Some of the clearest analyses of banking principles come from the 19th century, when a general awareness of various banking options still existed. Today, with the nationalization of note issues and the ubiquity of fiat currencies and central banking, few remember the alternatives or understand the implications of our current system. A French economist, Charles Coquelin, wrote a number of lucid works, including a comprehensive analysis of credit and banks (in French).
In a shorter article by the same author explaining the role of credit in economic crises, Coquelin explains that only economies that use credit experience periodic crises, and that such crises are acerbated considerably in economies with central banks. While in 1864, the possibility of fiat currency didn't cross his mind, he could still see that the central banks of his day (e.g., Bank of England & Banque de France) distorted credit markets by their privileged status. With specific privileges beyond all other banks, central banks were considered more secure than private banks, and could both borrow and lend at lower rates of interest than their private counterparts as a result. This left largely riskier borrowers for the private banks and led inexorably to de facto national currencies which linked problems with one bank to those of others.
While there will (and should) always be periodic bank failures, as in any other industry, it is important that the full risks and losses of such failures be left with the investors and depositors of such banks so as to avoid taxing healthier banks to support their less healthy neighbours. In a free market, marginal institutions fall first and as their assets liquidated, healthier banks can buy them at discounted prices and shore up their own portfolios. This leaves the healthiest institutions standing at the end of the crises.
Alas, we have adopted the exact opposite policy in the current crisis. The weakest banks that fall first are bailed out by governments, along with every subsequent bank until the government can no longer issue more promises against future tax revenue. At that point, all of the "salvaged" banks fall at once when the government defaults on their debt obligations. Perhaps Coquelin was right in suggesting that the whole process is less painful if left to the free market.
26 October 2008
Private Money = Stable Money
The monetary turmoil now underway is, in part, due to the fact that countries have adopted monopoly currencies and then proceed to abuse them without immediate consequences. The euro is about to collapse, as regional manipulation of interest rates and government deficit spending leads to the logical consequence. The solution is the anti-Euro, private, competitive currencies.
National and inter-national currency monopolies lead governments to eventually move to fiat money backed only by their threats against those who refuse to accept it and ability to tax the people to give it value. Currencies founded on intrinsically valuable specie money are always extinguished by central bankers. Once a monopoly fiat currency has been established, central banks proceed to over-produce bills, and entering into excessive debt, sustainable only through continued inflation.
In a private, competitive monetary environment, however, any private mint indulging in debasement of their coin would be punished by the markets. Their currency would trade at a discount, to the degree that it traded at all. Banks issuing banknotes bearing their own bank's name would, likewise, only put the issuing bank at risk for their value. An over-exuberant note-issuer would find their notes quickly discounted by the markets, forcing them to reduce their circulation or face a run.
Monopoly currencies are too tempting for governments to not leverage them as tools of indirect taxation. Once such currencies have been extensively over-leveraged, they collapse in an inflationary spiral. Only healthy currency competition between privately competing currencies in a free market can effectively discourage currency mismanagement.
National and inter-national currency monopolies lead governments to eventually move to fiat money backed only by their threats against those who refuse to accept it and ability to tax the people to give it value. Currencies founded on intrinsically valuable specie money are always extinguished by central bankers. Once a monopoly fiat currency has been established, central banks proceed to over-produce bills, and entering into excessive debt, sustainable only through continued inflation.
In a private, competitive monetary environment, however, any private mint indulging in debasement of their coin would be punished by the markets. Their currency would trade at a discount, to the degree that it traded at all. Banks issuing banknotes bearing their own bank's name would, likewise, only put the issuing bank at risk for their value. An over-exuberant note-issuer would find their notes quickly discounted by the markets, forcing them to reduce their circulation or face a run.
Monopoly currencies are too tempting for governments to not leverage them as tools of indirect taxation. Once such currencies have been extensively over-leveraged, they collapse in an inflationary spiral. Only healthy currency competition between privately competing currencies in a free market can effectively discourage currency mismanagement.
12 October 2008
Savings: Outdated idea?
It is easy to blame greedy bankers and Wall Street for the depth of the current financial turmoil, but the primary source is the encouragement of debt and discouragement of savings by the U.S. government. Inflation of the currency, both by blatent printing and debt expansion, always discourages savings, but the list is not limited to inflation-related incentives:
1. People are taxed on capital gains from their savings and investments, after paying tax on the original principle. If they just spend their money instead of saving it, they might even be able to deduct such purchases as business expenses.
2. "Profits" on long-held investments like homes are not adjusted for inflation, so even if the house lost money in real terms, it could be taxed heavily for capital gains due to inflation.
3. Idle cash must be invested or spent simply to keep up with the inflation rate. Cash balances lose money by default. Often even basic savings rates are lower than inflation rates, encouraging savers to seek higher yield, higher risk investments merely to keep from losing their principal.
4. Mortgage interest is deductable from income tax, encouraging people to borrow money for their home and discouraging renting.
5. There is an unlimited allowance for capital gains and income that is taxable, but only $3,000 in losses may be deducted per year. If you make $1 million one year and lose $1 million the next, the full $1 million will be taxed the first year, but only $3,000 may be deducted from taxes the second year. Even if you save the residual income after taxes from the first year, you cannot cover the loss of the second.
6. The arbitrary nature of breaking the tax year into specific segments. All expenses within a given tax year are deductable, but if profits are saved over a period of years to pay for an expense in cash, those profits are taxed every year before the ultimate purchase. If, however, money is borrowed to pay for an expense up front, its cost can be amortized over many years.
7. Richer people, who have more discretionary income to save, are taxed much more heavily than poorer people. The poor don't have much extra money to save to start with, so if we tax away the would-be savings of the rich, we impoversh our capital supplies.
8. Inheritance taxes encourage the consumption of accumulated wealth during one's lifetime rather than inter-generational savings and investment. If you know that a large portion of your life savings will be taken upon death, why not spend it now?
In short, the government creates considerable incentives to borrow and spend, especially via the various effects of inflation, and thus discourages savings. Any society that neglects savings long enough is sure to ultimately find itself with a lack of real capital, leading to a depression when the credit pile crumbles. A society which values savings is one with slower economic growth, perhaps, but fewer economic surprises.
1. People are taxed on capital gains from their savings and investments, after paying tax on the original principle. If they just spend their money instead of saving it, they might even be able to deduct such purchases as business expenses.
2. "Profits" on long-held investments like homes are not adjusted for inflation, so even if the house lost money in real terms, it could be taxed heavily for capital gains due to inflation.
3. Idle cash must be invested or spent simply to keep up with the inflation rate. Cash balances lose money by default. Often even basic savings rates are lower than inflation rates, encouraging savers to seek higher yield, higher risk investments merely to keep from losing their principal.
4. Mortgage interest is deductable from income tax, encouraging people to borrow money for their home and discouraging renting.
5. There is an unlimited allowance for capital gains and income that is taxable, but only $3,000 in losses may be deducted per year. If you make $1 million one year and lose $1 million the next, the full $1 million will be taxed the first year, but only $3,000 may be deducted from taxes the second year. Even if you save the residual income after taxes from the first year, you cannot cover the loss of the second.
6. The arbitrary nature of breaking the tax year into specific segments. All expenses within a given tax year are deductable, but if profits are saved over a period of years to pay for an expense in cash, those profits are taxed every year before the ultimate purchase. If, however, money is borrowed to pay for an expense up front, its cost can be amortized over many years.
7. Richer people, who have more discretionary income to save, are taxed much more heavily than poorer people. The poor don't have much extra money to save to start with, so if we tax away the would-be savings of the rich, we impoversh our capital supplies.
8. Inheritance taxes encourage the consumption of accumulated wealth during one's lifetime rather than inter-generational savings and investment. If you know that a large portion of your life savings will be taken upon death, why not spend it now?
In short, the government creates considerable incentives to borrow and spend, especially via the various effects of inflation, and thus discourages savings. Any society that neglects savings long enough is sure to ultimately find itself with a lack of real capital, leading to a depression when the credit pile crumbles. A society which values savings is one with slower economic growth, perhaps, but fewer economic surprises.
08 October 2008
Another Rate Cut, Another Failure
At last! The Federal Reserve, along with many other central banks around the world, have cut interest rates. This is what the markets have been waiting for, everything will be fine now. After all, the previous rate cuts over the last year have done so well that its obvious that a globally coordinated rate reduction will do wonders.
This is clearly poppycock. Interest rates are already at historic lows but that hasn't helped the economy. Lowering the cost of borrowing further won't do anything to encourage people to borrow more, or prevent a further decline in the value of assets. Japan has been trying to almost GIVE money away for nearly 20 years and that didn't re-ignite their economy, and there is no reason to suppose this recent rate cut is going to help anyone either.
Interestingly, rate cuts are one of the best sell signals an investor can find. Stocks almost always head lower in the weeks, and months, following a rate cut. This only makes sense, of course, since rate cuts are always made when central banks are concerned about the health of the economy. Ironically, the time to buy is when central banks start raising rates.
Actually, raising rates isn't as crazy as it sounds. Low interest rates themselves are a significant contributor to the economic crisis. It is difficult for anyone to make money lending at such ridiculously low rates. Why even bother making a loan at 5% when there is barely enough income to cover your costs, let alone compensate for the risk of default (which is greater today than at any time in the last couple decades)? I vote for a co-ordinated global strategy of raising rates, and ceasing mortgage subsidies (i.e. Fannie, Freddie, FHA, etc).
Such a policy of higher interest rates would absolutely hurt the economy in the short term, but it would help restore health to the financial system by making it profitable to lend once again. Unfortunately, no policy makers seem to be willing to accept any short-term pain, even it it will help reduce the depth of our coming depression.
Oh, and let us not forget that it was abnormally low interest rates which were a major cause of the economic mess we are already in. Central banks did indeed prevent a severe recession in the 2002 by lowering interest rates to historic lows, but wound up contributing to the blowing of asset bubbles all over the place with a crack-up credit boom. Alas, there are no more bubbles left to blow, and there is no one left with a clean enough balance sheet to take on more debt.
This is clearly poppycock. Interest rates are already at historic lows but that hasn't helped the economy. Lowering the cost of borrowing further won't do anything to encourage people to borrow more, or prevent a further decline in the value of assets. Japan has been trying to almost GIVE money away for nearly 20 years and that didn't re-ignite their economy, and there is no reason to suppose this recent rate cut is going to help anyone either.
Interestingly, rate cuts are one of the best sell signals an investor can find. Stocks almost always head lower in the weeks, and months, following a rate cut. This only makes sense, of course, since rate cuts are always made when central banks are concerned about the health of the economy. Ironically, the time to buy is when central banks start raising rates.
Actually, raising rates isn't as crazy as it sounds. Low interest rates themselves are a significant contributor to the economic crisis. It is difficult for anyone to make money lending at such ridiculously low rates. Why even bother making a loan at 5% when there is barely enough income to cover your costs, let alone compensate for the risk of default (which is greater today than at any time in the last couple decades)? I vote for a co-ordinated global strategy of raising rates, and ceasing mortgage subsidies (i.e. Fannie, Freddie, FHA, etc).
Such a policy of higher interest rates would absolutely hurt the economy in the short term, but it would help restore health to the financial system by making it profitable to lend once again. Unfortunately, no policy makers seem to be willing to accept any short-term pain, even it it will help reduce the depth of our coming depression.
Oh, and let us not forget that it was abnormally low interest rates which were a major cause of the economic mess we are already in. Central banks did indeed prevent a severe recession in the 2002 by lowering interest rates to historic lows, but wound up contributing to the blowing of asset bubbles all over the place with a crack-up credit boom. Alas, there are no more bubbles left to blow, and there is no one left with a clean enough balance sheet to take on more debt.
05 October 2008
The Comfort of Conspiracy
The tin foil hat wearing conspiracy theorists, convinced that dark forces have made secret plans to control events, may not be the paranoid anti-social mal-contents most people assume. In fact, it is quite possible that the belief in (unproven) conspiracies is a perfectly rational response when the world around us feels out of control. It is far preferable to think that the bad, or seemingly unexplainable, events that occur are the result of devious plots by nefarious persons meeting in dark rooms than to accept that terrible things happen all on their own.
It shouldn’t be any surprise, then, that conspiracies tend to be particularly popular amongst the people most alienated or marginalized in society (be it ethnic groups, or just the average social outcast). These people are desperately seeking ways to explain just why it is that life has handed them a raw deal, and a conspiracy is a handy way to explain it.
Most of these conspiracy theories contain the seeds of their own disproof right in their very premise, yet the adherents will swear by them nevertheless. In recent years, for example, there has been a great deal of speculation amongst many gold investors that government intervention was artificially deflating the value of precious metals. But if this were true, why then did gold prices rise so dramatically in the years up to 2008? As soon as gold prices began to decline in 2008 there was a lot of talk (once again) about how this might be due to the collusion of global central bankers. However, if gold prices have been pushed down by a cabal of central banks in 2008, then why did they allow them to rise so breathtakingly fast since 2005?
The same flaw can found in the theories proclaiming that the credit crisis of 2007/2008 was engineered by big Wall Street bankers. Most of those banks actually wound up going bust, and having their shares made into worthless scrip. If there was a conspiracy it would seem to have been a singular failure. It’s particularly telling that most conspiracy theories are designed to explain “bad” things: no one ever considers that the good things that occur were the results of plots.
Of course, conspiracies do sometimes occur. In many cases they aren’t even all that secret, with governments or policy makers openly declaring their intent to manipulate currencies or economies. However, these actions are rarely successful, and most often fail quite spectacularly.
The one thing that remains constant with all good conspiracy theories is the firm belief that it IS possible to control events. By grasping at the belief that somehow things are controllable, we can then feel that at least life could get better if only the “right” people were pulling the strings.
It shouldn’t be any surprise, then, that conspiracies tend to be particularly popular amongst the people most alienated or marginalized in society (be it ethnic groups, or just the average social outcast). These people are desperately seeking ways to explain just why it is that life has handed them a raw deal, and a conspiracy is a handy way to explain it.
Most of these conspiracy theories contain the seeds of their own disproof right in their very premise, yet the adherents will swear by them nevertheless. In recent years, for example, there has been a great deal of speculation amongst many gold investors that government intervention was artificially deflating the value of precious metals. But if this were true, why then did gold prices rise so dramatically in the years up to 2008? As soon as gold prices began to decline in 2008 there was a lot of talk (once again) about how this might be due to the collusion of global central bankers. However, if gold prices have been pushed down by a cabal of central banks in 2008, then why did they allow them to rise so breathtakingly fast since 2005?
The same flaw can found in the theories proclaiming that the credit crisis of 2007/2008 was engineered by big Wall Street bankers. Most of those banks actually wound up going bust, and having their shares made into worthless scrip. If there was a conspiracy it would seem to have been a singular failure. It’s particularly telling that most conspiracy theories are designed to explain “bad” things: no one ever considers that the good things that occur were the results of plots.
Of course, conspiracies do sometimes occur. In many cases they aren’t even all that secret, with governments or policy makers openly declaring their intent to manipulate currencies or economies. However, these actions are rarely successful, and most often fail quite spectacularly.
The one thing that remains constant with all good conspiracy theories is the firm belief that it IS possible to control events. By grasping at the belief that somehow things are controllable, we can then feel that at least life could get better if only the “right” people were pulling the strings.
Iceland: The Land That Credit Created
Iceland may be suffering now, as the credit crunch bites deeper than it has almost anywhere else, but in a few years it may prove that the swift decline and massive wave of defaults (as virtually everyone in the nation defaulted on their debts) was the best solution to the calamity. Other nations, with deeper resources (like the US) are delaying the inevitable with massive bailouts, which may ultimately do nothing more than prolong the pain.
The swift decline of Northern Europe’s economic superstar is a graphic illustration of the hollowness of the economic boom the world has seen over the last 20 years. It wasn’t long ago that Iceland was hailed by business magazines as an amazing success, to be emulated by others. The similarities to those Americans buying multi-million dollar McMansions with negative amortization financing, while driving around in SUVs purchased with home equity loan extraction is striking.
The fall from economic grace may be hard on Icelanders, and leave them a much poorer nation with limited economic growth for decades to come, but they may wind up better off than the larger economies that are digging themselves deeper holes in vain attempts to prevent the necessary reckoning from the Great Credit Binge. The irony is that while smaller nations may find their options limited when facing national economic ruin, the fact that they were forced to deal with their problems head on will be to their benefit.
Any who still think that the credit crisis is only an American problem really need to examine what is happening in places like Iceland closely. This is a GLOBAL calamity, that will leave many other nations in even worse shape than the USA before things have run their course.
The swift decline of Northern Europe’s economic superstar is a graphic illustration of the hollowness of the economic boom the world has seen over the last 20 years. It wasn’t long ago that Iceland was hailed by business magazines as an amazing success, to be emulated by others. The similarities to those Americans buying multi-million dollar McMansions with negative amortization financing, while driving around in SUVs purchased with home equity loan extraction is striking.
The fall from economic grace may be hard on Icelanders, and leave them a much poorer nation with limited economic growth for decades to come, but they may wind up better off than the larger economies that are digging themselves deeper holes in vain attempts to prevent the necessary reckoning from the Great Credit Binge. The irony is that while smaller nations may find their options limited when facing national economic ruin, the fact that they were forced to deal with their problems head on will be to their benefit.
Any who still think that the credit crisis is only an American problem really need to examine what is happening in places like Iceland closely. This is a GLOBAL calamity, that will leave many other nations in even worse shape than the USA before things have run their course.
04 October 2008
Will Government Force Banks to Accept Bailout?
One question that has me perplexed by the (latest) government bailout plan is exactly which institutions would want to take the treasury department up on its offer of buying dud assets? My understanding is that in order to tap into the government funding the lenders will have to 1) agree to executive salary restrictions and 2) offer warrants to the government (there is even a provision in the bill that allows the treasury to demand stock in exchange for the financial help, but it isn’t clear if the treasury will exercise this right).
With terms like this, which financial institution would really want to avail itself of government help? Any CEO who accepts this deal will essentially be ending their career and the shareholders likely won’t be too thrilled with the potentially dilutive impacts of the warrants. Logically, it would seem as if most financial firms would rather just hang onto their toxic assets, and hope that the bailout ends the crisis and markets for these dubious goods return (at prices they like). After all, if the government manages to put a floor on prices for shunned credit instruments then why does it matter if they sell them or just keep them on the books, the end result is the same (i.e. they book the same price either way)?
This all assumes that the treasury was even willing to offer near full value prices for these assets in the first place. If the government somehow tries to offer a significant discount from face value (albeit still above actual market prices) then virtually no one would be interested in the bailout. For most institutions accepting any kind off significant price cut would render them immediately insolvent.
It all boils down to this: accept the bailout and lose your job and accept the potential of wiping out shareholders or hang on hoping that somehow markets recover. This really doesn’t seem like much of a choice. What manager would take the altruistic stance that it was ultimately in the best interests of the economy to restore the company to health even if to do so would hurt themselves (and existing shareholders)?
So what’s the government to do? Are they going to have to resort to forcing struggling financial institutions to accept the bailout?
Of course, even if the demand for access to bailout money is substantial, we have no guarantees that the credit markets will unfreeze. No bailout will change the fact that tens of millions of Americans can’t afford their debt payments and that default rates will continue to increase. Until all those defaults have run their course the underlying asset prices (e.g. mortgages, credit card and auto loan receivable securities, etc) will continue to fall, which will force lenders to continue ratcheting up lending criterion and terms. Why accept 10% down for a mortgage when there is a good chance the home will drop another 10% in the next year?
With terms like this, which financial institution would really want to avail itself of government help? Any CEO who accepts this deal will essentially be ending their career and the shareholders likely won’t be too thrilled with the potentially dilutive impacts of the warrants. Logically, it would seem as if most financial firms would rather just hang onto their toxic assets, and hope that the bailout ends the crisis and markets for these dubious goods return (at prices they like). After all, if the government manages to put a floor on prices for shunned credit instruments then why does it matter if they sell them or just keep them on the books, the end result is the same (i.e. they book the same price either way)?
This all assumes that the treasury was even willing to offer near full value prices for these assets in the first place. If the government somehow tries to offer a significant discount from face value (albeit still above actual market prices) then virtually no one would be interested in the bailout. For most institutions accepting any kind off significant price cut would render them immediately insolvent.
It all boils down to this: accept the bailout and lose your job and accept the potential of wiping out shareholders or hang on hoping that somehow markets recover. This really doesn’t seem like much of a choice. What manager would take the altruistic stance that it was ultimately in the best interests of the economy to restore the company to health even if to do so would hurt themselves (and existing shareholders)?
So what’s the government to do? Are they going to have to resort to forcing struggling financial institutions to accept the bailout?
Of course, even if the demand for access to bailout money is substantial, we have no guarantees that the credit markets will unfreeze. No bailout will change the fact that tens of millions of Americans can’t afford their debt payments and that default rates will continue to increase. Until all those defaults have run their course the underlying asset prices (e.g. mortgages, credit card and auto loan receivable securities, etc) will continue to fall, which will force lenders to continue ratcheting up lending criterion and terms. Why accept 10% down for a mortgage when there is a good chance the home will drop another 10% in the next year?
Original Sin
In all the rush to crucify the "greedy" Wall Street bankers and lax regulators for the current financial crisis the actual offender is going unnoticed.
It doesn't take a Nobel Prize winner to identify the underlying cause of the credit crunch as stemming from over-investments, which has left a glut of unproductive assets (e.g. real-estate around the world, factories in China, etc) that are dragging down the global economies. This mal-investment binge is so obvious that some pundits have even suggested a whole-scale demolishion of homes as a strategy for fixing the economy.
But what caused this horrendous buying (and construction) binge to begin with? Fortunately, we don't have to go far to find the underlying disease.
It is no cooincidence that real-estate prices have been appreciating at an historically abnormal rate after the Great Depression and World War II. The big changes that made this resurgence of real-estate possible are obvious: mortgage tax deductions and government subsidized mortgages (i.e. Fannie Mae, Freddie Mac, FHA, etc). Prior to the 1930s these government programs to foster home-ownership didn't exist.
It is these
Absolution
Any last hopes that the latest government financial bailout would stave off the economic downturn and cheer investors was put to rest when the stock markets tanked immediately after the bill was signed into law. This bailout can't possibly succeed, and will fail just as all the others have over the last year, but that hardly matters. The real goal of this bailout is to absolve the government of responsibility for the real troubles that lie ahead, and at this it succeeds in spades.
Had the policy makers not enacted a major intervention then they would have nothing to say for themselves months from now, as the economy continues to crumble and increasing masses of people lose their jobs. Instead, the nation's leaders have now absolved themselves of any responsibility for the disaster in the offing. When the Dow is below 8000, and home prices have dropped another 30% the US leadership can say, with a straight face, that they did their best to stop it. After all, the government spent $800 billion of tax-payer money in a valiant effort to stop the bleeding. Is it their fault that the bailout didn't work?
To be fair, I am sure that many policy makers actually doing what they thought would help, but for many others the cover this legislation gives them is well worth the tax-payer money they are spending, and more.
Of course, its not as if the government can do anything to stop the depression, but that won't stop the world's leaders from spending as much of their fellow-citizen's money as they can to make it look like they are trying.
Had the policy makers not enacted a major intervention then they would have nothing to say for themselves months from now, as the economy continues to crumble and increasing masses of people lose their jobs. Instead, the nation's leaders have now absolved themselves of any responsibility for the disaster in the offing. When the Dow is below 8000, and home prices have dropped another 30% the US leadership can say, with a straight face, that they did their best to stop it. After all, the government spent $800 billion of tax-payer money in a valiant effort to stop the bleeding. Is it their fault that the bailout didn't work?
To be fair, I am sure that many policy makers actually doing what they thought would help, but for many others the cover this legislation gives them is well worth the tax-payer money they are spending, and more.
Of course, its not as if the government can do anything to stop the depression, but that won't stop the world's leaders from spending as much of their fellow-citizen's money as they can to make it look like they are trying.
03 October 2008
Blame The Little People
While its certainly true that Wall Street bankers (and their colleagues in London, Tokyo, Shanghai and elsewhere) bear some of the blame for the financial mess the world is currently in, the average consumer bears a huge portion of responsibility as well. After all, it was individuals who were agreeing to buy homes and all manner of goods for loans that far exceeded their earning capacity.
I have little sympathy for the vast majority of people who are losing their homes on the coast of Spain, Northern Ireland, or California when it was their irresponsible borrowing that led them to this sorry state to begin with. Sure, the bankers never should have given such large mortgages that couldn't be justified by incomes, but that still doesn't excuse the individuals from digging themselves into a hole.
The credit bubble that created this economic crisis required collusion by all parties: the central banks who kept interest rates too low, lenders who just wanted to pump out loans for commission, ratings agencies who threw common sense to the wind, and the investment banks that packaged mortgages into securities for investors hell-bent on chasing yield regardless of risk.
To now blame the whole mess on "Wall Street" not only over-simplifies what happened, but it also avoids taking responsibility for our own actions and connivance. Let's not lose tears for those "greedy" mortgage holders who gambled on appreciation to bail them out (and make them rich).
I have little sympathy for the vast majority of people who are losing their homes on the coast of Spain, Northern Ireland, or California when it was their irresponsible borrowing that led them to this sorry state to begin with. Sure, the bankers never should have given such large mortgages that couldn't be justified by incomes, but that still doesn't excuse the individuals from digging themselves into a hole.
The credit bubble that created this economic crisis required collusion by all parties: the central banks who kept interest rates too low, lenders who just wanted to pump out loans for commission, ratings agencies who threw common sense to the wind, and the investment banks that packaged mortgages into securities for investors hell-bent on chasing yield regardless of risk.
To now blame the whole mess on "Wall Street" not only over-simplifies what happened, but it also avoids taking responsibility for our own actions and connivance. Let's not lose tears for those "greedy" mortgage holders who gambled on appreciation to bail them out (and make them rich).
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