The current mortgage mess is the result of decades of govt. deregulation of the financial industry

[marmar]

from The American Prospect:


What's Behind the Sub-Prime Disaster

The current high-risk mortgage mess is not so much a new crisis as the result of decades of government deregulation of the financial industry.

Robert Kuttner | August 29, 2007 | web only


The calamity in "sub-prime" mortgages has exposed the underlying weaknesses of an economy built on too much speculative borrowing. It's not clear how all this will end, but for now credit is drying up for blue-chip corporations as well as for high-risk mortgage lenders.

With financial tremors spilling over into the wider economy, major retailers like Home Depot and Wal-Mart are reporting softer sales, and hedge funds, banks, and broader real estate values are all under siege. Every investor, from retirees to university endowments, is at risk if the inflated stock market turns out to be another bubble. Even if the wider damage is contained, some two million mortgages are scheduled for rate increases this fall, and foreclosures are expected to soar.

The mortgage business has long been a tug of war between a social commitment to broad homeownership and the schemes of private financial operators looking to make a quick buck. In the wake of the Great Depression, the U.S. government devised a strikingly effective system for bringing homeownership to the masses. Since the late 1970s, however, this system has been dismantled in the name of deregulation, causing a string of disastrous results.

The sub-prime mess is not so much a new crisis as it is a resumption of the saga that began with the savings and loan scandal of the early 1980s, when executives of S&Ls went on a risky lending binge with government-insured money. Then, as now, there were many individual culprits, but the real problem was the ideology of deregulation and the capture of public policy for private gain by the financial industry.

Most mortgage loans today are originated by largely unregulated mortgage companies, which are not banks and which have little of their own capital at risk. They are free to devise complicated, far-fetched mortgage products and to lend to people who can't afford the payments, as long as they think they can turn a profit by selling off the paper. Mortgage companies circumvent the entire system of government bank regulation, which ordinarily keeps close watch on banking standards. .....(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=whats_behind_the_subprime_disaster

[Demeter]

1. And There's So Much More To Come!

Catastrophes all over the place, just waiting for a hair-trigger to blow...