Punishing The Guilty


Posted on : 10/22/2011 09:00:00 AM | By : Dann | In : , , ,

As I hope I have noted in the past, there are many reasons for the fiscal meltdown of 2008.  Some bankers, financiers, mortgage brokers, and other unscrupulous actors within the home buying industry clearly acting in bad faith to push people with marginal credit into accepting marginal loan terms.  The 'Occupy' folks are correct to note that the government has not done enough to pursue those private sector bad actors.

But what about the unscrupulous public sector actors?

While not blameless, Wall Street is an easy scapegoat. And investment houses that made billions slicing and dicing mortgages into CDOs, derivatives, credit default swaps and other exotic paper are easy to demonize. But the problem wasn't these financial instruments. Or even the obscene profits they generated. Mortgage-backed securities were nothing new, and we've always had speculation in the market.

The problem was the underlying assets: low-quality mortgages. We've never had so many junk home-loans poisoning the financial well before. And who poisoned the well? Washington and its affordable-housing policies.

It was Washington that declared prudent home-lending standards racist and gutted traditional underwriting rules in the name of diversity. It was government that created the risk on Main Street. Yes, Wall Street spread it, with the help of Treasury-backed Fannie and Freddie. But who's at greater fault for harming the village — the person who poisons the well or the one who distributes the water?

While there were many unscrupulous private sector actors, the opportunity to multiply the fiscal mayhem was created by our good friend, Uncle Sam.

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