In very simple terms. Everyone. It is the fault of the individual for taking on mortgages that they knew they could not afford and their ignorance of what kind of contract they signed (to put it nicely). It is also the fault of the mortgage companies for taking on so many of these low interest, high risk loans. Personally I think they should let both parties fail, but I understand that it is not realistic to do this. In an effort to limit the effect on our economy, the government will step in to fix the mess that they let happen.
Yes, they knew this crisis was coming, but instead of doing their job, they went all partisan on us and blocked meaningful legislation that would have adverted this current disaster. I am talking specifically about S.190 in 2005.
As pointed out in a recent Bloomberg article, in 2005 Alan Greenspan himself warned Congress about the impending crisis with respect to the GSEs Fannie Mae and Freddie Mac. He said if something was not done then “We are placing the total financial system of the future at a substantial risk”. And Congress listened and created the first serious reform bill for these two entities. The Senate Banking Committee passed S.190, which was sponsored by Chuck Hagel and co-sponsored by Elizabeth Dole, John Sununu, and John McCain. Democrats took a partisan stand and blocked this important legislation.
Seeing that it was blocked from a vote by Senate Democrats, it is interesting to note whose campaigns have been the benefactors of Fannie and Freddie. On top of the list is Christopher Dodd, member and now chair of the Senate Banking Committee, who received $165,000. Following in a close second is Barack Obama with $125,000.
Before I end, I will answer the argument you will likely hear from the liberal side of the aisle. Republicans held the majority in Congress and on the Banking Committee so it is their fault that the bill did come to a vote in the Senate. This is a very clever PR move, but it does not hold much water. Rules in the Senate give the minority party a lot of power. You can pass a bill with a simple majority (51-49), but you need 60 votes to bring a bill to a vote allowing the minority party to block legislation. All 9 members of the Banking Committee voted against passing the bill signaling they were going to make it a partisan issue. The bill passed the committee because Republicans had 11 members, but they did not have enough votes to keep the Democrats from blocking it coming to a vote in the Senate. When the Democrats took the majority in the 110th Congress, they decided to not pursue legislation that would prevent this crisis. Much like they have decided to do nothing this session with regards to energy.
So Pelosi was only partially correct when she said this crisis was not the Democratic controlled Congress’ fault. They did not personally create this mess, but they did choose to ignore it, and then try to blame it on someone else when under their watch things went wrong. It is a strategy that they have used for the last 8 years, but I for one am not buying it.
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agreed on all points, bravo. There is one little thing you write that might be questionable. Here is a differing point of view on that issue.
You write, “but I understand that it is not realistic to do this. In an effort to limit the effect on our economy, the government will step in to fix the mess that they let happen.”
Do you really think this bailout will fix the mess that they let happen? I believe this bailout will so devalue the dollar that the Chinese & Japanese will quit buying our debt. Once the world stops buying our treasuries, game over. The dollar will collapse which will lead to economic collapse. The dollar will no longer be the world currency and the US is relegated to stand in the corner with Spain & Canada. We are a superpower only because of the all mighty US dollar. Do not mess with the US dollar.
I believe it better to go to hard asset monetary policy & ride out a difficult deep recession for 18 months, than to have to feed your family from a back yard garden. A Rasmussen poll has only 7 out of 100 in favor of a bailout. But, the elected officials will pass the bailout or some sexy version of it anyway. Another strike against the present system.
I have a great idea let’s not bailout the imprudent institutions & speculators. Instead let’s offer a bailout to prudent individuals & savers like you & me. We are going to need a bailout as our retirement funds continue to drop. Good blog my friend.
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