1. I believe Lehman's role in packaging and marketing the "liars loans" was reprehensible, and that quite a few of their senior management folks should be rotting in prison, aka Bernie Madoff and Ken Lay.
2. Borrowing money is a personal responsibility, whether it is for a new home, a college education or crystal meth. No one forced people to buy homes they couldn't afford. DW and I could qualify for a mortgage 5X what we are paying, but we know it isn't realistic. What really irks me in this whole mess is the emergence and encouragement of the victim mentality in this debacle -"it wasn't my fault, the evil bankers told me I could afford a new 300K home on $10/hour. And I needed all new furniture and jet skis, all the neighbors had them" And.... "now I expect the folks who played by the rules, lived below their means, and whose own home equity and stock portfolios I trashed when the bank foreclosed on my place next door at 50cents on the dollar to step up and pay higher taxes to bail my stupid a$$ out- it's not my fault, it was the (insert viillan of your choice here). Where's my check, I'm entitled to it... sheesh, all I did was lie about my income on my loan application? ".
I don't disagree with a lot you have said here. I am mad about it too. Although I do think it is really evil for mortgage brokers to deliberately mislead stupid and ignorant people. The argument smacks of "It is their fault for believing me. Everybody knows I am a crook."
I believe that the most reasonable way to fix this is to dry up the market for such loans: to force the originator to keep some skin in the game and to force the rating agencies to do their jobs. For example, banks can now choose the rating agencies to choose which agency they want as an overseer, creating a race-for-the bottom among regulators, whose budgets depend on the number of banks regulated.
Don't forget that the first bailout bill (created by the previous administration) was a real piece of work, including a measure that would have absolved its big-wigs from any legal responsibility. We only managed to defeat it though a massive letter-writing campaign. I admit that I know precious little about the present bill, and haven't decided whether I endorse it or not, but I reject the idea that we should just do nothing, or tear the thing up and wait for a possible republican-controlled congress after November and start over.
There have always been poor people who are bitter about their place in life and perfectly happy to game the system whenever possible. The problem is that the present system created an army of retail mortgage brokers whose livelihood depended on misleading these folks into believing that they could indeed afford these loan by easily refinancing a few years later, having them sign forms containing blank spaces, or wink-wink nugde-nudge.. everybody does it. One of them even tried something like that on me!
It has always been incumbent on the lender to vet applicants and to be able so say NO. Wall street created a system that was the opposite. Retail brokers had every incentive to cheat. Indeed, their paychecks depended on it. The most reasonable way to return to a working system is to remove the lucrative market for crappy loans, and that starts at the top, not the bottom.
Presently banks can choose which regulating agency they want as an overseer. Since the agencies are paid by their number of clients, that has created a race to the bottom among the agencies. End this system with a unified agency with some teeth in it that can require reasonable reserve requirement, and to require that banks retain a healthy percentage of the loans they originate, and you will see a return to reasonable lending standards: things like verified employment records and reasonable down payments. If a liberal congress wants to increase home ownership among the poor, let them (try) do it do it through direct subsidies or grants.
There is plenty of blame to go around, but to place the entire blame of the people who took out mortgages who couldn't afford them is to side with the wall street magnates who pocketed those billions of taxpayer money. Except for the rather paltry Obama mortgage remediation efforts, the vast majority of those billions went to wall street, not the mortgage payers. Goldman received 100 cents on the dollar for its credit default swaps against AIG, and maybe Lehman too.
The changes to the
Net Capitalization Rule allowed Bear, Goldman, Lehman, Merrill, and Mogan (and only those) to operate with unlimited leverage.
Gramm-Leach-Bliley Act partially repealed Glass-Steagall and allowed unregulated trade of derivatives. These are the kinds of misguided deregulatory efforts that we need to role back. What justification is there for allowing primary brokers to sell billions of insurance (with no reserve capital requirements) in the form of credit default swaps to folks who don't own the underlying bonds? And worse, AIG was somehow allowed to encumber their reserve capital (required by state insurance regulators to back up their "regular" insurance businesses), to allow their crazy London Financial Products group who sold this policies to sport a AAA rating.
Rant off. IP is grouchy again this morning.
