The reasons for The Great Financial Collapse of 2008 are well documented. There are over two dozen books in print (see partial list below), not to mention a raft of scholarly journal entries, print media articles, and an unending stream of web posts identifying greed, deregulation, and lax enforcement as the main culprits.
Nonetheless, it appears that the Rethugs’s 2012 election strategy is to push the narrative that it was government over-regulation that was responsible for our current economic malaise. Salvation, in their through-line, lies in rolling back what little protections remain.
The villain in the piece: the relatively weak Dodd-Frank Bill, which can only be vanquished if the Rethugs succeed in grabbing both houses of Congress and the White house. Since they already control what is supposed to be the check and balance on the legislative and executive branches, the US Supreme Court, this equates to a complete governmental takeover. So much for a balance of powers.
At the center of the Rehtug narrative is The Community Reinvestment Act of 1977, which was designed to address inequalities resulting from the red lining of economically disadvantaged neighborhoods. Somehow, the desire to level the playing field and bring the dream of home ownership to a larger segment of hard working and otherwise qualified Americans forced the poor beleaguered Wall Street Banksters to make toxic, subprime loans that later blew up in everybody’s faces.
Not surprisingly, this confuses catalyst with causality. It’s like blaming the cigarette for a fire that destroys a house of rotten timbers and a meth lab in the basement.
The Wall Street meth factory has traditionally made its greatest profits from bubbles they help create. After two decades of accelerated deregulation under Clinton and the Bushes, the table was set for the biggest fattened calf of them all— real estate. (The prior bubble was of course the dot.com craze that went nova in 2000. And if the Rethugs regain power, the next big pile of equity they’ll try to plunder is the $2.6 trillion in US Treasuries sitting in the Social Security account. )
Coupled with a host of lucrative, unregulated derivative instruments like credit default swaps that could ONLY be applied to riskier loans (e.g., negatively amortized POARMs and hybrid adjustables designed to become so expensive that they would have to be replaced with even more lucrative fee generating loans); leveraged up to 30x to 40x the actual amount of the banksters’ own speculative cash; excessive amounts of executive compensation, aided by off-budget accounting gimmicks that hid their companies actual liabilities; the Bush Administration’s handcuffing of the SEC, which could have otherwise constrained the private ratings agencies from rubber stamping subprime securities as Triple A— all were toxic ingredients of the strange brew that blew down the walls and the roof off the world’s economic house.
The argument that it was unqualified first time home buyers signing on to subprime loans that tanked the market ignores the fact that the majority of those loans— between 55 and 61%— were sold to existing home owners either wanting to move up the ladder, or to individuals re-financing their existing loans.
(The latter was responsible for driving a consumption based economy that is no longer possible, guaranteeing high levels of unemployment and an anemic GDP no matter who occupies the White House in 2013.)
As the WSJ reported at the time:
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half— 55%— of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American Loan Performance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%.
The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm’s analysis found… The surprisingly high number of subprime loans among more credit-worthy borrowers shows how far such mortgages have spread into the economy— including middle-class and wealthy communities where they once were scarce.
They also affirm that thousands of borrowers took out loans— perhaps foolishly— with little or no documentation, or no down payment, or without the income to qualify for a conventional loan of the size they wanted.
The analysis also raises pointed questions about the practices of major mortgage lenders. Many borrowers whose credit scores might have qualified them for more conventional loans say they were pushed into risky subprime loans. They say lenders or brokers aggressively marketed the loans, offering easier and faster approvals— and playing down or hiding the onerous price paid over the long haul in higher interest rates or stricter repayment terms.
The motivation for steering unwary home buyers and home owners into these kind of loans is obvious: higher fees for the mortgage originators and a lucrative derivatives market that could only exist if there was a big pool of loans to bet on. Wall Street created the world’s largest gambling casino using peoples investment in their biggest asset, their homes, as their betting chips. Now we’re all the poorer for it.
So, while governmental policies designed to eliminate decades of discriminatory red lining may have played a part in The Crash, refusing to account for all the other components not only obfuscates how we got here, but makes possible a future crash that could make this one look like small potatoes.
To this forty year reader of The Urantia Papers, all this is just so much warmed-over, laissez-faire, Luciferian libertarianism. License disguised in the habiliments of liberty. Self-assertion and the needs of the one superseding the needs and rights of the many. Social Darwinism versus social justice.
Well, fuck’em. I’ve cast my lot with the overarching universe ethic— the greatest good for the greatest number, which, on a personal, moral level, translates into the golden rule. I’m willing to turn the other cheek if it means helping an errant brother see the light. But eventually you run out of cheeks. Free will is what it is. There is, God be praised, an end point to iniquity. As The Urantia Papers put it:
The Memory of Mercy must show that the saving credit established by the Sons of God has been fully and faithfully paid out in the loving ministry of the patient personalities of the Third Source and Center. But when mercy is exhausted, when the “memory” thereof testifies to its depletion, then does justice prevail and righteousness decree. For mercy is not to be thrust upon those who despise it; mercy is not a gift to be trampled under foot by the persistent rebels of time…
Now, back to the future.
Books about the 2008 Crash
And leading up to the Crash,