I wouldn’t even put Gramm up there at #1, because the mortgage bundles wouldn’t have ended up a disaster if Fannie and Freddie hadn’t pushed and been pushed to dole out loans to people that had no business buying a house. THAT is where the beginning of the credit crunch truly started. And the financials, as David points out, seemed more than happy to do it despite plenty of statistical evidence that they were creating a default disaster by loaning to that segment of the economy. This mess really was born on Wall Street. From what I’ve read and heard, the regulation on credit swaps wouldn’t have kept this from happening anyway because it wasn’t expected that this could happen in the first place.

Alan Greenspan, for as much as I respect him and think he is a brilliant man, completely missed the boat on this particular issue…and what an issue to miss the boat on, eh?

So I guess the financial geniuses get the attaboy for this one.

Ridiculous and pointless exercise. Who do you blame for the drug problem in this country? The user? The dealer? Politicians? Society?

Maybe nobody “caused” the crisis, or maybe we all did. But no it is easier to point fingers…

i blame the entire country!! A cop-out, maybe, but 15 yrs ago, an 18 yr old was being offered a cr. card as soon as he/she began college. No job? no matter. it was certainly abused as all the kids began writing “checks” and w/d money via the discover card. who cares if it was 22% int. then, credit being so easy to obtain, this same generation begins to hear that buying a house is much smarter than renting (nevermind interest over 30 years triples your actual payment), and to encourage the home buyer, there were all kinds of stimulus packs. i.e. down payment paid and only paid back if you sold before 5years. then, everyone (economists, too) believed that the economy was fine (just 4 yrs ago). Just look at spending (again, nevermind that the spending was on credit.) Ultimately, I blame business owners and the big guys, but the consumers should have been much more aware!

In my humble opinion, the Reagan/Thatcher/Friedman/Ayn Rand right wing laissez-faire, anti-regulation, “free”market philosophy that has reigned since the early 1980’s is responsible for the current meltdown. No question about it. And when is the Show-Me Institute(which is funded by super-rich Republican financier Rex Sinquefield)and the other far right wing organizations(Cato, American Enterprise, Heritage, etc)going to own up and take responsibility for this, the latest in but one of a series of economic calamities since the Age of Friedman? Responsibility is not very big right now with this gang of discredited and discreditable philosophers who make up the mostly pale, mostly male, and always stale super-rich corporate elite in our beloved country. Wake up, folks! Have a cup of fresh, hot locally-brewed coffee and put down that Fox “News” and Wall Street Editorial Board kool-aid!

Tim,

Even if all those poor people that had no business getting home loans from banks who had no business lending to them, it would not have caused the catastrophic global recession we see today. What Gramm enabled was the ability for banks and investment companies to commingle and he deregulated the trading of the credit swaps, the swaps were mixed like so much sausage and securitized into investment vehicles. THAT is the true amplification of the problem. That is what launched what could have been an isolated problem in the housing sector to bring about the downfall of Merrill Lynch, Lehman Bros. and bankrupt municipalities, school districts, and evaporate retirement nest eggs.

Joe, banks wouldn’t exist today if Glass-Steagal hadn’t been repealed. What worked then was killing banks now. I used to work in the banking industry and the loss of deposits to security firms was seriously harming many banks.

Joe, there is nothing wrong with the investment packages IF Conrgress didn’t demand that Fannie and Freddie press for mortgage approval for (at best) marginal loan seekers. It was the fact that all these optional-ARM loans got made to the wrong people. A few bad apples ruined the whole pot as the saying goes.

I guess we are having a which came first the chicken or the egg debate here, eh?

Whiterose, you managed to type all those words and not say anything of relevance. Do tell, how did you master such a skill?

Tim,

Was it Fannie and Freddie that chopped up all these mortgages and mixed them in and securitized them and sold them as investments? Did they create an unregulated market of betting on credit-worthiness even when there was no real asset underlying the bet? Phil Gramm lifted any regulation on that massive market of betting that we know are credit default swaps to the tune of several trillion dollars. It’s not a matter of a chicken and an egg. This isn’t an issue of causal relationships. If ratings agencies, lenders, and these derivatives traders had really done their jobs and ’self-regulated’ themselves, they would have stayed far away from the murky sausage-investments that included mortgages to people that were already delinquent THREE MONTHS in. But why didn’t they? Because NO ONE had the documentation. Why? Because in some of these bets you’re not even required to have a stake in the underlying asset. But you are more than welcome to play with other peoples’ money based on it. Even if we accept the notion that homeownership was pushed on people that had no business taking on a mortgage, it still does not explain away the failure of these traders to self-regulate themselves.

I find it ironic that everybody blames Gramm when he was one of 100 senators and 435 members of the house of representatives. Plus Clinton signed it. It sounds like he had a lot of help passing the bill. Finally, it is highly debatable what the impact of repealing Glass Steagal really was. I agree with David Nicklaus that it likely reflects the left-leaning tendency of Time and its readers.

Similar to what David Nicklaus stated, the biggest share of the blame should probably go to Alan Greenspan and then the leaders of Fannie and Freddie. Everybody that understands Fannie/Freddie knows that they used their political connections to avoid greater regulation despite many efforts for tighter oversight. It’s also undeniable that they are extremely close to the Democrat party which did the lion’s share of the effort to prevent stronger oversight. Franklin Raines and Joe Johnson, who were the two previous heads of Fannie, were big Democrats. The Bush Administration actually tried to tighten oversight for years but Democrat Congressmen, like Barney Frank, and some Republicans wouldn’t allow it.

In hindsight, it is clear that this crisis was a result of very bad lending practices during an asset bubble. The biggest part of the asset bubble was real estate but there were other major contributors such as LBOs driving the value of companies far too high. The biggest root cause was the easy money policy of the Fed which allowed people to borrow far too much for far too cheaply. This drove real estate prices through the roof as well as any other asset that could support leverage (the link to LBOs). People were therefore buying assets for unrealistically elevated prices largely because they could borrow the money. This resulted in 1,500 sq. ft. shacks in California selling for $1.5 million to people with interest only mortgages.

The decision by Fannie and Freddie to go big into sub-prime three years ago to protect their market share was also a big contributor to the disaster. This is what caused their collapse.

Securitization was the other major contributor in my opinion but also the hardest to fully understand. Dumb institutional investors were willing to buy this crap even though there was major intermediation risk. In other words, the intermediaries didn’t maintain underwriting standards because they knew they wouldn’t own it long term. Securitization, however, has been around for a long time so it is difficult to determine who to blame except for greedy investors who ultimately got burned.

I find the parellels with 1929 to be interesting. In 1929, you had very bad lending into a stock market bubble. Banks were lending money on margin to people who then bought stocks. The stock market had a valuation bubble and when it popped people couldn’t pay back the banks and the whole financial system collapsed and people lost everything. The result was Glass Steagel, the SEC, and limits on margin lending which were overall useful. You also ended up with a lot of regulation which was quite counterproductive.

However, in response to whiterosesociety, none of the reforms of Reagan or Thatcher had anything to do with this. As a person who has worked as an investment banker for over ten years, I will also let you in on the secret that the majority of investment bankers are Democrats. If you truly believe this, please point out which specific policies caused the problem instead of spouting off without any specifics.

My concern now is that instead of enacting targeted regulation to fix the problems, we are having a Democrat controlled government enact their dream list of anti-business, special-interest driven legislation. This will have long-term negative consequences for the US economy and actually could result in a repeat of many of the same mistakes from the 1930s and 1960s.

The repeal of Glass-Stegall, passage of NAFTA, and the lowering of lending standards are responsibe for our plight. Sandy Weil, Robert Ruben, Allan Greenspan, and then President Clinton are the primary individuals responsible for the death of Glass-Stegall over the objections of many House Democrats. It ultimlate repeal was greased by $300 million in campaign contributions to members of our banking related committees. There is plenty of blame to go around. The root cause of our demise is that statesmen have been replaced by professional politicians most of who have an inate sense of entitlement.

I applaud Paul Volker who fought the repeal of Glass-Stegall since the early 1980s.