Pretty good summary...IMO.
Richard's $.02
Who's to blame for economy?
USA Today
17 Dec 2008
Responsibility for the financial meltdown is so widespread that there's plenty of culpability to go around. But as a holiday season service,
we offer these suggestions — on a scale of four lumps to one — of those most deserving of coal in their stockings.
FOUR LUMPS OF COAL
Investment bankers
In the war on drugs, the top target is always the traffickers. The same principle is true with the massive implosion of credit markets and corporate ethics. In this case, the traffickers were the Wall Street firms that created bundles of subprime mortgages and other toxic financial instruments, then peddled them as low-risk, high-return investments. These securities, and enormous side bets on them, fueled the housing bubble and infected the global financial system.
Nearly all the big investment banks were culpable, though the poster child of mismanagement has to be Richard Fuld, former CEO of the former company known as Lehman Bros. Fuld, who received as much as $480 million in compensation from 2000 to this year, took risks that drove the storied investment house straight into the ground. But he had lots of co-conspirators.
Alan Greenspan
The Federal Reserve's job, as one of Greenspan's predecessors famously said, is to remove the punch bowl once the party really gets going. As Fed chairman during the housing bubble, Greenspan spiked the bowl instead, by keeping interest rates low and shunning regulation that let Fuld and friends indulge in an orgy of irresponsibility and greed. In 2000, according to then-Fed Governor Ed Gramlich, Greenspan rejected an informal proposal to examine the lending practices of banks and mortgage brokers. Greenspan also shrugged off suggestions that the surging market for exotic securities, known as derivatives, needed greater scrutiny. Perhaps most important, he never stated the obvious: that something was terribly amiss. In testimony before Congress in October, a shaken Greenspan said his faith in the self-correcting nature of free markets was misplaced. Now he tells us.
Rating agencies
Credit-rating agencies are supposed to provide the unvarnished truth to investors about the risk of debt securities. But just like the auditors who signed off on Enron's cooked books, they showed just how corrupted they could be. The big agencies — Standard & Poor's, Moody's and Fitch — frequently gave AAA ratings to bundles of toxic mortgages for the simple reason that it was the sellers of these loan portfolios, rather than potential buyers, who paid them. Company documents revealed at a congressional hearing in October that executives were aware that ratings were inflated. Company employees sometimes "drink the Kool-Aid" and bow to pressure for undeservedly high ratings, Moody's executive Raymond McDaniel warned his company's board.
THREE LUMPS OF COAL
Predatory lenders
Lending is easy when it is someone else's money. The widespread securitization of mortgages prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk. It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing. The public face of this racket could well be Angelo Mozilo, co-founder of mortgage giant Countrywide Financial. But many others got into this game, as well. Subprime lending shot up from $130 billion in 2000 to $625 billion in 2005.
Clueless borrowers
It might seem cruel to put blame on people who have lost their homes, or are in jeopardy of it. But hundreds of thousands of homebuyers bought more house than they could afford, or financed investment properties with no clue about what they were doing. It takes two parties to sign a mortgage contract, so some borrowers share responsibility for the housing mess.
TWO LUMPS OF COAL
Congress
In any crisis of confidence or failure of government, it's a pretty good bet that members of Congress are involved. The credit crisis is no exception. Lawmakers from both parties not only ignored signs of trouble but also actively invited irresponsibility in the name of protecting key constituencies. On the Democratic side, members supported virtually any program that provided credit to low-income purchasers and inner cities, regardless of whether this lending was prudent. The banking committee chairmen — Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass. — defended federally chartered Fannie Mae and Freddie Mac from charges that they were taking on too much risk and prodded the companies to back riskier loans. On the Republican side, then-House Majority Leader Tom DeLay, R-Texas, and other members thwarted efforts to rein in predatory lending.
George W. Bush
The seeds of economic calamity were planted before Bush arrived in Washington, but his administration watered them regularly, then mindlessly watched them grow into a jungle that has entangled the economy in crisis. Regulators let banks and borrowers alike get into trouble. Worse yet, the president made himself the poster boy for fiscal irresponsibility, cutting taxes, increasing spending and turning budget surpluses into a record federal debt that leaves the nation less able to cope with crisis. If subprime borrowers and lenders wanted a role model, they found it in Bush.
Bill Clinton
Bush gets much of the rap for the downturn, but Clinton and his Wall Street-schooled Treasury secretary, Robert Rubin, backed some of the changes that led to disaster. It was Clinton who signed the repeal of the Depression-era Glass-Steagall Act and amendments to the Community Reinvestment Act. The first of these removed the walls between commercial banks and brokerages, walls that might have restricted the growth of exotic mortgage finance or at least limited the negative effects when it unraveled. The use of derivatives accelerated on Rubin and Clinton's watch, and they did virtually nothing to control it.
ONE LUMP OF COAL
Regulators
Because the regulatory system over financial services is a woefully inadequate hodgepodge, it's hard to pin blame on specific agencies. But the Comptroller of the Currency's office stands out for not only failing to do anything constructive but also for turning itself into a banking industry lobby imbedded in the Treasury Department. Rather than protecting consumers, the agency saw its mission as protecting banks from state governments. In 2003, it announced that federally chartered banks could ignore predatory-lending laws passed in the states. Also deserving its lump is the Securities and Exchange Commission, chaired by former representative Christopher Cox, R-Calif. The SEC actively encouraged major investment banks to take on more risk, and it oversaw a failed experiment in self-regulation.
Mail lumps of coal to your villain of choice. What links them is a matrix of greed, irresponsibility and cluelessness.
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