Tuesday, November 25, 2008

Who Caused the Economic Crisis?

Below is one of the best lists of who's to blame. Thanks to Justin for the pointer. I do think the blame set on consumers and businesses is a little unfair. They were only following the incentives set up for them by government. Then again, government officials were just following their incentives set up by voters.

* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

1 comment:

  1. Its a nice article. Its a good trial to post views about mortgage to which almost all people are associated with. Certainly all the factors mentioned in the article causes our economy. We can't deny that we never come across with mortgage activities. Thanks for throwing light on the such issues. You can refer my website for mortgage loans.


You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.