Only time will tell which of these was the chief contributor to the subprime mortgage crisis.
Some people are saying that falling real estate values caused the crisis. Others are saying that the crisis was caused by the incompetence of those in the banking and investment houses.
In my humble opinion, the subprime mortgage market was a house of cards that was built on avarice (at best) or the intent to commit fraud (at worst). Avarice is certainly nothing new on Wall Street Remember the 80's and Michael Milken, the junk bond king. What about the 90's, Arthur Andersen and Enron.
A CNN analyst recently compared the bailout of Bear Stearns as well as the efforts of the Federal Reserve to help the banks to a case of arson. The analyst stated that after an arsonist starts a fire, a fire department has to come in to put out the fire.
My problem with that analogy is that in a case of arson, after the fire department puts out the fire, the fire marshall conducts a criminal investigation and based on the results of the fire marshall's investigation the arsonist is usually caught, tried, and punished. So in the case of arson, the individual(s) who intentionally started the fire don't just say, "oops sorry", and then walk away. However, as I sat here today, once again watching the C-SPAN broadcast of the full House Hearing on Executive Compensation, I am left with the feeling that this is exactly what the individual(s) who stated the subprime fire will do. In fact, the mortgage market "arsonists" aren't just walking away but the government is picking up their legal fees and rewarding them for their actions.
In his op-ed article for the Washington Post, E.J. Dionne Jr. stated, " .. if this near meltdown of capitalism doesn't encourage a lot of people to question the principles they have carried in their heads for the past three decades or so, nothing will."
Dionne further noted:
" The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. They have lost "confidence" in each other, you see, because none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another's portfolios.
So they have stopped investing. The biggest, most respected investment firms threaten to come crashing down. You can't have that. It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are "too big to fail," because they could bring us all down with them.
Enter the federal government, the institution to which the wealthy are not supposed to pay capital gains or inheritance taxes. Good God, you don't expect these people to trade in their BMWs for Saturns, do you?"
While I totally agree with E.J. Dionne's overall sentiments I disagree with his statement that the "Wall Street titans have lost confidence in each other" or "that none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another's portfolios". I believe that for some of those in the Wall Street community "confidence" was never an issue. And many of them have a very good idea idea of "what kinds of devalued securities are still sitting out there.
During the House Hearings on Executive Compensation, Rep. Chris Cannon, R-Utah, stated that "nobody is in the business of making loans that cause people to fail". I suggest that while the banking community may not have intended to people to fail, they certainly meant to keep consumers dangling on the precipice. Banks and mortgage lenders may not have intended for individuals to fail but they certainly made billions from the punitive fees.
Let me be clear, I have nothing against the acquisition of wealth or corporate profits. An impoverished person can't help themselves and a business in the red can't create jobs. Conversely a wealthy individual can not only help themselves, they can help others. Likewise, a thriving business benefits its employers, shareholders and the general economy.
The largest contributing factor to the events which are now shaking world markets and breaking the back of the US economy is avarice -- the "immoderate desire for wealth" at any cost, at the expense of the most vulnerable in society and, without regard or consequence.
I totally agree with E.J. Dionne's statement that " .. if this near meltdown of capitalism doesn't encourage a lot of people to question the principles they have carried in their heads for the past three decades or so, nothing will." But I really wonder if it will.