatory oversight. Members of the real estate, mortgage and banking industries knew the 'teachers' were not watching and so acted accordingly......making up new rules as they went along.
I know its become common practice to blame Bush for everything but in this particular case, his philosophy of gov't is very much the cause for why we are in this mess. And let me add, over a year ago, Cramer was screaming his fool head off about this mess and no one listened. Had the feds acted decisively back then like they are now, the mess and the subsequent bailout would have been much smaller. Instead, people accused Cramer of being hysterical. |
