Who/What is to blame for the financial meltdown of 2008?

[tim114]

I have been currently reading many books on the financial crisis or 2008. I have been looking to find a cause for this breakdown - a single cause. So far I am thinking our government (USA) was the culprit. I think our government committed sins of commission and omission.

Our government has been pushing the goal of home ownership for many years. It put way too much pressure on the private sector to achieve this goal. Mortgage standards were pushed down.

On the other side of the coin, our government let Wall Street have its way. The philosophy of the Reagan Era held sway. Wall Street got its gambling license.

I think these two factors were the cause. Would like to hear your thoughts on this topic.

Tim

 

[tampa24]

Good idea for a thread Tim. There is no single cause or single culprit for the giant meltdown we saw that led us into the Great Recession. People in here know that I'm liberal but I won't say that it was all the Republicans' fault. There was a bipartisan effort to make home ownership available to as many Americans as possible. Even people with very low incomes and weak credit histories were encouraged to apply for mortgages. Democrats even praised lending institutions that were making risky loans to low income people with shaky credit histories. This was at a time when real estate prices were soaring, all but assuring that any loan to buy a home would be a large one at that.

I set up my explanation like this because I am trying to be "Fair and balanced". lol

In the Reagan era there was a strong ideological push to deregulate lending institutions. Government was the villain. Government couldn't do anything as well as the private sector. Government needed to get out of the way of the private sector, lower taxes on it, and then it would thrive to unforeseen levels. Or so the ideological thinking went... So they dropped alot of regulations and taxes on the banking industry. Then they even set up the government as an insurer of the savings and loan assets. Leading to an era of unparalleled growth for the industry, right? Not quite.

One of my favorite quotes of Reagan's was when he talked about how Democrats viewed the economy. It's actually very clever. "If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it." lol

So where did this "pro-business" ideology take us in the 80's? The white collar criminals at the banks, who were mostly Republicans themselves, used the lack of regulation to steal the desks, the paper clips and everything down to the drywall. We got the S & L or Savings and Loan Crisis of the 80's. The government (read taxpayers) were left on the hook for $87.9 Billion [source Wikipedia] to bail out the savings and loans institutions that failed because of risky investments, fraud, corruption, embezzlement and the like. Thanks to deregulation nobody was watching the store. This was yet another expense at a time when the government was already running $200 Billion deficits each year because of the Reagan tax cuts.

Then Bush comes in to office with starry eyed hero worship for Ronald Reagan.

He proposed doing away with all those Depression era regulations the entire financial sector that were out in place in the 40's to prevent a repeat of the Great Depression. But he took it a step further. All of his appointees to posts in regulatory agencies were hired based on ideological litmus tests. This was a pattern that came to light in many areas of the Bush administration. Americans who were being hired to run hospitals in Iraq were being asked in interviews about their opinion on Roe v. Wade. If anyone very qualified in the construction field was applying for work in Iraq, they were dropped from consideration if they mentioned on their resume that they did work for Greenpeace in college.

The point being here is that the Bushies not only dropped regulations on the industry but they also chose the people in charge of the regulatory agencies. So the enforcement of what little regulation was left in place was in the hands of people of the same ideological bent. The enforcers themselves believed that government was the problem to everything. (Even as they collected hefty government paychecks to protect the public interest.) They also knew that their own bosses would not be pleased if the heads of financial firms called to complain that a regulatory agency was being too hard on them.

It's a rather simple explanation. But I think it's accurate. I'm open to hear from anyone with an opposing view though.

 

[LoganBroad]

There is plenty of blame to go around, throughout the government and the private sector. It cannot be laid at the feet of one group or another. It took a lot of people with different agendas to drag us into the mess we are in.

 

[tampa24]

Very true LB. From consumers who should have known better, to banks that thought they would make a killing by convincing gullible homebuyers to go with ARM's, to corruption and malfeasance at the very top of major firms.... It was a team effort.

 

[rrhill]

Blame me...

 

[tim114]

Tampa,

I can't speak to the S & L Crisis, because I haven't read up on it as yet. However, your description of the basic ideology of the Reagan/Bush years sounds about right. You also might want to add in their unquestioning faith in the pure working of the free market system. The chairman of the Fed was also right on board big time. It does work most of the time - until it doesn't. Then governments have to step in to save it. There has been much debate about "stepping in," but I am not sure we want to see what happens without this.

I also want to help you be more "fair and balanced." LOL! You left out Clinton. I think a bunch of Democrats bought into some of this ideology also. Remember the Glass-Steagall Act was repealed under Clinton. Even after the meltdown, when the government had a chance to rewrite the banking and investment rules, what was done? We had a Democrat president, a Democrat Congress, and a pissed-off nation. What was done with banking reform? Not much. Why was this the case? I would suspect the money pouring down from Wall Street to Washington may have played a part.

Tampa, always glad to hear your opinion.

Tim

 

[LoganBroad]

Tampa,

I can't speak to the S & L Crisis, because I haven't read up on it as yet. However, your description of the basic ideology of the Reagan/Bush years sounds about right. You also might want to add in their unquestioning faith in the pure working of the free market system. The chairman of the Fed was also right on board big time. It does work most of the time - until it doesn't. Then governments have to step in to save it. There has been much debate about "stepping in," but I am not sure we want to see what happens without this.

I also want to help you be more "fair and balanced." LOL! You left out Clinton. I think a bunch of Democrats bought into some of this ideology also. Remember the Glass-Steagall Act was repealed under Clinton. Even after the meltdown, when the government had a chance to rewrite the banking and investment rules, what was done? We had a Democrat president, a Democrat Congress, and a pissed-off nation. What was done with banking reform? Not much. Why was this the case? I would suspect the money pouring down from Wall Street to Washington may have played a part.

Tampa, always glad to hear your opinion.

Tim

I don't think you can blame a president who left office 23 years ago.

 

[cumrag27]

When the history books will be written...

Good idea for a thread Tim. There is no single cause or single culprit for the giant meltdown we saw that led us into the Great Recession. People in here know that I'm liberal but I won't say that it was all the Republicans' fault. There was a bipartisan effort to make home ownership available to as many Americans as possible. Even people with very low incomes and weak credit histories were encouraged to apply for mortgages. Democrats even praised lending institutions that were making risky loans to low income people with shaky credit histories. This was at a time when real estate prices were soaring, all but assuring that any loan to buy a home would be a large one at that.

I set up my explanation like this because I am trying to be "Fair and balanced". lol

In the Reagan era there was a strong ideological push to deregulate lending institutions. Government was the villain. Government couldn't do anything as well as the private sector. Government needed to get out of the way of the private sector, lower taxes on it, and then it would thrive to unforeseen levels. Or so the ideological thinking went... So they dropped alot of regulations and taxes on the banking industry. Then they even set up the government as an insurer of the savings and loan assets. Leading to an era of unparalleled growth for the industry, right? Not quite.

One of my favorite quotes of Reagan's was when he talked about how Democrats viewed the economy. It's actually very clever. "If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it." lol

So where did this "pro-business" ideology take us in the 80's? The white collar criminals at the banks, who were mostly Republicans themselves, used the lack of regulation to steal the desks, the paper clips and everything down to the drywall. We got the S & L or Savings and Loan Crisis of the 80's. The government (read taxpayers) were left on the hook for $87.9 Billion [source Wikipedia] to bail out the savings and loans institutions that failed because of risky investments, fraud, corruption, embezzlement and the like. Thanks to deregulation nobody was watching the store. This was yet another expense at a time when the government was already running $200 Billion deficits each year because of the Reagan tax cuts.

Then Bush comes in to office with starry eyed hero worship for Ronald Reagan.

He proposed doing away with all those Depression era regulations the entire financial sector that were out in place in the 40's to prevent a repeat of the Great Depression. But he took it a step further. All of his appointees to posts in regulatory agencies were hired based on ideological litmus tests. This was a pattern that came to light in many areas of the Bush administration. Americans who were being hired to run hospitals in Iraq were being asked in interviews about their opinion on Roe v. Wade. If anyone very qualified in the construction field was applying for work in Iraq, they were dropped from consideration if they mentioned on their resume that they did work for Greenpeace in college.

The point being here is that the Bushies not only dropped regulations on the industry but they also chose the people in charge of the regulatory agencies. So the enforcement of what little regulation was left in place was in the hands of people of the same ideological bent. The enforcers themselves believed that government was the problem to everything. (Even as they collected hefty government paychecks to protect the public interest.) They also knew that their own bosses would not be pleased if the heads of financial firms called to complain that a regulatory agency was being too hard on them.

It's a rather simple explanation. But I think it's accurate. I'm open to hear from anyone with an opposing view though.

Tampa,

I can't speak to the S & L Crisis, because I haven't read up on it as yet. However, your description of the basic ideology of the Reagan/Bush years sounds about right. You also might want to add in their unquestioning faith in the pure working of the free market system. The chairman of the Fed was also right on board big time. It does work most of the time - until it doesn't. Then governments have to step in to save it. There has been much debate about "stepping in," but I am not sure we want to see what happens without this.

I also want to help you be more "fair and balanced." LOL! You left out Clinton. I think a bunch of Democrats bought into some of this ideology also. Remember the Glass-Steagall Act was repealed under Clinton. Even after the meltdown, when the government had a chance to rewrite the banking and investment rules, what was done? We had a Democrat president, a Democrat Congress, and a pissed-off nation. What was done with banking reform? Not much. Why was this the case? I would suspect the money pouring down from Wall Street to Washington may have played a part.

Tampa, always glad to hear your opinion.

Tim

Dear Tampa and Tim,

I agree with all that you bring to the forum. Unfortunately, we have suffered a coup d'état by the financial, health insurance, and big business interests in the US. Because of the encouragement of our Supreme Court recently, there will be an ever worsening problem with corporate interests throwing their weight around buying off Senators and Congressmen, Supreme Court Justices, and even the Presidency. I find it absolutely amazing in a representative form of government, that legal entities that are not recognized as citizens can have more influence on government that the citizens, them-self, it claims to represent.

Since both political parties are operating based on political contributions to their re-election campaign and their sponsors contribute to both parties, you cannot tell a whole lot of difference between the two other than their view on "health care" and "taxing the super rich". It seems that no one particularly cares about the fact that the US spends more for health care than anyone else, yet our health care system only ranks us worldwide as 37th. Such an obvious rip off and relying on "free-market forces" for something so essential is inherently inefficient and wasteful of our resources nationally speaking. There should be no reason why anybody in the US can not have adequate health care other than the greed of health insurance companies and their investors. The obvious and simple way to go is a single payer system, by-passing the "middle-man" of health insurance companies. When basic economic shortfalls in Social Security contributions, Medicare, and Medicaid can basically be fixed by reversing the current tax advantages given to the super-rich, it is a national travesty that this is not being addressed now.

Sincerely,


Stimpy

 

[LoganBroad]

Dear Tampa and Tim,

I agree with all that you bring to the forum. Unfortunately, we have suffered a coup d'état by the financial, health insurance, and big business interests in the US. Because of the encouragement of our Supreme Court recently, there will be an ever worsening problem with corporate interests throwing their weight around buying off Senators and Congressmen, Supreme Court Justices, and even the Presidency. I find it absolutely amazing in a representative form of government, that legal entities that are not recognized as citizens can have more influence on government that the citizens, them-self, it claims to represent.

Since both political parties are operating based on political contributions to their re-election campaign and their sponsors contribute to both parties, you cannot tell a whole lot of difference between the two other than their view on "health care" and "taxing the super rich". It seems that no one particularly cares about the fact that the US spends more for health care than anyone else, yet our health care system only ranks us worldwide as 37th. Such an obvious rip off and relying on "free-market forces" for something so essential is inherently inefficient and wasteful of our resources nationally speaking. There should be no reason why anybody in the US can not have adequate health care other than the greed of health insurance companies and their investors. The obvious and simple way to go is a single payer system, by-passing the "middle-man" of health insurance companies. When basic economic shortfalls in Social Security contributions, Medicare, and Medicaid can basically be fixed by reversing the current tax advantages given to the super-rich, it is a national travesty that this is not being addressed now.

Sincerely,


Stimpy

Stimpy,
I make my living as a tax accountant. Did you know that if you taxed everyone making over $1million a yr at a rate of 100% (confiscate everything they make), it would only produce enough money to run the federal government for 18 days! That came from an IRS report to Congress. So all this talk of soak the rich and that will solve all our problems is baloney. Here is a scary fact, we have more people voting in this country than we have paying taxes. The top 5% (the richest 5%) in this country are already paying over 50% of the income tax. Is that fair?
The latest data show that a big portion of the federal income tax burden is shoul*dered by a small group of the very richest Americans. The wealthiest 1 percent of the population earn 19 per*cent of the income but pay 37 percent of the income tax. The top 10 percent pay 68 percent of the tab. Meanwhile, the bottom 50 percent—those below the median income level—now earn 13 percent of the income but pay just 3 percent of the taxes. These are proportions of the income tax alone and don’t include payroll taxes for Social Security and Medicare. Now who thinks the "rich" need to pay more?

 

[DrabBoiz]

Blame? Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, and a few Democrats.

It's time our elected officials start standing up for the working people and not corporate interest. We need to change how we elect people (campaign financial laws) in this country; nothing will change until we do.

Anything else?

 

[tim114]

DrabBoiz

If I am not mistaken, I believe in the last election Democrats raised more money than the Republicans. I don't think this mess can be blamed on one party. I don't see either party coming up with any solutions.

Tim

 

[tim114]

Logan,

You make an excellent point. Although I would let the Bush tax cuts expire, this would hardly solve the problem. I think the US has the greatest income inequality of all developed nations, and this inequality is growing. Since many of these wealthy people get a huge part of their income from dividends and capital gains (now taxed at 15%), this rate should be adjusted.

I feel the real solution is to downsize government and to restructure Social Security, Medicare and Medicaid. Social Security, which we hear a lot about, is less of a problem than the later two. We should face the problem now and make the cuts and adjustments slowly over time.

I live in New Jersey, which has some of the same problems faced by the Federal government. I think we will see solutions (if any) coming from the states first. They can't print money. Then maybe our elected officials in Washington will get off their asses.

Tim

 

[LoganBroad]

Blame? Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, Republicans, and a few Democrats.

It's time our elected officials start standing up for the working people and not corporate interest. We need to change how we elect people (campaign financial laws) in this country; nothing will change until we do.

Anything else?

My friend,
I think you need to do some research. I believe your tirade is coming from pure emotion and not factual study and in depth research into all the complex factors that led to the financial meltdown. If you really care about this issue you will dig into and most likely discover that it was not a partisan thing but a perfect storm created by bi-partisan legislation over the the last 15 years, and mostly legislation heavily back by Democrats such as "The community re-investment Act." Try to be objective, it will give your opinions more credibility. No one will take seriously a post that is simply a wild partisan tirade against one party or the other.

 

[jtdestin]

The Government is to blame (Democrats and Republicans) over stepping their boundaries into business and the private sector. (I.E. housing, banking, oil, Insurance. Tobacco the list goes on and on) it has been going on for years and years. Once the politician found out the way to control the people is to make them think he is protecting us for evil big business he has not stopped. The new evil target will be the Internet. Just wait (the internet must be controlled “ to protect us from porn, terrorists, information theft, they might add a few I cant think of”!

This is just my opinion ill put my aluminum foil hat back on and lock myself in the basement and wait for ET to come probe me! Lol

 

[juanjo]

There are a number of factors here that play into this financial meltdown.

1. Deregulation of the financial markets. Reagan started this push and it became the mantra of the Republican Party through Bush 1 and Bush 2. It gave us the S&L debacle which I remember very well as I was one of the attorneys who had to go out and foreclose on people when the housing market "contracted" and people found their house values under water and their interest rates too high for them to make payments. Sound familiar? BTW Canada which examined and rejected the same deregulation proposals we adopted did not experience the financial meltdown we did and has continued to experience a much healthier economic period than we have.

2. The Community Reinvestment Act did NOT tell banks to loan to people who did not financially qualify. Banks and finance companies engaged in a number of financially questionable activities in which they falsified loan documents to make people appear to qualify as well as to over value houses to make them appear to be worth far more than they were. During this time period I received phone calls and mailings offering to refinance my mortgage at up to 150% of the appraised value of my house!

3. When one considers tax rates for the top 10% of the population income wise it is important to not just consider income tax rate. People in the top 10% of the economic system do NOT make the majority of their money in what is defined as "income" by the IRS. The majority of their money comes in the form of investments. They pay capital gains tax on that return not income tax. The capital gains tax has dropped to historically low values. The top 10% of the population of the United States controls almost 92% of the wealth of this country either directly or through owning the controlling shares of stock in companies. The proportion of money this portion of the population contributes to the public fisc has steadily dropped since Reagan was president. In the meantime the percentage of public money spent on corporate subsidies has increased regardless of the economic viability of the sector where those subsidies are being invested. Oil companies receive multibillion dollar subsidies while they make some of the highest profits they ever have made. We spend millions on archaic sectors of the economy instead of modernizing and shifting our investments. For example - water control and delivery systems which encourage inefficient and wasteful irrigation techniques. Growing high water consuming crops in desert areas using delivery systems which have not changed in 100 years - one example being rice in the Central Valley of California. Another is helium production and storage - for programs we have not used since WWII.

4. Real income for the working class and middle class has steadily declined in each presidential administration since Reagan took power except for Clinton. The purchasing power of the US dollar has declined by 60% which is great if you are a large multinational corporation but a disaster if you are a working stiff in Ohio. People have seen their incomes drop while their expenses increased, including health and retirement expenses. My health insurance premium has increased from $153.00 when Clinton left office to $733.73 this year for the same coverage in an HMO.

5. People have criticized social security and medicare as well as medicaid costs. There are several things that can be done to resolve this issue. First, take off the current contribution limitations of social security. The wealthy only pay social security on a portion of their income. Second put in real health care reform with a single payer system like medicare for everyone where the health care administrators negotiate costs. That way everyone can see the doctors of their choice but all payments come through the same system. By ensuring all people have access to health care, this will reduce the out of control expenses placed on the public health system due to uninsured people who wait until medical issues which could have been treated early on relatively inexpensively, go to the hospital emergency room once the problems have become far more serious and more expensive to treat. San Francisco put in its own form of single payer and has experienced an overall drop in health care costs on its public hospital and clinics. In addition regularize the undocumented aliens who have been here for a certain period of time so that they are paying into social security and the income tax system instead of living in the underground and untaxed employment market which only benefits employers who exploit this form of labor.

Thats all for now. Fire when ready Gridley!

 

[tim114]

Juanjo,

Thanks for contributing to this thread. Some comments on your points:

1. Some of the Democrats bought into the pure free market mantra. The free market system always works. The Glass-Seagall Act was repealed under Clinton.

2. I think there was a push from both parties for home ownership (especially from Democrats). I do think this had an effect.

3. A point I have made here. The rich are getting richer.

4. Point taken.

5. Some good points here.

Since you have stated that you are an attorney, I would like you to get involvedin the Tyler Clementi Suicide thread. This is an important case and I would like to hear your views on it.

Tim

 

[juanjo]

I agree completely that there were some Democrats involved in the deregulation. My point is that the idea of an uncontrolled market place somehow taking care of itself on its own has become the mantra of a certain segment of the Republican Party and especially since Reagan was president.

Home ownership has always been the American Dream and the sad fact is that some people are financially unable to attain that dream for reasons which may or may not be under their control. From a political standpoint encouraging home ownership is a good thing because it promotes community stability. The issue I have with what occuirred is that through creative loan documentations and over valuing housing stock, some unethical real estate people as well as mortgage companies made a lot of money, overinflated the market and and encouraged people who really did not qualify financially to buy into the market. Teaser rates, creative loan writing, and outright misrepresentation was done by some people to the detriment of all in the country, all while the people doing it were charging all sorts of fees and making money hand over fist.

I firmly believe in free enterprise and the idea that people should be able to make a profit on their businesses. But I do not believe in laissez faire nor caveat emptor when it comes to the market place. The fact is it is not a level playing field and never has been. There has to be some regulation to prevent abuses.

As for the Tyler Clementi suicide, that is a very difficult issue.

 

[tim114]

I totally agree with your thinking here. I think there was a major attitude shift with regard to capital(business) vs. labor during these years. It sort of went from a partnership sort of deal to a "fuck you" deal. Greed was all of a sudden Good. I think this attitude is still in play.

Tim

 

[thomas1023]

I totally agree with your thinking here. I think there was a major attitude shift with regard to capital(business) vs. labor during these years. It sort of went from a partnership sort of deal to a "fuck you" deal. Greed was all of a sudden Good. I think this attitude is still in play.

Tim

Don't worry, some of us still believe greed is good! Tell me, at what point does one become 'greedy', or has earned enough money? I work hard and each year I've earned more money. And each year I plan to make more. What if I come up with an idea or product, and after much time and hard work, bring it to the market place and millions of these widgets fly off the shelves and I make a few hundred $K. I then take the money and invest in several start up companies, of which, most fail, but then there's one or two which succeed, and after growing them, I'm able to sell for a few million dollars. And this goes on and on.....where did I become greedy.
Or, I could be born into a family which doesn't have much income and I'm told since childhood, I'm a 'victum' and it's not my fault. I engage in activities which lead me to drop out of High School, but, don't worry, there's welfare. Or food stamps. Or wic. Or Medicade. Or ...Or I can get a job for a short time and then ensure I'm fired so I can collect unemployment for 99 weeks. After all, life's not fair and I'm owed it! (don't forget, all the money from government, it isn't someone elses money, it's the government's!)
So, which one of these is greedy?

 

[thomas1023]

There are a number of factors here that play into this financial meltdown.

2. The Community Reinvestment Act did NOT tell banks to loan to people who did not financially qualify. Banks and finance companies engaged in a number of financially questionable activities in which they falsified loan documents to make people appear to qualify as well as to over value houses to make them appear to be worth far more than they were. During this time period I received phone calls and mailings offering to refinance my mortgage at up to 150% of the appraised value of my house!

Thats all for now. Fire when ready Gridley!

First off, if there was falsifing of documents, whoever did it should be in jail and if it was condoned by the corporation, then fine them, through the CEO in jail, have a team of IRS audits set up camp for years to terrorize them! And so when the government (think community reinvestment act) says a bank must make subprime loans to low income people, or, you won't be able to merge or aquire another company, or expand in the market place, that had no bearing on banks making these loans. And let now forget Fannie and Freddie. They garanteed these loans. So, let's take the free market out by not having any risk to your loans. That won't change a corporations behavior. And when the banks fail, they should have. instead of spending $800B in bail out. They should have failed!