Friday, October 03, 2008

Facts are important

The vice presidential debate wasn't the train wreck I thought it would be. I only cringed a few times. Please, again, read for, well, fact checking. While you are there, please also look at the analysis about what caused the financial/credit problems of the United States. Hint: Our economy is too complicated and vast to blame one group or one bill. The blame is widespread.
Here's a partial list of those alleged to be at fault:
  • 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.
The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.


nola said...

Good explantion of an incredibly complex topic. Too bad the media nor Congressmen can explain it to us.

Jen of A2eatwrite said...

Sarabeth you are providing SUCH a service through these posts. I really, really hope you're getting excellent readership. I'm behind on reading and blogging, but I'm going to give you a shout-out when I next post. You GO, Girl!

Kell said...

"Screwing it up takes a great deal of cooperation" - is my new favorite quote of the year....

I think it has a million and a half sub-points, but I'll refrain, lest my eyes roll so far back in my head that they land in Cleveland.