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What Caused The Meltdown
There's been an attempt to blame the Clinton administration and former Fannie May president Franklin Raines for the current financial crisis. To bolster this claim, people have been circulating a 90's New York Times article that quoted Raines as wanting to open mortgage lending to higher risk low-income families, which he did.
This is not, however, what caused the meltdown. According to 60 Minutes, This American Life, and the New York Times itself, mortgage defaults are by themselves, a small and manageable problem, accounting for only 6% of all loans. These sources go on to outline how it was actually the unregulated "loan default swaps" market that put us in this mess. This market would be more accurately described as a "loan default insurance" market, but it was not so named because insurance markets are regulated.
Skirting regulation, firms sold default insurance on debt instruments without having enough money to back them up. This was so profitable that the market burdgeoned into what amounted to a $60 trillion gambling venue. It all unravelled when some debt instruments went into default and the default swap backers couldn't make good on their obligations and secondary defaults had a snowballing effect.
Yes, it's complicated, but not so complicated that regulators wouldn't have prevented the blow-out, but Wall Street successfully lobbied against regulation. Some de-regulation might be good, but when it comes to handling staggering sums of money, common sense says you have to watch the handlers carefully or your money will disappear, just as it is doing right now.
Has a lesson been learned? Not by Wall Street. The lobbying against regulation is as fierce as ever and some elected officials are listening. Few, however, are admitting to it. Our best bet is to look at what they've said in the past and act on that. President Bush and many of his supporters have long railed against any sort of regulation. I don't think this crisis will change their minds because they have either made a lot of money in unregulated markets or have benefactors who have and will continue to reap outlandish gains.
Lets support anyone who's past record show a willingness to force the big investment houses to make money the same way we do, earn it.
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