Who is to Blame, 1-25

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?

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


Originally Published at The Big Picture and reproduced here with the author’s permission.

3 Responses to "Who is to Blame, 1-25"

  1. Dennis Keane   July 3, 2009 at 9:03 am

    Here, Here !!!– All of them have some responsibility for this quagmire the global economy is currently in

  2. genedio   July 8, 2009 at 6:42 pm

    Your question: Who and what was at fault in the entire debacle, from Housing [bubble] to Credit to Collapse?Notice I put th word “bubble” in brackets, for the ‘debacle’ of collapsing home prices was inevitably caused by the housing bubble, which really commenced in 1997. What happened in 1997? Why, that’s when Congress liberalized the capital gains tax exemption from a once-in-a-lifetime $125,000 for those over 55 to an every five year $500,000 for virtually anyone who had resided in their home for two years. This was a huge factor virtually ignored by practically everyone; it made gains in real estate virtually tax free. It was a huge factor in the onset of the boom, but of course was not the only factor by the end, when flippers no longer cared about holding a property for two years. By 2004-5 prices were rising so quickly that they could make a healthy profit after tax.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