In the thought experiment we did last week, we looked at what the world would look like if the CRA was a “prime cause of the mortgage, credit and housing related crises.”

The usual suspects were unable to respond to that approach.

I have an even simpler query: Who and what was at fault in the entire debacle, from Housing to Credit to Collapse? In what order would you assess the blame?

I don’t mean a soft, squishy, this influenced that who then influenced that guy; I mean a hard list, from most at fault to the least, numbered from 1-20. When you think about all of the moving pieces, and start to assess blame both in absolute and relative terms, the actual blame of real bad guys becomes more obvious.

In Bailout Nation (Chapter 19), my list went something like this:

1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17.  The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18.  President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28.  Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk

Several names were omitted for reasons of avoiding repetition: CEOs of major banks and investment firms, the Crony Boards, the AWOL Mutual funds. While the the list in chapter 19 is somewhat incomplete, the book as whole is not.

Given the elapsed time, I might today move some of these pieces around — raise or lower some a few notches. And in the editing process, some items got moved around to for layout purposes (I had Reagan below Bernanke, but due to space limitations caused by other changes, he got bumped to the Clinton line to preserve the already written index).

Regardless, I can live with the above as my list of culprits — what does your list look like?


Note:  I hope this will be my final CRA post for the foreseeable future . . .

Category: Bailouts, Credit, Data Analysis, Politics, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

177 Responses to “Who is to Blame, 1-25”

  1. Brett Tibbitts says:

    Barry, you continue to dwell too much on the past.

    Yes, there is plenty of blame to go around for the mess we are in. I certainly agree Alan Greenspan is the number 1 culprit. But you are far too much of a liberal if you put the American public (at least those who bought homes) at number 12. Bubbles depend upon greed in human nature. How about more responsibility at the individual level????

    There is no way this country is going to ever legislate against greed – unless it succeeds in bankrupting us all and making us pawns of the state. This is of course what the academic elite ruling this country at the moment want. Each of the czars sole purpose is usurp power and install the liberal thinking of our so called academic institutions throughout all aspects of all lives. What a joke.


    BR: Funny, some other people criticized them even being no the list. You think they need to go higher

    The reason they are #12 — and not 3 or 5 or 7 — is that people should be capable of doing dumb things without bringing the entire system screeching down. Hence, why the CFMA, repeal of GS, Ultra-low rates, Rating Agencies slapping AAA on junk for $, SEC increasing leverage to 40-to-1 — all come higher.

    As to the name calling — that is why the default setting is moderated comments for newbies.

  2. Greg0658 says:

    blogger / poster “Let’s borrow (steal) some more money from future generations to fix our personal balance sheets”

    I am in the camp that repairs need to be made if at all possible .. not just let the chips fall .. there may be nothing (or little) worth salvage’g for future generations .. of course I’m talking my little $ book

    say Chernobyl could have been diagnosed before/during to better handle the destruction outcome

  3. Greg0658 says:

    Ivan Bowski put the fear into cash traders .. REALLY .. evidence abounds

  4. Bruce N Tennessee says:

    Hey Ben!

    Give me a couple of lines about the buying in the long term treasury market…I’d appreciate anything you want to share.

    B in T

  5. Thor says:

    Ben22 – good point – I’ve always been fascinated with old stories being new. I remember an entire two hour lecture on the difference between government reported unemployment versus “real” unemployment. This was back in 1992. Also love all the “America is in decline” stories, these go all the way back to the Civil War. Granted, things may be different today, but by-line stays the same.

    Karen – yes, I really should bite the bullet and read up on some stock market history or at least some economics 101. I have to admit however, that although I am a voracious reader, I tend to cycle between fiction and non fiction and am having a hard time breaking out of my current fiction cycle. Might have to do with the fact that the pertinent non-fiction I should be reading today is fairly depressing.

  6. karen says:

    Bruce, a great place to check the daily bond story: Bookmark it!

  7. cvienne says:


    There are clearly two camps:

    1. Those who cannot fathom the possible dark depths of “not doing anything (or doing too little)”.
    2. Those who envision that “digging a deeper hole” will lead to even MORE unfathomable & darker depths in the future.

    Neither prospect is very cheery.

    I suppose it would be IMPOSSIBLE to “not act” (if you find your own self with your hands on the steering wheel at present)…So that’s where we’re going to go…We’ll act to avoid scenario #1 and thereby likely create scenario #2…

    The rest is all just finger pointing…It’s become our national pastime…

  8. cvienne says:


    “Might have to do with the fact that the pertinent non-fiction I should be reading today is fairly depressing.”

    If I can figure out a way to spin it into a Dr. Seuss rhyme would that help? :-)

  9. Bruce N Tennessee says:

    Thanks Karen! You are a good woman, no matter what Thor says…..

  10. Thor says:

    cvienne – “The rest is all just finger pointing…It’s become our national pastime…”

    I’ll second that

  11. Bruce N Tennessee says:


  12. Thor says:

    Bruce – smart ass ;-)

  13. ben22 says:


    Just two quick thoughts.

    There was a chance to sign up for Rosenberg’s letters at his new company while they are still giving them for free on a trial basis ( I doubt that lasts very long) in his most recent he’s calling for 2% something on the 10 year bond. He has a lot of commentary on the bonds that is probably worth a read.

    I have also seen a lot of the better hedge fund managers say that they are looking at long treasuries as well, then again, there are some notable managers in that space that seem to be going the complete other way.

    Lefty was all over this recent move in treasuries, I was looking to buy TLT a few weeks ago but never pulled the trigger, I ended up earmarking that capital to a silver short instead, that ended up making me more anyway.


    The other book that Karen rec’d above is a really good one. Often times I hear people that say you can’t compare now and the depression because it was a different country or a different economy however, human emotions, imo, don’t evolve. So while economies and markets will change, social mood, which is the driving force behind it all, tends to “rhyme”, as a pretty good writer once put it.


    Interesting video in the video section here at TBP on this topic, the setting of the video reminds me much of the Zeitgeist video’s all over the web. Inflation is now possibly the most crowded trade ever, seems like it is right up there with tech and real estate.

  14. Thor says:

    benn22 – “human emotions, imo, don’t evolve. So while economies and markets will change, social mood, which is the driving force behind it all, tends to “rhyme”, as a pretty good writer once put it.”

    I agree – you often hear people argue that times are different today because of the speed at which data and news movies compared to the 1930′s. Although I would concede that point, I would argue that this is more than offset by the speed at which legislation was enacted and acted upon 70 years ago. Today the pace at which any meaningful reform is put through is glacial.

  15. cvienne says:


    “Today the pace at which any meaningful reform is put through is glacial.”

    What do you expect when 435 representatives and 100 senators (from BOTH sides) have to get in there and add pork to something?

  16. Thor says:

    cvienne – don’t forget lobbyists and special interests

  17. ben22 says:


    as for legislation, don’t worry, the admin. should help push my deflation thesis right along in the fullness of time. Just be patient for it. Look what they did with GM! Even the move they made with the senior debt holders will have a deflationary theme for years to come.

    Remember that legislation in the markets is never proactive, only reactionary, just like the Fed doesn’t make interest policy, they let the bond market tell them what to do. Don’t fight the Fed would be better stated as don’t fight the bond market. Glass-Steagall, for example, was put in place to prevent a collapse like the GD from ever happening again, and it was done when the GD was basically over, it was repealed right at the time it was needed most.

  18. cvienne says:


    Don’t look now, but with 1 hour to go in trading, the VOLUME is set to come in way lower than even Friday (which, I think was the lowest volume day since January 2nd)…I’m going off the top of my head there so somebody chime in if I’m wrong…

  19. cvienne says:


    “Glass-Steagall, for example, was put in place”

    Oh no ben! You said Glass-Steagall…We’re trying as hard as we can to move AWAY…AWAy…AWay…Away…away…***y…

  20. Thor says:

    Ben22 – Funny you should mention that. I’ve often wondered if the administration knows full well what it’s doing right now with the “re-inflation” scheme. Maybe they know the American psyche better than we think. Run up equities again, get the banks our of TARP, watch oil spike again then sit back and watch it all come crashing down again in the not too distant future. Then all they have to say is “look, we did our best, we tried to save the banks, we tried to let them get by with light reform – look what happened, it all came crashing down again – now we need to break them all up so we don’t have yet another collapse a year from now”

    Crazier things have happened when it comes to political calculation.

  21. ben22 says:


    You give them way too much credit, I don’t think they have a clue nor does that sound like a very good political strategy (then again I know nothing about that). They are doing their best to react to everything like I said above. They have reacted like champs so far. The end result, since they only keep going after symptoms, not the problem, will be failure.


    People may want to get away from that kind of stuff but the social aspect that results after such moves clearly has a meaning worth discussion.

  22. Bruce N Tennessee says:

    Thanks Ben.

  23. I-Man says:

    @ Karen:

    Thanks for the “Its Economic”… good stuff.

    All about perception now isnt it?

    Funny how you can point to all the fundamental and technical data out there for causality and what “might” happen… but the intangible “perceptions” are most powerful… change perception, and watch the tide change faster than deemed possible.

    Kinda makes you wonder how far off the day of reckoning is when the phrase… “backed by the full faith and credit of the USG” will lose its “bulletproof”… perception.

    Kinda scares the shit out of you.

  24. cvienne says:


    Agreed…It’s just that people keep churning it back into the butter of partisan politics…I feel like I’ve read the same thoughts (on both sides) about 1,000 times each already…

  25. I-Man says:

    @ Karen:

    One more thing… do you have DUG trading down to 17.25-17.50 for your next buypoint? Was thinking about opening some here… but will respect the pattern.

  26. scm0330 says:

    i’ll blame “the people” too, but not out of partisan hackery. i’ll blame most people for not getting and staying educated on matters of the economy, of government, of personal finances. we’ve allowed ourselves to be seduced by chimerical “wealth” that was no such thing; it was credit that we couldn’t afford.

  27. ben22 says:


    930 is pretty close buddy.

  28. ben22 says:

    it was credit that we couldn’t afford.


  29. karen says:

    I-Man, i bot a second piece of dug at 18.34 today. it’s all the dollar right now as far as i can tell. let me know when you’ve got that one figured out : )

  30. I-Man says:

    @ B22 + CV:

    To I sites… 930 looks like a right shoulder… the first one. There will be another.

    Kinda weird… the first time I’ve been net short and actually wanted the market to go higher…

  31. cvienne says:


    “930 is pretty close”

    I know, I’m watching it…The volume is awful anemic today…It’s something like the 2nd lowest volume day of the year on the SPY…The past 4 days are way below average as well…

    On the other hand, crude WENT PAST doing a .618 FIBO retrace to the previous high…If the S&P follows suit, 930 may be broken…I’m going to watch the VOLUME as it hits 930…

    Another part of the equation is the DOW…The S&P is positive for the 1st half, but I think the DOW needs to get up to 8772…I want to see “if” and “how” it threads the needle technically…

    I’m flexible

  32. willid3 says:

    i might not have buyers and borrowers as by them selves they can do nothing. but replace them with speculators some where on the list. and i would break GS out by it self. and add JP Morgan since they participated heavily and was the prime inventor of financial WMD

  33. dmlopr says:

    And where should we put MSM? They did not ring the bell loud enough to make J6P think twice, IMO. I’d even like some university presidents to think you should have done a better job uncovering this mess.


    BR: They are the messenger, not the actors. There is no doubt they could have done a better job, but they did not cause the problem.

  34. I-Man says:

    @ Mistress:

    I gave up on that one. Too much fundamental blase and foreign central bank chicanery going on with the dollar. Let me know when it breaks or breaks out.

    You can probably just watch crude and get your answer… and you know how that looks.

    As per gold, my view intuition and chart wise: going higher… but dollar going up couldnt possibly be gold bullish could it? Or could it?

    Thats the more important question IMO. Hard to look at that Inv H&S and not put a 1300 handle on gold… regardless of what the dollar does.

    Its an interesting paradigm we are entering here.

  35. dmlopr says:

    should have said “to think they”.. sorry

  36. ben22 says:


    Andy T made a worthwile comment on the H&S pattern the other day. Everyone can see it/them and he made the prediction that it is such a common pattern now that there will be less and less of them moving forward.

    I’m not long or short right now, even my own money is sitting mostly in some real short term debt along with some UUP and I’m just picking trades here and there like the silver short. I was trying to find an entry point for a trade in BA or MON but haven’t done anything there yet. The DOW was trailing the S&P and Nas recently and now it seems to confirm the move up with them both. Going to be an interesting week, these short weeks tend to be pretty rocky according to my trading notes.

    Like Karen said it’s all about the dollar.

  37. karen says:

    I will point out the ugly candle on the $tran.. maybe confirms friday’s “top”/turning point. the $wlsh, on the other hand is looking pretty strong… and bizarrely, the $xal is treading water nicely with crude at $71? uup is making me seasick.

  38. packman says:

    Greenspan and Fed – definitely right to be #1 and #2. I’d swap the two though, given that the Fed has a history of bad monetary policy, and Greenspan wasn’t acting alone in his moves.

    I would definitely put Barney Frank on the list, due to his influence over Fannie and Freddie in pushing them to loosen their lending standards.

    IMO GW Bush is too low – the ball was rolling by his tenure but still fairly slowly – he really pushed it much faster with the “ownership society” initiatives, and going along with the Greenspan/Fed policy. I’d put him ahead of the ratings agencies, SEC, and Gramm.

    I’d put in a vote to include FDR on that list too even. He really grew the precedent of Federal government backstop of financial institutions, most notable including the creation of Fannie Mae, which laid the table for the risk game that was ultimately inevitable.

    f411 – if you’re going to be so generic as to blame “The American People”, why not blame their parents, who bred them and raised them? But then you have to blame their parents’ parents, and their parents, etc – back to Adam and Eve or monkeys (whatever you believe). Spreading the blame so generically is just an attempt to water down the original conversation. In the end we have to get specific; The American People didn’t all of the sudden have a mass ethics violation; they were led/lured there by things like low interest rates, tax incentives, etc. with enabling by loosened lending etc., that all had specific authors and promoters.

  39. call me ahab says:


    but- Fannie Mae was privatized in 1968 to get it off the government’s books- only to find out circa 2008 that Fannie and Freddie were not private at all- that they were backed by the full faith of the USG- implict gaurantee??? Pulease- that’s just silly- it’s an explicit guarantee-

    now let’s just bring all that debt on the government books so we can acknowledge what everyone knows- but that won’t happen- that would make us look insolvent

  40. Onlooker from Troy says:


    quote: “Spreading the blame so generically is just an attempt to water down the original conversation”

    Yep, that’s one of my big “watch out for”-s these days. If everyone’s to blame then no one’s to blame. And the real culpable parties skate by. That’s surely what the banksters are hoping for. And it’s also what the irresponsible consumers are hoping for too. They want hide in the “everybody was doing it”,

  41. Onlooker from Troy says:


    quote: “Spreading the blame so generically is just an attempt to water down the original conversation”

    Yep, that’s one of my big “watch out for”-s these days. If everyone’s to blame then no one’s to blame. And the real culpable parties skate by. That’s surely what the banksters are hoping for. And it’s also what the irresponsible consumers are hoping for too. They want hide in the “everybody was doing it” and “who could have known” excuses.

  42. leftback says:

    See what happens when LB takes the day off? Half the people are discussing the motivation for my LB Bottom™ call and the other half are talking about whupping Karen in a TBP bikini contest. Wowza. I guess the market was a yawner…

    My motivation for the LB Bottom™ call, for those who are interested, was really based on sentiment extremes, the kind that Barry likes to analyze, and the fact that the yield on the S&P was around 6% at the time with the 10-year at 3% or less. It’s true that the Prez observed that stocks were cheap around that time, and indeed they were – at the time. For me, the Jon Stewart-Jim Cramer smackdown represented a sentiment extreme and also an awareness extreme – the fact that everyone AND HIS DOG was watching the market, which normally happens only at bottoms, and maybe a bit at tops.

    Now the bikini contest – that sounds like a challenge, but it is hard to believe that Karen would take a beating in any contest, trading, bikini, or otherwise. Highly competitive, our Golden Girl. At least that’s my guess.

    Interesting to hear someone calling this morning for a 17% rally in the dollar before year’s end. That can mean only one thing for equities and commodities.

  43. Greg0658 says:

    back from errand running and cruzin by the empty storefronts and the big car lots (partially filled) around the big box stores

    1 – 25> TBTFight should be in there .. Merge&Acq into Too Big To Fail / Fight … on top of robotic industrialization and globalization of human labor .. the whole process is wringing out excesses

    poster “blame their parents’ parents, and their parents, etc” .. good one … thats part of it too .. tell me capitalists what happens to something that there is just to much of?

  44. BG says:

    I’ll tell you who is to blame. NOBODY!! That is what our Government wants us to think. The same attitude of getting to the bottom of this financial collapse is no different than the apathy used to insist our southern border can not be secured.


    Sad but true. OUR so called GOVERNMENT will only get to the bottom of this when their slimy backs are pinned to the wall. As for our southern border…it will be secured the SECOND they decide it needs to be secured but not before. What I see happening is a WMD crossing our southern border and then someone WILL PAY because the desperate masses will be knocking down doors trying to locate who was ultimately responsible for allowing this debacle to happen. It is the same old, same old. We fuck around until something bad happens and then refuse to hold anyone accountable.


  45. wunsacon says:

    You are my hero, Barry. Great list…

  46. W T F says:

    1 Lending banks
    2 Mortgage originators
    3 Mortgage brokers
    4 Appraisers (the dishonest ones)
    5 State regulatory agencies
    6 Borrowers and home buyers
    7 Federal Reserve Chairman Alan Greenspan
    8 The Federal Reserve (in its role as bank regulator)
    9 Office of the Comptroller of the Currency (OCC)
    10 Office of Thrift Supervision (OTS)
    11 Federal Bureau of Investigation
    12 The Federal Reserve (in its role of setting monetary policy)
    13 n/a
    14 n/a
    15 n/a
    16 n/a
    17 Republican Congress from 1994 to 2006 for:
    whining about Fannie Mae and Freddie Mac and
    failing to do a d*mn thing about them;
    allowing banks for forgo payments to FDIC insurance
    in good times;
    in general failing to provide legislative oversight
    of regulatory agencies
    18 n/a
    19 n/a
    20 n/a
    21 n/a
    22 n/a
    23 Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings
    24 George W. Bush Treasury for allowing
    shawdow banking participants to lever up 30+ to 1
    25 The five biggest Wall Street firms (Bear Stearns, Lehman Brothers,
    Merrill Lynch, Morgan Stanley, and Goldman Sachs) and their CEOs

  47. uno says:

    I don’t know if you have any contact with him, but I’m wondering how Ed Seykota, legendary trader of Market Wizards fame, would respond to your “Who is to Blame” question, Barry. You might want to ask him, as the answer would no doubt be both enlightening & entertaining.

  48. danm says:

    I’m sorry but when the list is that long, it’s systemic plain and simple. If you think 1 person/entity out of all of these players could have stood in front of the moving train and stopped it, you are completely deluded.

    I just don’t get the point of this exercise. Is it to find THE culprit and hang him/her or is it to understand what happened and fix the problem?

    And even if you find THE culprit, what good is the hanging going to do? You’re just going to piss off posterity and plant the seeds for future retaliation. That’s the history of mankind.

  49. thetanman says:


    Doug Noland has always made a lot of sense. Things unfolded about the way he figured, but that damn timing problem again!

    The tanman-0-meter is on buy once again as I dumped my SSO today. The last buy, after flopping and chopping for a couple of days, promptly lost about 50 S&P points. The last sell signal went out at 25.1. I guess everything eventually stops working as you get older! Some of it good.

  50. peterwf says:

    BR a large broker decided years ago to take a casino junk bond, run it through a bank for a quick fee to get it upgraded to AAA by a rating agency (suitable for a bank loan) and quickly sell it off to the unsuspecting. It worked so well that it was soon expanded to mortgages etc. They devised bundling to get it out of their hands and into the unsuspecting. Most everyone soon caught on, knowing it wasn’t kosher, but prospered knowing that there was always a market and could be passed on. Thus, appraisers knew thay had to come through, rating agencies, loan brokers, banks, real estate brokers all joined in the game of pass it on. Then the game of musical chairs came to a halt. And, yes, the govt was involved as it gave the enablers, the bundlers, the excuse and inspiration and the cover for pursuing the biggest Ponzi scheme ever by passing these on. I’m an 86 year old retired public accountant and am not shocked.

  51. jonbo in AR says:

    I have to agree with the Franklin411 fellow. Americans have to be the laziest bunch of…uh, voters in the world. If we lose everything we deserve it. IOW, we’re begging to be mugged.

  52. jonbo in AR says:

    Well, then I read danm at 11AM and he said it a lot better than I did.

  53. cvienne says:


    Congratulations for getting your students to get online and agree with your posts for EXTRA CREDIT on their grades…

    You’re “helluva” persuasive…

  54. Theodore D. says:

    These comments are really long but I wanted to respond to the BUT/FOR cause naming the extended 1% rate. BUT/FOR that we might not be going through this now, but that does not make it the proximate cause (to keep it legal). That may have caused the explosion but we have been building the bomb for decades. Don’t forget bubbles happen, this was a perfect storm. By suggesting that certain Fed Policy was the key reason for this backwardly shifts blame to the policy of the FED and not the fact that the FED has the power to do this. We have system where if one man (Greenspan here) makes a mistake, for any reason whatsoever, it can lead to dire consequences all throughout the system. One unelected official in one position should not have the much power. This is a systemic problem that turned cultural, or vice verse, I don’t know which.

  55. rootless_cosmopolitan says:

    Who is to blame? I consider this the wrong question.

    The blame game doesn’t really lead to any deep analysis. For instance, the Fed was mentioned here, or even one person, Alan Greenspan, as alleged root cause for the crisis of capital accumulation on a global scale, as if there hadn’t happened similar things again and again since the genesis of capitalism, long before the Fed was invented or Alan Greenspan had become Fed chairman and not just in US. Thus, this is equally a myth as “efficient markets”, the money-multiplier explanation and thing like that.

    Not who. What is to blame.

    Capitalism. The law of value.

    Almost everything else can be derived from that. Well, ok, the bad weather can’t be, but the business cycle, the credit cycle, boom and bust, the over-accumulation of capital, the over-production of goods relative to demand, which is always limited, the increasing gap between the rich and poor ones, and the economic collapse when profit expectations of the capitalists can’t be satisfied as well as the ideologies and behavior of the character masks (like Greenspan) who function within the system.

    However, it appears many people can’t explain the world w/o finding someone to blame, some guilty ones who are imagined to have caused the calamities of capitalism by individual wrongdoing, caused by their flawed character or world-view, in the worst case because they were evil-mined conspirators. Too bad.


  56. Theodore D. says:

    Kinda funny that the guy above me is saying its systemic as was I, but I would argue the FED as the problem because they are more central planning – which is leading to problem, as does Fiat Currency, Fractional Reserve Lending, an annual 2% inflation target (teach people about compounding btw) and not “the law of value.” Many hate capitalism but the alternatives are worse. I kinda like it though, it generally rewards hard work, intelligence, drive and motivation (at least in my field). Kinda troublesome for those stuck in a cycle of poverty, but I am not sure if Capitalism prevents the rich from voluntarily helping the poor.

  57. Greg0658 says:

    I had to lookup to see if that was a real law …
    “production would stop sooner or later” caught me .. wondering how the rescue of the indigent thru social programs and bankruptcy laws for corporations in American capitalism .. mess with this law

    one of my earlier posts in this thread had me contemplating human child creation .. and how to a capitalist .. every living being to feed a something to .. is an opportunity for profit / balanced against / to the human production worker .. the more workers the less he/she is worth

    the dilemma is more people = more production needs .. does not equal out tho with robotic labor productivity

    Is it an equilibrium theory?
    Under capitalist conditions, balancing output and market demand depended on capital accumulation occurring. If profits were not made, production would stop sooner or later. A capitalist economy was therefore in “equilibrium” so long as it could reproduce its social relations of production, permitting profit-making and capital accumulation to occur, but this was compatible with all sorts of market fluctuations and disequilibria. Only when shortages or oversupply began to threaten the existence of the relations of production themselves, and block the accumulation of capital in critical areas (for example, an economic depression, a political revolt against capitalist property or against mass unemployment), a genuine “disequilibrium” occurred; all the rest was just ordinary market fluctuations.

    so .. danm says at 9:23 pm “I’m sorry but when the list is that long, it’s systemic” and no ones to blame
    .. brings to mind song sung live by Paul Simon at the 2001 Grammys .. “when I see it from the other side its a completely different song and I’m the one who made you cry and I’m the one whos wrong”

  58. [...] « Who is to Blame, 1-25 Bailout Tracker: TARP, TIP, PPIP and TALF [...]

  59. danm says:

    so .. danm says at 9:23 pm “I’m sorry but when the list is that long, it’s systemic” and no ones to blame
    .. brings to mind song sung live by Paul Simon at the 2001 Grammys .. “when I see it from the other side its a completely different song and I’m the one who made you cry and I’m the one whos wrong”

    Our system is flawed. And it’s not only about capitalism.

    When I started working in my early 20s I came into the workforce supercharged and full of energy and idealism. It did not take me long to see how INEFFICIENT our system really is. Energy is wasted everywhere. We talk about maximizing profits but let’s face it, efficicency is far from most people’s minds.

    The economy is made of millions of separate equations in which people are trying to maximize a variable. But if we were able to merge all these equations into one, the optimal solution would probably be much different. Just the fact that this is happening guarantees that we will be getting shocks every once in a while.

    Now let’s take a look at those who don’t respect the law. Not respecting the law does not make someone amoral. The law could be unfair and protecting a minority. If it weren’t for not respecting the law, the US would still be a Dominion of England.

    So let’s look at the system…
    Our legal system has evolved from the Magna Carta. And this Magna Carta was not about doing the right moral thing. It was about protecting property rights and social order. This Magna Carta protected the minority with the wealth.

    In North America, a dream was sold: the American Dream. And the idea was that everyone has a chance at prosperity if they try hard enough. Bush’s ideology of home ownership is an example. The reality is that the system is rigged and the true American dream is impossible for most of the population. Yet each American is still being judged according to the realization of this dream and they keep on being bombarded with ads and tv shows showing them how incompetent they are.

    When the system in place is in contradiction with the expectations, it’s a certainty that people will go out of their way to cheat. Just like the killer who rationalizes his crime in order to stay sane, all people rationalize their level of morality vs. their actions. An since respecting the law does not mean a higher level of morality, you’ve got an issue.

    If you look at it bottom-up, it is tempting to say that each person had a choice to do the right thing but when you look at it top-down, considering human nature, the writing was on the wall. It was clear that the system was breaking down and this started a few decades ago.

  60. [...] Ritholtz’ list on People to Blame from his book. Ritholtz is a traditionally bearish investor: Who is to Blame, 1-25 | The Big Picture [...]

  61. AMac says:

    Regular readers may be interested in the analysis that Steve Sailer has done. His contention is that the (bipartisan) politics of promoting minority homeownership–without regard to risk–was a major contributor to the residential real estate bubble. In turn, this was one major component of the financial crisis that came to a head in 2008.

    Sailer has not simply offered speculation on this point. He has collated data on loan origination and delinquency, and presented graphical and statistical analysis in support of his thesis.

    Sailer also coined the phrase “predatory securitization.” More so than “predatory lending,” this aptly describes a practice that many of the villians on Ritholtz’s list engaged in during the “Happy Time.”

    Here is a link to a chronology of Sailer’s posts on the topic.


    BR: I’ve reviewed Sailer’s recent commentary on the matter, including the post you referenced. They remain blissfully data free as tot he questions I keep asking, to wit:.

    As I have asked REPEATEDLY since this discussion began, show me some hard data on CRA loans. Then show me the foreclosure rates relative to the national averages, with disproportionate problems coming from CRA related bank lending. Show me the regions that CRA mortgages have caused massive foreclosures and dislocations. Please show me the CRA CAUSED DEFAULTS as a major source of disclocation!

    This is the problem with people who are “into” politics — they seem to mistake debate and chatter for actual events, and banking actions.

  62. AMac says:

    BR –

    (1) Is data on CRA loans in the public domain? To address your narrow question, it would have to be in a relatively granular form that is amenable to analysis. To address Sailer’s contentions, it would also have to be disaggregatable by race. (It would be reasonable to expect CRA regulators and banks affected by the CRA to compile data in this form, given that the purpose of the CRA was to combat racial discrimination in lending practices.)

    (2) To my knowledge, the broad answer to (1) is “No.” A lead to link that rebuts this impression would be a step forward in the debate, I think.

    (3) Meanwhile, Sailer and his social-scientist reader “Tino” have found data that was collected for other purposes and analyzed it to address their broader questions. You don’t think it directly answers your CRA-focused inquiry–fair enough. But the issue then becomes, Why haven’t regulators and lenders put their information in the public domain in a format that allows direct comparisons such as those you solicit? (e.g. CRA forclosure rates relative to the national averages).

    (4) To be clear, I think the question as you pose it–whether a 1977 piece of legislation “is significantly to blame for the credit crisis” that transpired 30 years later–has to be answered in the negative. But the CRA didn’t exist in a political and financial vacuum, any more than did Fannie Mae or AIG.

  63. Eric Davis says:

    What happened to international demand for junk paper…. all the bozo’s devaluing their currency to buy treasuries and make everyone search for Yield…..

    I suspect there may be a crisis there somewhere….

    but more on their end …… since equilibrium must be maintained

  64. MattJ says:

    According to Wikipedia, the Gramm-Leach-Bliley act which repealed parts of Glass Steagall, passed the Senate 90-8 and the House 362-57. It is hard for me to see why one of the three sponsors should be at number 3 on the list, 16 spots ahead of the President who signed it; a President who also allowed his Treasury Secretary to kill any chance of regulating the OTC CDO market.

    Personally, I blame Congress far more and the Fed far less than BR does; the Fed was after all responding to a dual mandate imposed on it by Congress, and dealing with massive and ongoing deficit spending by that Congress. The root of all of our problems is the out-of-control spending beyond our means of the last 50 years.

  65. packman says:

    Here’s a list I’ve been building for about a year now. Not sure if all will show up or not, but here goes:

    My summary of Housing Bubble Causes

    Includes my rough swag of impact in causing the bubble. 1=low, 10=high.

    Many of these overlap of course.

    Indirect / General Causes
    Note that indirect causes may have large impact, but are more difficult to qualify/quantify. Indirect causes include:

    A. General expectations of government risk management / bailouts
    – Programs such as FDIC, FHA, etc.
    – Bailout precedents – Chrysler, Penn Central, S&L / LTCM, NYC, etc.

    B. Increased complexity of investments
    – How many people actually know what specific entities the bulk of their retirement savings are going to?

    C. Increased culture of greed – “keeping up with the Joneses”
    – Facilitated by mass media growth, primarily in the 20th century
    – Manifest in the large amount of fraud during the bubble (liar loans, ponzi schemes, etc)

    Specific and Recent Federal Activities (chronological order)
    1. 1977 – Community Reinvestment Act (CRA) (impact = 2)
    Very controversial as to whether this was a cause – reason given that CRA loans haven’t defaulted more than non-CRA loans. I don’t think it’s that simple though – CRA seems to have just set the table for risky loans. Despite some statements to the contrary – there were some fines and levies due to CRA.

    2. 1986 – Removal of Credit Card Debt Deduction (impact = 1)
    Via Tax Reform Act of 1986. This encouraged the movement of debt from credit cards towards home equity. Theory but no hard evidence.

    3. 1990′s – Barney Frank’s relationship with Fannie Mae (impact = 4)
    Partner Herb Moses hired by Fannie Mae 1991-1998. Frank pushed Fannie to loosen regulations on lending for 2-3 family homes. Frank resisted attempts at greater oversight of Fannie Mae and Freddie Mac, e.g. insisting in 2003 that the institutions were financially sound.

    4. 1992 – Federal Housing Enterprises Financial Safety and Soundness Act (impact = 2)
    Mandated that HUD set specific goals for Fannie and Freddie for subprime lending. Evidenced by Boston Federal Reserve push for looser lending standards – don’t consider lack of credit history as a negative factor, consider welfare and unemployment benefits as sources of income, etc.

    5. 1993 – Clinton’s CRA Reform (impact = 6)
    Established Community Development Banks. Pushed for more subprime lending, which increased by 39% from 1993-1998 while other lending increased 19%.

    6. 1997 – Taxpayer Relief Act (impact = 3)
    Created the $250k / $500k capital gains exemption for home equity.

    7. 1990′s/2000′s – SEC forces banks to decrease their loan loss reserves (impact = 2)
    E.g. in 1998 and again in 2004 the SEC forced SunTrust to lower its reserves during acquisitions.

    8. 1999 – Gramm-Leach-Bliley Financial Services Modernization Act (impact = 8)
    Repealed portion of Glass-Steagal, allowing commercial banks to offer investment services, and vice versa. Allowed for weaker supervision of big financial firms (e.g. AIG) under the Office of Thrift Supervision.

    9. 1999 – Fannie Mae loosens lending further (impact = 4)
    Pushed by Clinton Administration. $2 Billion of CRA loans purchased by Fannie in 2000.

    10. 2000 – Commodity Futures Modernization Act (impact = 5)
    Deregulated Credit Default Swaps (CDS), encouraging increased leverage on MBS.

    11. 2001-2005 – Federal Reserve policy mistakes (impact = 10)
    As an overreaction to the relatively weak 2001 recession the Federal Funds target rate was set far too low for far too long between 2001-2004 – in gross violation of the Taylor Rule. Additionally the Fed injected $110 Billion into the economy. Certainly this was the zenith of the housing bubble slingshot’s power. The bubble was written in stone by this action, primarily promoted by Alan Greenspan but also by other Federal Reserve members, including Ben Bernanke.

    12. 2002-2004 – Bush’s Ownership Society Initiatives (impact = 5)
    Primary among these is the American Dream Downpayment Initiative – paid up to $10k or 6% of purchase price; again targeting “affordable” (risky) housing. Funded up to $200 million annually from 2004-2007. Additionally included other tax cuts and stimuli. Included a large post-9/11 media “feel good” push.

    13. 2004 – Alan Greenspan’s ARM push (impact = 4)
    Actually pushed ARMs as a way to affordability. Off the cliff we go.

    14. 2004 – SEC removal of investment bank margin restrictions (impact = 4)
    Pushed by the five big investment banks, this was yet more acceleration off the cliff.

    Other Recent and/or General Direct Causes
    15. Mortgage interest tax deduction (impact = 8)
    Generally amounts to a subsidy of the real estate industry. Previously all interest was tax deductible; each was removed until only mortgage interest was left.

    16. Politicians being paid to deregulate (impact = 8)
    Politicians have taken billions of $$ each year in campaign contributions from the banks, in exchange for deregulation and/or favorable regulation

    17. Rapid growth of credit derivatives, CDS (impact = 4)
    CDS’s invented by JP Morgan in 1997; exploded during the bubble, providing a medium for the massive risk.

    18. Ratings Agency corruption / conflict of interest (impact = 4)
    A lot’s been written about this. I don’t blame the agencies for mis-using formulas – no formula can account for such a black swan; I do however blame them for lack of a “big picture” view, and allowing themselves to be influenced by the entities they rated.

    19. Hiding of loans in QSPE’s (impact = 2)
    Lots of loans were hidden off the banks’ balance sheets (i.e. not subject to reserve requirements) by putting them in QSPE’s, e.g. estimated $800B for Citibank.

    20. TV shows that encouraged speculating, flipping, etc. (impact = 8)
    Extreme Makeover, Flip This House, etc. About 20 such shows existed in 2005.

  66. packman says:

    Hey – it showed up! ha ha – I see all the Impact = 8 got converted to shades smileys

  67. Blissex says:

    «His contention is that the (bipartisan) politics of promoting minority homeownership–without regard to risk–was a major contributor to the residential real estate bubble. In turn, this was one major component of the financial crisis that came to a head in 2008.»

    That argument is entirely laughable — there are serious estimate of 3-4 trillions of losses in the USA in mortgage related finance, and soeboy argues that the small number of minority people who even own houses are responsible for a major part of that?

    The Census web site has stats on how many minority people have mortgages and the average size of a mortgage; from memory it is a few million people and the average balance outstanding is something like 50k. And pretty few are defaulting.

    But then how do most Real Americans imagine minority neighboruhoods to loook like? Well, unless Republicans are huge liars, mnority neiboughoods look like this:

    * Rows of new huge mansions bought with no-repay CRA loans from Fannie Mae.
    * The welfare queens getting off shiny new Cadillacs in each driveway.
    * Sizzling smoke from the BBQ where strapping young bucks are grilling the t-bone steaks from foodstamps.
    * The kids will leave after the party to start their degree course in ebonics with all-expenses paid guaranteed places at an Ivy league uni, thanks to affirmative action.

    All this why poor white working middle families who have difficulty to make ends meet on $250k/y beause of the violent extortion of all the money neded to fund the lavish lifestyle of the priviledged minorities.

  68. AMac says:

    Blissex wrote (4:55 pm) –

    “That argument is entirely laughable — there are serious estimate of 3-4 trillions of losses in the USA in mortgage related finance, and soeboy argues that the small number of minority people who even own houses are responsible for a major part of that?…”

    Who would defend the strawman arguments you’re ridiculing? You don’t appear to have read the linked articles prior to commenting.

  69. AMac says:

    Barry Ritholtz responds to Steve Sailer at his blog –

    My bad — I guess I am not clearly defining what I mean by “Data”.

    Allow me to present an example:

    The Federal Reserve Board data shows that:

    * More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. These firms are not covered by the CRA


    Sources: Fed and FDIC amongst others

    This is what I mean by data, from reputable sources, relating to the actual issue at hand.

    Farther down, Sailer ripostes

    We’re discussing whether or not “Diversity was a major contributor to the mortgage meltdown.” I realize you wish to confine the discussion to the narrowest possible technical question of legal coverage of the Community Reinvestment Act, but you should also realize from doing your reading of my articles (you have read them by now, haven’t you?), that I’m well aware of that and have emphasized that the CRA was only one component in a much vaster web.

    As for the statistics you cite, you should realize that the nonbank mortgage lenders, such as Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be extended to them. Thus, Countrywide made pledges identical in form the pledges to loan more to minority and low income borrowers made by CRA-covered institutions up to Countrywide’s collapse.


  70. Blissex says:

    «mortgage lenders, such as Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be extended to them..»

    Bush never made this threat. Please poduce the statistics that show when he won the presidency Countrywide stopped making CRA-style loans, and that the loans that they were forced to make by Clintnn during his presidency are a large part of the finance meltdown.

  71. AMac says:

    Please poduce the statistics that show when he won the presidency Countrywide stopped making CRA-style loans, and that the loans that they were forced to make by Clintnn during his presidency are a large part of the finance meltdown.

    Please show where one of the parties involved in this discussion has made an assertion that gives your request relevance. If you can’t or won’t… why make it?

    Sailer’s view of Countrywide is laid out in this article (also accessible via previously-linked articles).

  72. AMac says:

    Further, updated discussion of this topic at Sailer’s blog.

  73. [...] Barry Ritholtz, The Big Picture, June 29, [...]

  74. [...] Ritholtz recently put together a list of the 25 people and parties he blames for the crisis (#1 is Greenspan). And he also says he hates it when people [...]

  75. [...] Who is to Blame, 1-25 (June 29th, 2009) [...]

  76. [...] book and the blog address: who’s to blame for the financial meltdown, moral hazard, and how the current bailouts could lead to an even bigger, massive bailout 10 or 20 [...]