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[unforth]

I may not have time to finish my last post, unfortunately, but here are some other articles that I found interesting:
Why the Bailout was a Terrible Idea, according to the Nation.
Bailout Causing International Problems
Newsweek Gives an Overview of the Crisis - this was quite helpful, despite the fact that I was dubious of a few of the things that it said.
So What is a Credit Default Swap, Anyway? - another Newsweek article with some good overview type information.
Timeline of Events Since 2007 - the dow, aligned with a few news tidbits, but still vaguely interesting.
The Times Gives an Overview of Events Since Yesterday, but you might not be able to read without making an account - they're free, though, so I'd say it's worth it.
Yay, Bipartisan politics? "Mr. Boehner...said he could not remember a time when the muscle of both parties and the White House failed to produce a victory." (from the above article)

What's really starting to bug me is the way that everyone is blaming "Wall Street Recklessness." That is not what's caused this mess. The root of this mess is people who had poor credit being extended large lines of credit at high risk - credit they should NEVER have received because they couldn't afford to pay it back. The banks just did what they had to in order defer that risk - but they gave the people what they wanted. Blaming Wall Street over looks the part where there would not have BEEN subprime mortgages if the demand for them hadn't been astronomical.

Gotta go. Probably more later.

Comments

[drydem.livejournal.com]

the trick is, that the subprime mortgages were bundled into securities that were traded heavily on Wall Street in the manner of say, junk bonds. When they pretty much all failed, there was some serious fallout.
Listen to the This American Life Episode "The Giant Pool of Money"(I think that's the title) It gives a clear narrative of the subprime mortgage market.

The thing I would say is that subprime mortgages would not have been necessary if our society had a livable minimum wage and better job security because then, houses wouldn't be out of the reach of most people and thus cause them to take risks.

[unforth.livejournal.com]

I did a whole bunch of research on the subprime mortgage thing (see this LJ post (http://unforth.livejournal.com/183947.html)), and I think I've got a pretty good handle on it. I TOTALLY agree about the livable minimum wage and job security, and I do think it's a major component of this situation - better education and access to necessary services like health care are important and related to this too.

I'll see if I can find that episode - sounds interesting. I've been really working to learn as much about this as I can.

I know that the repackaging of the securities is what caused the immediate crisis, but that was a part of defraying the risk that these mortgages represented, and, while somewhat related to "Wall Street Recklessness," my point is more that I've been hearing a lot of news clips saying that's the entire cause, but I think the American people deserve a share of the blame.

[mindstalk.livejournal.com]

And Wall Street was willing to give out those subprime mortgages because they'd found ways to hide or pass the risk on to others, plus beliefs in either "the bubble won't burst" or "Washington will bail us out". Or more succintly: mass lending to poor credit risks, backed up by securitization of those mortgages, is is the Wall Street reckleckness.

gave the people what they wanted

And it was the banks' choice to do that. Of course people want cheap/free money, doesn't mean the banks have to give to them.

Plus things I don't know much about, regarding deceptive lending practices and adjustable rate mortgages.

Or zero-down mortgages + ARM, where while rates are low you're basically renting the house cheap, and have no incentive to not walk away when rates rise or you lose your job. Housing prices go up because of mortgage fueled demand, then crash as people rationally walk off. Main culprit? Whoever thought zero-down mortgages were a good idea...

[unforth.livejournal.com]

Of course it was the banks choices. But there was money to be made. I'm not trying to claim that greed didn't play a part in what happened (and the ARMs are just criminal, I can't argue with that one). However I can't agree with

Housing prices go up because of mortgage fueled demand, then crash as people rationally walk off.

That's a MASSIVE simplification - but even if it weren't, that actually PROVES my point - if the crisis is at least in part because people decided to default on their mortgages because it was easier to do that than to rent, that's not the banks fault, it's those people's fault for being utterly fiscally irresponsible.

And the banks did make plenty of choices in this situation - but first, the word bank is not = to "Wall Street," and second, well...let's just say that I think there's plenty of blame to go around - to Wall Street, to the those behind the deregulation stuff, to politicians playing their own games or thinking only of their own constituents, to the banks, to mortgage brokers, and to regular people who treated credit as a way to get money far beyond their actual means.

[mindstalk.livejournal.com]

If you want to spread blame around, that's okay -- got to have been aggravating being a conservative home buyer (20% down, fixed rate) and seeing people doing insane things, then maybe getting bailed. Your initial post struck me as more of an apologetic, though -- even your reply here: "there was money to be made". Well, money, or cheap housing, or the hope of money, to be made by the subprime borrowers.

In a sense the blame ultimately lies with the politicians and regulators who deregulated in such a way as to set up cascading incentives, such that both bankers and borrowers were behaving short-term rationally. OTOH, the banks and Wall Street probably had more causal influence on the political decisions than the disorganized mass of borrowers, so I have a strong suspicion of "they started it" and "they were in a position to know better". Lots of borrowers were just getting hard sells "now you too can own a home! join the Dream! no money down!" Murky territory between financial immorality and simple innumeracy, because our schools can barely teach arithmetic competence, let alone basic financial analysis skills.

[swan-tower.livejournal.com]

We deregulated banking to the point where they found a way to make a quick buck off of the people who wanted mortgages but couldn't actually afford them. The demand was always there; it's just that only recently were enough safeguards removed to make it (temporarily) profitable. And when that happened, the industry built a giant house of cards, made money hand over first for a short while, and then (more or less inevitably) tanked.

So me, I place the blame on the guys who took the safeguards off in the name of a quick profit.

[unforth.livejournal.com]

As I wrote in response to mindstalk, I think that there is plenty of blame to go around. That said, the deregulation that lead to easier credit in the 80s and 90s is clearly a major part of the picture. But it wasn't only those people who wanted a quick profit. American's have consistently made choices that drove them into debt. Yes, many of these people didn't have a choice. But many of them did, and just decided to live beyond their means anyway.

Gah, I feel like I'm spending half these comments playing devils advocate.

Really, that rant in my post was directed at the articles I've been reading, where sound bites from politicians use the words "Wall Street Recklessness" like a mantra. It pisses me off, because like in some many other instances, it's passes the buck, lays the blame on an already disliked small population, and excuses the actions of every other part of this equation, because obviously, the politicians, the small town banks, the mortgage brokers, the credit card issuers, the car dealers, the American people, and everyone else who also did things that they shouldn't have were hoodwinked by those evil, greedy bastards from Wall Street. It's just a simple, elegant model, that COMPLETELY IGNORES that placing blame won't solve the problem, and that we need to be looking rationally at what needs to be changed. What do we REALLY need to regulate in order to help? Who, if anyone, should be punished? What realistic strategies can be employed - both at the level of the nation and the world and at the level of the regular Joe who just doesn't want to lose his life savings - in order to combat this collapse?

But I'll acknowledge that my little rant did leave out a lot of the details of why I was actually making it. ;)

[swan-tower.livejournal.com]

I finally put my finger on what bugs me about the notion of placing a portion of blame on the people who took out the sub-prime mortgages: though on a lesser scale, it feels to me kind of like saying, well, drug dealers just sell people what they want.

It isn't as bad as all that, of course -- but my impression is that the mortgage lenders sought out people who in the normal way of things would not have been offered mortgages and snowed them under with financial-ese that nobody not in the industry or doing a lot of homework in their spare time could be expected to understand, suckering these people into signing agreements that they never should have touched. Seriously, the number of stories I've heard about predatory clauses in the fine print is astronomical. They basically said, "hey, you've always been told that you don't have enough money to buy a house -- but now you do!" Only you don't, and eventually it comes back to bite you on the ass.

This is more or less the same process that resulted in America being drowned under a tidal wave of junk mail saying you've been pre-approved for a credit card. I forget what change in situation led to that happening, but there was one, and suddenly credit card companies were soliciting people (like college students) with no kind of reliable income and encouraging them to buy everything on credit.

It's predatory. And I don't blame the prey for being caught.

You're right that "Wall Street" becomes a convenient but potentially misleading shorthand, because yes, the problem goes way beyond the few people that actually refers to. But I really don't see blaming the people who took out the mortgages, unless they did so in the full awareness that they wouldn't be able to pay them back. Which, except in a very few cases, they did not.