Posted by
Brett Stevens on Thursday, May 07, 2009 11:40:22 AM
"Rather, what we have seen is disastrous groupthink, a way of looking at the world from the perspective of Wall Street and Wall Street alone. That failure has brought the world economy to the edge of unraveling. And some of Geithner's early missteps betrayed an inability to get beyond this tunnel vision, such as the idea that the banks need to be first in line to be paid and to be paid in full." Eliot Spitzer on Slate.com
The resurrection of New York's most famous john, Eliot Spitzer, has begun. He is writing for Slate.com and is trotting in front of the cameras on various talk shows espousing more regulation and more oversight. Regardless of his past exploits, he is trying to explain away the current crisis, and actually getting close. Sorry, Eliot, no cigar as of yet. As a Democrat and oligarch, Spitzer cannot get past the idea that if we were only smarter and more vigilant, we wouldn't be in this mess. He fails to understand the underlying cause of our financial crisis. Busy, is he, with building up more bureaucracy and more oversight for a sector that already has too much meddling. The crisis is a crisis of too much credit given to people who cannot afford it. That is the underpinning of this problem. Instead, Spitzer strikes blindly with a huge hammer at the issue and misses the nail.
The genesis of the financial crisis began with increased lending to people who couldn't afford it. How do we know this? Because, the entire house of cards began collapsing when people began to default on loans. When housing prices stabilized and sales began to plummet, it was people who had taken on too much debt who stopped being able to pay. Once the sales drooped and the foreclosure market heated up, the cards began falling down. That is when the market for derivatives became shaky and started to fail. That was when Fannie Mae and Freddie Mac, which insured bad bets, became insolvent. That was when AIG, which had insured a bunch of these questionable loans began to sink. The entire structure of this intertwined mess was based on a bad presumption, too big to fail. The poisonous little nuggets that lay waiting to explode, well exploded. Those nuggets were those loans forced upon banks by REGULATORS and COMMUNITY ACTIVISTS who started the whole bad idea. It was further based on the assumption that a few bad loans couldn't break the system. However, a few bad apples do spoil the whole bunch.
Who regulates the regulators is the nub of Spitzer's article. The answer, of course, is Congress. Ultimately, it was congressional action that started this whole mess with the Community Reinvestment Act, which is courtesy of the Democratic party and the leftist poop and pee throwers. They intimidated the banks and mortgage companies into making these bad loans. When the housing market was expanding, it did no harm. As long as the market held and they made borrowing cheap, the expanding bubble didn't burst. But, once the bubble reached its preordained end, it did burst. The regulators relied on faulty premises to begin with. Those premises were a few bad loans wouldn't break the system and bigger is better. Both proved wrong. But, instead of realizing this error, these regulators and the oligarchs in the Democratic party are once again relying on those bad suppositions to try and dig out of this mess. Of course, they will only create another bubble that will burst again. In the mean time, we will go broke trying to subsidize bad lending practices.
It will be an unending circle of failures until we can no longer pay for these dumb ideas. We will bankrupt the system and have layers and layers of oversight that will be overseeing failure. These fools will continue to enforce making poor loan choices as part of the system. We will continue to have more foreclosures and broken lives. Until these oligarchs realize the underlying causes of this crisis and move to fix them, there will be no sustainable recovery. Our banking system will limp along leaking money like a wounded patient. The Democratic establishment will continue to stab the patient, even as it tries to heal. But then, maybe we're all just too stupid to understand the problem as well as these 'wizards of regulation' do. I, personally, do not have much faith in their abilities.