"It's Time to Treat America's Homeowners as Well as... Wall Street's Bankers"

I highly recommend the informative (and depressing) CNBC special “House of Cards.”. It depicts the mess and the many guilty parties: * Homebuyers who bought homes they obviously could not afford, often by lying about their incomes * Mortgage companies that gave mortgages to buyers who obviously couldn’t afford them and were lying about their incomes and assets * Wall Street banks that packaged up mortgages they knew were junk into “structured securities” so complex Alan Greenspan said he and his team of Ph.D.s couldn’t understand them and passed them along to trusting investors around the world * Ratings agencies that stamped financial junk with absurd AAA ratings * Federal regulatory agencies (SEC, Fed, etc.) that should have stopped these practices but did nothing * Legislators who should never have allowed subprime predatory lending

And this list doesn’t even cover the biggest problem, worth trillions: CDSes (credit default swaps) that allowed anyone to place massive bets on the housing market, bets taxpayers are now paying off on behalf of AIG and other losers. For most of the 20th Century, CDSes would have been illegal. Unregulated gambling (via derivatives) was made legal late in the Clinton administration with the strong support of both parties. CDSes have turned a disaster into a catastrophe.

In “House of Cards,” Cynthia Simons — a woman who overextended herself to escape from drug-and-violence-infested Compton by buying a house she now may be forced out of — declared (something like), “I’m stupid, but these banks are guilty.” She’s exactly right. Yet government’s response to date has been to shovel trillions of dollars at the banks and virtually nothing toward the core problem of failing mortgages.

So, Arianna Huffington has it exactly right when she declares, “It’s Time to Treat America’s Homeowners as Well as We’ve Been Treating Wall Street’s Bankers”. The American mortgage and banking system caused our current Depression, but Washington is treating banks as victims, not perpetrators.

Posted by James on Tuesday, February 17, 2009