Originally Posted by TimberTroll
Tell me, who is at fault, the borrower who borrowed beyond his means? the banker who sold him the mortgage? the mathematician who created derivatives? the broker who sold them? Greenspan? Cheney?
At least I've found a point on which you have a rational consistency...
In the case of Bear-Stearns, I don't know. Haven't read the specifics.
In the case of Fannie and Freddie, blame goes to corporate management, with a big fat lump of complicity to the Federal Government. Fannie and Freddie leveraged debt (leveraging debt is a standard procedure all companies and households engage in) in the Sub-Prime Mortgage market, and they did it beyond standard, acceptable practices (an accounting term). They implied that losses would be bolstered by the Federal Government, while the Fed was under no obligation to do so.
The FedGov ignored the bubble, and when push came to shove, decided that it was in the nation's overall best interest to guarantee that debt. History will probably show this was a wise move by the FedGov. What remains to be seen is whether the FedGov will extract from Fannie/Freddie Fiasco the profit its guarantees now entitle it to. The government backed the risk, and the reward SHOULD belong to them (i.e., us, as repayment of Fannie's debt, and then some on top). I'm suspicious of whether Congress will act on the nation's best interest, or simply allow profit back to gamblers from the wealthiest niche.
The current financial reckoning, it must be noted, involves absolutely no illegal activity by anyone or any entity. Some dumb practices born of a lack of oversight, the root of which is found during the latter part of the Clinton administration. However, oversight could have been enacted at any point, particularly in the last 3 years, especially particularly in the last 18 months.
Nevertheless, it reveals a glaring flaw in the way US companies leverage debt, and regulation could protect investors (and tax payers in the long run, as we now see) from the most risky practices. And it should. In this way, Obama's campaign is more right, or perhaps least wrong.
McCain saying people should be punished denies the reality that 1) loss of asset is punishment, and 2) No laws have been broken anywhere in the chain 3) Ignores the systemic origin of this market correction
Suffice it to say, however, that lack of oversight by the Bush Administration, which espouses the "Deficits [i.e. debt] don't matter" school of financing, has killed social security reform for the next decade. And rightly so. The US market does not have sufficient oversight to control people's taxation-enabled benefit.