Posted by
Andrews on Tuesday, October 28, 2008 7:00:36 PM
I have
written before that I simply do not understand how anyone can blame the mortgage crisis on "greed' or "Wall Street". It simply boggles my mind to think that anyone could think offering mortgages that will never be repaid or buying those mortgages would be due to "greed", as they were sure money losers.
Well, I think I finally figured out how some could imagine this was "greed". In their minds, there were banks that offered these loans, then sold them to Freddie and Fannie to "make a killing". And thus it was "greed" which drove this.
There are a few problems with that theory.
First, and foremost, these lenders were only doing what the government told them to do. Fannie and Freddie only agreed to buy up all these loans as the government wanted lenders to make loans to risky borrowers. Lenders were not inclined to do so, as they would lose lots of money, and could only be induced to do so because Fannie and Freddie would indemnify them against losses. So it isn't as if they were exploiting some loophole, they were simply doing what the government asked. Is a government contractor r civil servant "greedy" for asking for pay? Then why are these lenders "greedy" for making loans the government asked them to make, then taking advantage of government indemnification against certain loss?
Second, even if they did take some fees and so on on these loans, there is little doubt that the Fannie and Freddie buy back values weren't exactly making them a fortune. I don't doubt that many did well on this, but I doubt they were making a fortune. And again, are we going to pillory every government contractor who gets a good deal? Sometimes the government overpays, that is life. It is why the government shouldn't do foolish things like buy back loans, but it hardly indicts those who did what the government asked of them.
Third, and most importantly, those who did not "give in to greed' and make such loans faced prosecution from "community organizers", activist groups, and the government itself. So it was not as if they had a choice. The government told them to make these loans, and they were threatened with suits if they didn't.
So, how does that amount to greed again?
And let us look at the other end of the equation, the people who bought these bundled loans. According tot he populists, somehow buying bundles including non-performing loans will make you rich.
Wow, do I have a great deal for these people! I will sell them as many non performing loans as they want at 50 cents on the dollar. If it is such a "greedy" plan to buy up those loans, they should just snap up my nonperforming portfolios.
I'm sorry, but I still don't see it. Yes, a few people committed fraud during the boom times, but a few people commit fraud at all times, and fraud is not at the root of our problems. Our problems exist because banks were forced to make loans with only the flimsiest documentation, if that, and then the government bought these loans, bundled them, and sold them on the market as if they were higher quality investments than they really were.
As I said before, if there was any greed it was on the part of politicians greedy for votes. With, perhaps, a bit of the more traditional greed on the part of the management of Fannie and Freddie in selling their subpar bundled loans.
But how anyone can say this a failure of the free market or the result of capitalist greed is simply impossible for me to understand.
POSTSCRIPT
Anyone interested in following my thoughts on this topic, can track back to my
most recent post, which has links to much of the preceding material.