Thursday, October 23, 2008

Free-Market Evangelizer comes to Jesus...

I do fault Clinton for signing the damn legislation in 1999 -- but this blind faith in "free-markets" mentality (a la Phil Gramm, et al) is at the heart of this problem.

Apparently even Greenspan - the evangelizer-n-chief - realizes it now...
The former Fed chair said that a securitization system that stimulated appetite for loans made to borrowers with spotty credit histories, was at the heart of the breakdown of credit markets.

"Without the excess demand from securitizers, subprime mortgage originators -- undeniably the original source of crisis -- would have been far smaller and defaults, accordingly, far fewer," he said.

A surge in demand for U.S. subprime securities, supported by unrealistically positive ratings by credit agencies, was the core of the problem, he added.
Where did that demand come from? The Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000.
Title III, ensured the "Legal Certainty for Swap Agreements," which successfully divorced the granters of subprime mortgage loans from any obligation to ever collect on them. The law prohibited regulation of any of the new financial instruments permitted after the financial industry mergers.

Fannie/Fredie, Country-wide, etc. etc. were all facilitators for sure ... they were pressured to feed the beast. But why should an investment guy worry when you don't have to collect on the loan! Just create more "investments" and sell them off quickly -- who cares if they can't pay them back -- I sold it and made my profits!!

Now we'll all be paying for this debacle ... My 401k (likely like yours) is down more than 30% ... my financial adviser is recommending I sell most all of the mutual funds I have and buy blue-chips with high-dividend yields... and hold them for the next several years. At least I'll make a few percent on my money...

But I'm sure the faithful out there will somehow pin this on "liberal policies"...

1 comment:

Capt. Fogg said...

Greenspan? You mean that liberalpinkocommieelitist? He was born in Africa and palls around with terrorists, you know.