Who Caused The Mortgage Meltdown ?

In the summer of 2007, the worst financial disaster since the Great Depression hit the United States.  This mess was caused by the banks and the financial services “industry.”  There are some who would have us believe that the meltdown was caused by the government.  The myth goes something like this: The government “forced” the banks to make loans to people who couldn’t make the payments.  In reality, the only role the government (actually politicians) played was to legalize and facilitate the actions of the money lenders who caused the disaster.

The 1999 Republican-sponsored Gramm-Leach-Bliley Act was a gift, to the banks, that was signed into law by Democrat Bill Clinton.  In effect, this deregulation recreated the same financial market conditions that made the Great Depression of the 1930s inevitable.  The primary sponsor, Phil Gramm (“Foreclosure Phil”), upon retiring from the Senate, was hired (and well paid) by the Swiss investment bank UBS AG.  I’m sure they loved his resume.

Home mortgages are a massive cash cow for the financial services “industry.”  In order to milk as much money as possible from home buyers, the pool of potential borrowers was expanded to the point of reckless stupidity.  This was done by drastically lowering lending standards.  The frenzy of deregulation culminated in George W. Bush’s 2004 “ownership society.”  The legislation that he proposed created taxpayer backed mortgages for 103% of the value of a home.  To make matters worse, it was legal to give these doomsday mortgages to people with “blemished” or “impaired” credit!  The result was a multi-billion dollar windfall for Wall Street money lenders and a disaster for American taxpayers.  Nobody forced the banks to make these time bomb mortgages.  The Gramm/Bush legislation was simply the green light for deregulated free market capitalism to run amuck.

The garbage mortgages were then “securitized” (bundled and packaged into bonds) by Wall Street and sold around the world.  When the adjustable rate mortgages “reset,” millions of borrowers defaulted and the whole rotten scheme came crashing down, sticking the taxpayers with the bill.  If that isn’t bad enough, the interest, principal and equity of these junk mortgages are part of the collateral that backs the global monetary system.  When these mortgages lost value or became worthless, a large part of the global money supply vanished into thin air.  This happened because the money that disappeared never really existed in the first place.  It wasn’t money, it was debt.  This “credit crunch” illustrates the fatal flaw in our idiotic fractional reserve banking system.  Contrary to the happy talk from Wall Street shills, the resultant financial disaster is still very much with us.  

The popular mortgage meltdown mythology claims that low interest rates and dishonest borrowers caused the crisis.  Not true.  So called, “cheap money” would have enabled the money lenders to make fat profits on low interest, fixed rate mortgages.  But that wasn’t good enough; they wanted to make a killing.  Conservative talk show hosts like to blame the borrowers for the crisis.  This is nonsense.  The ultimate responsibility for the quality of a loan rests with the lender.  Credit checks and credit limits were thrown under the bus because they would have prevented predatory lending and cut into the gigantic profits.  Wall Street got filthy rich and the taxpayers have to clean up the mess and put up with the austerity.

And blaming the Community Reinvestment Act is just another red herring.  The CRA was passed to prevent discrimination in lending.  Credit checks and credit limits based on the ability to repay the loan were not in conflict with the CRA.  But the diabolical money lenders used the CRA as an excuse to sock poor people with backbreaking interest rates.                

So, who is to blame for the disaster that wrecked the American economy and caused the budget crises at the federal level on down to the states and local municipalities?  I say Wall Street.  The government’s role was limited to the self serving actions of a few rotten politicians and the compliant, complicit bureaucrats that they appointed.  Now the politicians and pundits are demanding pain and austerity from the people, us, who did nothing to cause the economic mess that we are in. 
It is no secret that Wall Street and the business community hate the government.  If they had their way, they would pay no taxes and there would be no government regulation.  Well, isn’t it a coincidence that the net result of the mortgage crisis is a situation that forces us to go in exactly that direction?

Hummm, let’s see if we can connect the dots.  The mortgage crisis caused the Great Recession.  The Great Recession caused more than eight million people to lose their jobs.  This drastically reduced tax revenues.  Budget shortfalls mean less government.  Less government means less government regulation and less unionized government workers.  The laid off government workers put even more downward pressure on wages.  And, of course, the taxpayer bailout of Wall Street exploded the budget deficit and the national debt. 

To deal with the budget shortfall, the Republicans want to cut funding for IRS enforcement.  According to the Washington Post, this will make it easier for tax cheats to stick honest taxpayers with an additional six billion dollars a year.  The budget deficit is the excuse the Republicans give for cutting funding for the Environmental Protection Agency.  Who would have thought that the mortgage meltdown was going to make it easier for corporations to poison our air and water?  If the Republicans have their way, many beneficial government services will be cut to “balance the budget.”  And, to top it all off, to balance the budget, cuts will be made to social security, Medicare and Medicaid.  This will force more people into the clutches of Wall Street and the insurance “industry” for their retirement and healthcare.  What a happy coincidence, for Wall Street and the insurance companies. 

Alan Greenspan claims he made the “mistake” that caused the mortgage meltdown and the global financial disaster.  Actually, it sounds like a PLAN to me.

Ray Uhric                                            April 5, 2011

There are United States Constitution-based economic reforms that can lower the national debt and solve our fiscal problems.  Read about them at www.rayuhric.com.