Capitalism Caused the meltdown not politics.?
Here is what caused the meltdown.
The problem was that Wall Street firms "bundled" piles of those crappy mortgages into big collective funds, which they could sell to unwitting investors.
They then convinced rating agencies to rate those funds at AAA levels, even though many were junk, thereby making it impossible for those investors to know what they were buying.
And then the big banks convinced insurance companies like AIG to cover any losses that might be incurred by the banks themselves if their funds tanked.
By the time they were done, the octopus of Wall Street had entangled every corner of the economy in the sub-prime debacle.
The problem, was that most of these investment mechanisms had no government regulation or oversight.
Those risky insurance maneuvers — unregulated. The crooked ratings system — unchecked.
And when the dance finally ended, taxpayers were forced to bail out these gangsters.
The worst part is that the con-men will do it again. Why? Because the bonus system still in place incentivizes risky, short-term profits.
There was not a single top executive culpable for the meltdown who didn’t walk away rich.
What we need now is a major overhaul, one that offers clear oversight and regulation, while providing transparency for investors.
We need to break up the big banks, so that their size and the complexity of their portfolios don’t transform them into lumbering elephants.
We also need to develop a new class of regulators, educated well enough to understand the complicated mechanisms they’re policing.
If anything, the big mistake made by politicians was scrapping systems of oversight and regulation created after the Great Depression.
That’s an error we have to reverse.
But the Bush and Obama administrations got one bipartisan thing right:
They agreed that many of these banks were too big too fail. They propped them up, and prevented another Great Depression.
The politicians on both sides of the aisle were the good guys. But their jobs is only half done.
By rebuilding some of the regulatory muscle stripped away over the last fifteen years, we can also rebuild a sound and stable capitalist economy.
Let me tell you that regulated capitalism is a good thing. I totally agree that to prevent another crisis like this, there needs to be a lot of regulation in place but it’s not that simple.
Let’s talk about a tool called credit default swaps. Credit default swaps are basically insurance against default on a debt. The buyer of the contract pays annual payments to the seller who will pay money to the buyer if the issuer of the credit agreement defaults. Credit default swaps are useful as a hedge. If an investor buys a corporate bond, he or she can hedge against default risk by buying a credit default swap. However, an investor does not have to own the bond to buy the swap but rather, he or she can simply buy the credit default swap and bet on the possibility of the company failing because they will get money if the company fails. This speculation is not good in the long run because it makes it more expensive to borrow money, but still, speculation helps provide some short-term liquidity in the market, so if speculation is banned, there is the risk of losing that source of short-term liquidity.
I don’t know if you have heard the news but Lehman Brothers, which was among the first in a long line of bank failures, tried to use an obscure accounting principle to hide the level of debt from its balance sheet. This practice ought to be banned. Investors ought to know what they are getting into and companies should not be allowed to be able to dress up their balance sheets.
Also, there should be a minimum down payment requirement on mortgages. In addition, the Fed should take a more active role in preventing bubbles from starting in the first place. If that means that interes rates have to go up, that has to happen. What people don’t realize is that bubbles aren’t great in the long run because when the value of the asset falls, it falls hard.
July 17th, 2010 at 2:55 am
Government intervention and people involved with the scams caused the meltdown. Blaming capitalism for this is like blaming a car when the driver gets a DUI.
BTW, Your socialism always fails!
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FACT
July 17th, 2010 at 3:00 am
Crappy mortgages forced on banks by Barney Frank and the Dems. Banks also believed that the lie they were told by fanny and freddie would cover them for bad mortgages.
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July 17th, 2010 at 3:21 am
Most of those risky financial investments were mandated by the government. You have only them to thank.
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REIN act of 1993 or 94 can’t remember which.
July 17th, 2010 at 3:29 am
No, it was socialism. None of that bundling would have been thought of if the banks weren’t ‘regulated’ into making those sub-prime loans to begin with.
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July 17th, 2010 at 3:47 am
Who allowed The Capitalist To get Away With it ???
Oh It Was The Politicians Who refused To Protect The Working Class Because They Are Capitalist.
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Recognize Stupidity When I see It
July 17th, 2010 at 4:32 am
The meltdown did occur in the economy, BUT you cannot neglect the 30 years worth of policy changes that allowed the economic crisis to take place. If certain activities were restricted, the crisis could have been prevented. Agents engaging in economic activity were permitted to take huge risks that didn’t pay off.
Consider this: the policy changes made it such that you could go into a bank and get a loan for a home you couldn’t afford without any documentation easier than you could with a full credit history. Politics allowed that to happen, you can’t neglect politics role in the economic crisis.
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July 17th, 2010 at 4:48 am
You’re ALMOST right.
Banks bundled "bad" loans and sold them as "investments"… .and investment companies covered them with "insurance"… because they needed to SPREAD THE RISK around so they wouldn’t be stuck holding a bunch of loans THEY KNEW were likely to NOT have repaid.
The CAUSE was Bill Clinton and a "community organizer" named Barack Obama who thought it was MORE IMPORTANT to FORCE banks to give loans to minorities, than to expect people to actually have a JOB if they hope to ever own their own home.
It is WELL DOCUMENTED that in 2005, Sen. John McCain tried to fix the problems in Fannie Mae, and once again…. DEMOCRATS defeated the measures and supported the failing organization.
DEMOCRATS and POLITICAL PANDERING FOR MINORITY VOTES is what caused this… not "capitalism".
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July 17th, 2010 at 5:16 am
Capitalism didn’t do anything wrong. Since the housing/financing market worked fine for all of modern American history, when meeting responsible credit requirements was essential, required, and enforced.
The cause is simple. Lax credit requirements.
The gasoline came from the lousy rating agencies failing to do their one and only job: evaluate risk. The match came from irresponsible consumers buying homes they could never afford and knew it. The winds came from banks that couldn’t resist the quick margin on all the finance transactions.
And the ring leader in all of this mess: The Incompetent Government
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July 17th, 2010 at 5:58 am
If left to their own devices they probably would
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July 17th, 2010 at 6:08 am
Groups like ACORN would sue banks who did not want to issue mortgages to people who might not be able to afford them. They would claim the prospective buyers were being discriminated against under the auspices of the CRA (Community Reinvestment Act, legislation from the Carter administration that was not meant to be used in this way).
Also, the Federal Reserve relaxed the deposit requirements for banks and artificially held interests rates low "to guard against inflation", which wasn’t a real problem.
Finally, too many people live far beyond their means and had–some still have–staggering amounts of revolving credit card debt and/or home equity loans (second mortgages).
Any bank or corporation that is "too big to fail" needs to be broken apart into smaller pieces. Congress did that to AT&T (for those of you who don’t remember the mid-80s and the birth of the "Baby Bells") so they can do it again.
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July 17th, 2010 at 6:44 am
You are wrong sir. Gov put everything in place so that they could make this happen. The economy is not better. Its propped up by false money, and guess what ….. We can not borrow any more. The politicians were demanding that fannie and freddie did NOT need regulation 2 years before it all went down. Thanks Barny Frank! Regulation needs to be in place, but don’t think for one second that these politicians are on our side. When you have no income at home, do you go and spend more? If you do your an idiot.
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July 17th, 2010 at 7:29 am
You forgot to mention every aspect of government intervention. How convenient. Liberals have been suing banks to make riskier loans since the 1960’s, but somehow that’s OK because of the reason.
Fannie Mae backed those Securities, and Barney Frank attacked Republicans for trying to reign them in. He used the race card, and every single Liberal in this country let them off the hook.
The government refused to regulate because the economy was humming, and many people went out and kept borrowing because the government backed the banks. They will obviously do it again .
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July 17th, 2010 at 7:48 am
I’m not sure if it’s possible for you to be more wrong. The only thing capitalism "caused" is your ability to be ANYTHING other than a hunter/gatherer.
Those crappy mortgages HAPPENED due to government carrots and government sticks. That they were "guaranteed" by government convinced rating agencies to rate those funds at AAA levels and convinced insurance companies like AIG to cover any losses at discounted rates. The lenders and insurers are so completely regulated as to be practically government agencies themselves.
The worst part is that Congress has actually ANNOUNCED it is their policy to encourage it all to be done again.
There was not a single top executive culpable for the meltdown who wasn’t simply trying to avoid prosecution and/or who was not in FACT a government appointee and/or a Congressional benefactor.
What we need now is to get Democrats and their programs to stop CAUSING this sort of thing.
The politicians on both sides of the aisle CANNOT both be the good guys since they fought against each other over all of this.
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July 17th, 2010 at 8:03 am
Let me tell you that regulated capitalism is a good thing. I totally agree that to prevent another crisis like this, there needs to be a lot of regulation in place but it’s not that simple.
Let’s talk about a tool called credit default swaps. Credit default swaps are basically insurance against default on a debt. The buyer of the contract pays annual payments to the seller who will pay money to the buyer if the issuer of the credit agreement defaults. Credit default swaps are useful as a hedge. If an investor buys a corporate bond, he or she can hedge against default risk by buying a credit default swap. However, an investor does not have to own the bond to buy the swap but rather, he or she can simply buy the credit default swap and bet on the possibility of the company failing because they will get money if the company fails. This speculation is not good in the long run because it makes it more expensive to borrow money, but still, speculation helps provide some short-term liquidity in the market, so if speculation is banned, there is the risk of losing that source of short-term liquidity.
I don’t know if you have heard the news but Lehman Brothers, which was among the first in a long line of bank failures, tried to use an obscure accounting principle to hide the level of debt from its balance sheet. This practice ought to be banned. Investors ought to know what they are getting into and companies should not be allowed to be able to dress up their balance sheets.
Also, there should be a minimum down payment requirement on mortgages. In addition, the Fed should take a more active role in preventing bubbles from starting in the first place. If that means that interes rates have to go up, that has to happen. What people don’t realize is that bubbles aren’t great in the long run because when the value of the asset falls, it falls hard.
References :