At the crux of the credit crisis is the fact that bad loans were made to people to buy houses they could not afford. I blame the Congress for seeking to suspend sound banking practices to achieve the political goal of helping poor people finance a home. I blame the House Financial Services Committee Chaired by Barney Frank and the Senate Committee on Banking, Housing and Urban Affairs Chaired by Christopher Dodd for ignoring warnings of the malfeasance of Fannie Mae made years ago by special investigative counsels. This problem extends back long before the current Bush Administration.
I blame the OCC and other bank regulatory agencies for turning a blind eye or getting duped by executives. I blame executives who found a way to turn the political goal into a gravy train by creating financial instruments that no one understood. I blame the ratings agencies that gave credibility to securities and companies that clearly did not deserve it. I blame auditing practices of accounting firms that did not adapt to the new instruments and failed to uncover sloppy and fraudulent practices.
I blame the Boards of Directors of the financial companies who made large fees while failing to deliver the most basic requirements of financial stewardship. I blame the compensation committees who created such outrageous compensation incentives, that a bishop would be tempted to kick a hole in a stained glass window to reach for the lucre.
I could blame Greenspan for creating too much liquidity causing a boom in the housing market and I could blame Bernanke for tightening liquidity too much thus triggering the current credit squeeze and housing slump.
I blame the media for doing such a miserable job clarifying and covering this disaster in spite of many clear high level warnings, yet finding plenty of ink to cover questionable issues such as global warming.
But the core of the problem is the extravagant effort to put people in houses they could not afford. All the other blame delivered on that goal.
Yet the political leaders express their greatest concern over how to keep people from losing their homes. This concern is what caused the problem to begin with. The government as it so often does wanted to deliver a benefit that it did not want to pay for.
Many of these people should lose their homes. One report found that 70% of subprime borrowers lied about their income. They should lose their homes.
The borrower with a $50,000 income in a $500,000 home should lose his home and the lender should lose the decline in the home value. Shame and blame goes to both parties.
This crisis is a liquidity crisis and that should be the focus of the solution. Keeping people in homes thay can not afford is not the goal of the bailout. It is what eventually made the bailout so costly and necessary.