Comments on: The Role of Expertise in the Financial Crisis

By: Celebrity Paycut - Encouraging celebrities all over the world to save us from global warming by taking a paycut.

Wed, 24 Sep 2008 17:32:32 +0000

[...] by Breakthrough Senior Fellow Roger Pielke, jr., cross posted from Prometheus [...]

By: stan

stan — Wed, 24 Sep 2008 12:24:41 +0000

I blame Jamie Gorelick. She insisted on “the Wall” despite FBI agents warning that some day people would get hurt. We got 9/11. She raked in over 26 million in bonuses as Vic Chairman of Fannie Mae while they were cooking the books. http://volokh.com/posts/1216060102.shtml

Seriously, though, she IS representative of the kind of govt which produced the problem.

By: Dave

Dave — Wed, 24 Sep 2008 11:26:45 +0000

The root cuase of this mess is clearly congress (in addition to utterly irresponsible borrowers).

In 1977 a democratic congress and Jimmy Carter passed the “Community Reinvestment Act”, which required banks to make loans to poor borrowers who often could not repay them. It, and its regulatory implementation, established that using credit history and income requirements for loans decision was “discriminatory”, and could not be used. This was all in the name of “affordable housing”.

Democrats in congress then pushed Fannie Mae and Freddie Mac to buy up these worthless loans by the hundreds of billions of dollars. Because of this huge infusion of money into the market, housing prices skyrocketed in many markets, making the loans seem valuable for a few years. However, this scheme could not last, and it didn’t last.

In 2005, Greenspan warned of a meltdown, and the republicans crafted a bill to establish responsible regulations related to Fanne and Freddie and this market in general, but were stopped on a party line vote with democrats opposing reform. John McCain was one of the sponsers of the reform bill. Barney Frank stated that there was no problem. Why ? Because democrats were getting huge campaign contributions from Fannie and Freddie employees.

Government regulation caused the problem.

By: Mark Bahner

Mark Bahner — Tue, 23 Sep 2008 21:53:21 +0000

It seems to me that the SEC clearly should have some of the blame for the problems of Bear Stearns, Lehman Brothers, and Merrill Lynch.

The SEC apparently re-wrote regulations on debt-to-equity for 5 firms (including the 3 above, plus Goldman Sachs and Morgan Stanley). These rewritten regulations (in 2004) allowed those 5 firms to be leveraged at 30-to-1 or even 40-to-1, where all other companies were limited to about 12-to-1:

http://www.parapundit.com/archives/005558.html

Of course, it was those 5 companies who actually did the ridiculously high leveraging.

Also, from that same article, apparently members of Congress (e.g. Barney Frank) encouraged Fannie Mae and Freddie Mac to take on more and more subprime loans (to help out people who couldn’t really afford homes).

There seems to be plenty of blame to go around. (“Billions and billions of dollars of blame,” to apocryphally paraphrase Carl Sagan.)