Tuesday, September 23, 2008

Responsibility When the State Has Rigged the Financial System

The state, through its instruments Fannie Mae and Freddy Mac, and the Community Reinvestment Act, caused a vast amount of bad loans to be made. Fannie was in part a sort of embezzlement scheme in which millions of dollars was funneled through to Democratic Party bigwigs, with Democrats in the Congress (Barack Obama, Hillary Clinton, Chris Dodd, etc.) providing cover for them and receiving big bucks in campaign contributions from the FMs. Link and link and link. McCain and Bush tried to clean the mess up with regulations. Obama and the rest stopped them. Your economy has been brought to a very dangerous place because of Obama and the rest of the Democrats who championed the FMs and the CRA during the last few decades.

Other entities - homebuyers, investors, short sellers, etc. - contributed to the problem's severity. But they have little of the blame. When the state causes the making of bad loans and provides private-sector lenders and investors with buyers of their high-risk mortgages, then assigning responsibility to those private-sector concerns requires the following assumption:

That private-sector investors and lenders morally should not make or buy high-risk mortgages even though there are two large and eager buyers of these to whom they could sell them.

This is an untenable assumption. If there are companies in town who want to assume the high-risk responsibilities I create for myself, and will pay me to transfer these responsibilities to them, and are not obviously crazy or intoxicated, then I am morally blameless for continuing to create and sell these high-risk responsibilities to those companies.

And to blame the illogic at the ratings firms, the existence of naked short-selling, the demise of the uptick rule, etc., is even more to lose sight of who is really responsible for this mess. It may be that these are problems that needed to be fixed. But it's like blaming a deadly accident on the only slightly loose brakes and steering of the car, when in fact the driver's decision to take the curve at twice the viable speed that caused the accident. You were a passenger in the car. McCain and Bush told the driver not to attempt the stunt and sent a message to the police asking them to stop him. Obama and the rest cut that message off and threw it in the trash. Obama's rich. Dodd's rich. They got $100K+ from the FMs. Raines and Gorelick got rich from the deal. You? You got taken to the cleaners.