Cause And Effect
Without even knowing all the science behind it, most of us know the common sense of “cause and effect”… of probable outcomes from certain actions. If I drive a car with my eyes closed, I’ll probably run into something. If I ignore the “low oil” light in my car dashboard, the engine will eventually seize up. If I don’t pay my car loan, they’ll repossess that car and ruin my credit. There is no mystery to any of this.
When Congress decided to coerce banks to loan to less-than-qualified borrowers so they could buy homes, it should have been completely clear that many of those loans would eventually default. What did they expect would happen at that time?
And when government interferes with market forces, unintended consequences often follow. While their target were poor people, they changed the rules for all people… so speculators started taking advantage of this ability to borrow without demonstrating their ability to repay. Just think about the popularity in recent years with the TV shows about flipping houses. While some of this activity was done by experienced business people, a LOT of the “flippers” were amateurs who got in over their heads.
This circumstance should never have been allowed in the first place. We have most of Congress to thank for it… those who advocated these activities and those who did not object to it (the “get along” crowd. There were a few voices expressing their concern but, sadly, not enough.
When the ball started rolling, then many other factors complicated it. Wall Street securitized the mortgages, which provided fuel (money) for more such loans. Making it even more complex, there were several LAYERS of securitization… to the point where it is hard to know what loan is underlying any particular investment vehicle.
Add to that the “government backing” of the loans via the auspices of Fannie Mae and Freddie Mac, making these “highly rating” or “safe” investments, so people and organizations feel confident enough to put their money in such investments. Little did they realize there was such a vast array of bad loans standing as the foundation of those securities. Or maybe they did but the government backing led them to ignore that basic weakness in the securities themselves.
Allow this to go on for years, growing in force and intensity, and it was just a matter of time before the “chickens came home to roost”. All it took was a small downturn in the historically cyclical real estate market to trigger a collapse of this house of cards.
To add insult to injury, we now find that some of the very people in Congress who were at the root of the problem are now the most vocal in expressing the need for their help, for Congress to step in and fix the problem, for government to take control of distressed companies.
I am still waiting for the Congressional hearings on this matter… where all of the public will be able to learn exactly WHO was behind all of these flawed activities that was the basis of all the problems we’re experiencing today (and will have to pay for in years, if not decades, to come).
Where are the Congressional hearings?
