My own own personal feeling is that our recent bubbles weren’t much different than pyramid scams and lotteries; they’re the handiwork of an essentially regressive and deeply cynical political organization that systematically hoovers up taxes and investment money mainly from middle-class suckers, where it eventually gets eaten in short-term cashouts and mostly blown on sports cars and tropical vacations and eye jobs for the trophy wives of Wall Street executives. Crackonomics: take literally all the spare money from four square city blocks and turn it into one tricked-out Escalade.
For me the basic dynamic of the mortgage bubble is some Ivy League wad hawking a billion dollars of securitized subprime mortgages to a pension fund, and then Hobie-sailing off into the sunset with a bonus after they all blow up. Of course my seeing it that way might have a lot to do with my own personal psychological prejudices, and I get that some other person with different hangups might choose to focus on Barney Frank deciding to “roll the dice on home ownership” with the GSEs.
But what I don’t see is how anybody can say that all of this happened because Fannie and Freddie rigged the game to get Mexicans in homes, and then the banks and the ratings agencies just reacted organically to the corrupted market and helped the bubble along through no fault of their own. That’s just another (albeit more convincing) version of the early attempt to pin the disaster on the Community Reinvestment Act, which in turn is just another way of playing the red-blue blame game, which in turn is missing the point.
This GSE story is a big one, but if it gets used as a path back to a “The Market Reacted Rationally” version of history, we’re screwed. It has to be looked at as an important part of a diabolical whole, a symbiotic scheme in which the banks and the state were irreversibly intertwined in an enterprise that on both sides was never about market economics, but crime.
Because otherwise… the diversionary notion that one side or the other is wholly to blame is part of what makes the whole scam possible.
p.s. Just to get this out of the way, I love Zero Hedge, and Marla Singer has been really nice to me personally. I just don’t completely agree with this particular thing. I don’t see any reason why focusing blame on the banks and the ratings agencies and AIG was “fundamentally flawed,” because, well, , they
were to blame. The fact that Fannie and Freddie now get to jump in the pigpen with them doesn’t change that for me.
I think in the end what we’re going to find is that all the relevant actors had their own motivations for getting involved in the bubble. Two and now three presidential administrations let the Fed overheat the economy for political reasons that should be obvious. Alan Greenspan, , he did it because he loves seeing himself on magazine covers and wanted to keep getting invited to the right Manhattan parties. There were congressmen that converted the expansion of cheap credit into low-income votes. The bankers and lenders went along because the system of compensation on Wall Street is ed and rewards short-term thinking while ignoring long-term consequences.
To me all of these people were equally guilty of making bad decisions to benefit themselves in the here and now at the expense of the whole in the future.
When it comes to bubbles, It Takes a Village, and blaming the whole mess on the “socialist” aims of a pair of government agencies seems off base — particularly since the Randian protocapitalists running the banks benefited every bit as much from this socialism as actual homeowners, and perhaps even more, when one considers that homeowners get foreclosed upon, while bonuses are forever.
Reply With Quote
