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Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? (Roubini)

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Starfury Donating Member (615 posts) Send PM | Profile | Ignore Mon Mar-19-07 04:03 AM
Original message
Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? (Roubini)
Wow, Roubini's on a roll! For those who don't know him, he has been (pessimistically or accurately, depending on one's POV) predicting the housing bubble and resulting recession for quite some time, often in "doom and gloom" terms. In his latest entry, he talks in great detail about the pending economic and housing bubble that is now starting to appear. Normally I'd post this in the economy forum, but this should probably get bigger play, as he ties it in with the neo-cons and supply side economic theory. I think he's had this essay in his back pocket for a while, waiting for events to unfold.

Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? Unregulated Free Market Fundamentalism Zealotry



The sub-prime and overall mortgage carnage is now likely to lead to a financial crisis whose cleanup and bailout costs will make the S&L bailout bill look like spare change. We are only at the beginning of this fallout but, already, several bills in Congress are being submitted to help millions of sub-prime homeowners on the verge of bankruptcy and foreclosure. The prospect of millions of homeowners thrown homeless on the street is already shaking politicians of every stripe. The relatively modest bailout envisaged by the first bills currently proposed in Congress will mushroom into a much bigger fiscal bailout of homeowners, borrowers and lenders once the garbage of sub-prime, near-prime and pseudo-prime toxic waste spreads around the economy and likely leads to a hard landing recession that will cause a much bigger financial and banking crisis.


Given the fallout and real, social and financial costs of this disaster the political blame game will soon start. So it is important to make sure that the self-serving spin game that accompanied the game of those who happily ignored since last summer the looming housing, mortgage and economic mess will not be repeated again. Powerful political and financial interests will spin their self-serving ideological spin on who is to blame for this mess. Specifically be ready for a cabal of supply side voodoo ideologues - from the Wall Street Journal editorial page (and its invited op-ed writers) to hacks (calling them economists would be an insult to my profession) such as Arthur Laffer, Steve Hanke and other assorted voodoo religion priests - to start spinning a tale blaming government regulation and interference for this disaster that has instead its core in the lack of sensible government regulation, not the existence of such regulation. In the meanwhile powerful financial interests that repeat the mantra – or better the proof-less dogma - of unregulated free markets and do not like any – even sensible – supervision and regulation of the financial system will happily blame government action – rather than their own reckless greed and stupidity - for this disaster while happily demanding and receiving billions in bailout funds from the same government that they so happily disdain. This will be the sleaziest form of corporate welfare: privatize the profits in good times and socialize the losses in bad times.


This fairy tale spinned by market fundamentalism zealots will blame the otherwise appropriate current Congressional action on predatory lending for being one of the main causes of the credit crunch that will lead to a painful recession (as the WSJ editorial page recently claimed) while forgetting that predatory lending practices developed by free unregulated markets created the toxic waste that is subprime and near-prime mortgages. This voodoo religion cabal will also incorrectly blame regulators – whose true blame was being asleep at the wheel for six years while being drugged by a philosophy of “laissez-faire” non-interference with free markets while this free market garbage was being originated – for now finally starting to crack down on monstrous “free market” practices such as zero downpayments on mortgages or NINJA (No Income, No Jobs and Assets) loans; this cabal will thus now blame regulators for “destroying” the sub-prime and near-prime mortgage market with their intervention into “self-regulating free markets”. The same voodoo economics religion priests has and will incorrectly blame the “easy” Fed monetary policy – rather than the lack of any sensible regulation of credit and mortgage market lending – for creating the housing bubble and letting it fester for too long. It will also incorrectly blame the GSEs for creating “moral hazard” via guarantees of mortgages and thus causing this mess when, instead, the GSEs largely got out of the subprime business in the last few years - and let the free market flourish to originate this toxic waste – when politicians and policy makers started to bash the GSEs for their “excessive” role in the mortgage market.


Since a lot of nonsense and financially self-interested ideological spin will be written and said in the months and years to come it is important – from the beginning – to be clear about who is at fault for this utter housing and financial disaster. The answer is clear: the blame lies with free market zealot and fanatics and voodoo economics ideologues who captured US economic policy in the last six years in the same way in which a bunch of neo-cons high-jacked US foreign policy to bring “democracy” to the Middle East while instead leading the country into the Iraq and Mid-East quagmire and now disaster.

(...)


There's a whole heck of a lot more at http://www.rgemonitor.com/blog/roubini/184125. I definitely recommend reading it! (Though I warn you it's quite long - I probably posted less than a tenth of it here...)
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lligrd Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 04:09 AM
Response to Original message
1. Wanna Bet Freepers Blame Clinton?
Personally, I blame greedy bankers and this administration.
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malikstein Donating Member (160 posts) Send PM | Profile | Ignore Mon Mar-19-07 05:20 AM
Response to Reply #1
7. Bankers are herd animals.
In fact, capitalists in general are herd animals. Whenever they see a chance to get a better ROI, they scramble for it. Then, when the bust comes, which it always does, they look around bewildered and wonder what happened.

The economy is too important to our lives and well-being to be left in the hands of herd animals.
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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 06:06 AM
Response to Reply #7
9. true capitalists are not herd animals...quite the opposite. the people you mention
are not really capitalists. They're corpratists. There is a big difference, IMO.


I am a capitalist. I believe in providing a quality service/product for a fair price, and I stand by what I provide. These guys who make money by gaming the system are thugs and thieves, IMO. They produce nothing. They offer no service. Quite the opposite. They game the system to make the service unnaturally more expensive.

They are swindlers, they are crooks.
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malikstein Donating Member (160 posts) Send PM | Profile | Ignore Mon Mar-19-07 07:57 AM
Response to Reply #9
10. "They are swindlers, they are crooks."
If you have ever looked into the history of capitalism, you would realize that these adjectives apply to capitalists. You don't get to be a robber baron by being a nice guy. The way you describe yourself, you are not a capitalist, just a good citizen doing an honest day's work.
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fasttense Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 04:20 AM
Response to Original message
2. Seems that everything this "deregulation" mantra touches turns sour.
We had ENRON and now this. I wonder if these deregulation idiots have learned anything yet.
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TheBaldyMan Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 04:21 AM
Response to Original message
3. lazy thinking in the financial markets for the last 25 years
it started with Reagan and continues to this day. Any fool can make money in a bear market, so keep talking up the prices. Voila, instant profits! Financial 'geniuses' are exonerated and given record bonuses.

This becomes catastrophic when lenders start to over extend in the expectation that prices would continue to skyrocket. Then when the latest bubble bursts the smart money makes even more money and the dim-witted get cleaned out.

Everybody is to blame; unscrupulous lenders, uneducated borrowers, indifferent government, all are far too lax in financial discipline.
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LEW Donating Member (809 posts) Send PM | Profile | Ignore Mon Mar-19-07 04:22 AM
Response to Original message
4. I'm a realtor and I agree - seen this coming
for long while - Hope I can ride out the next couple of years in this business, till it turns again, but still won't be the same market as before.
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Starfury Donating Member (615 posts) Send PM | Profile | Ignore Mon Mar-19-07 04:27 AM
Response to Reply #4
5. I wish you all the best
Looks like a huge credit crunch coming down the pike, and I fear a lot of folks are going to get hurt.
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ClintonTyree Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 05:07 AM
Response to Original message
6. Yep, you just gotta' love this "free market" stuff....
"This will be the sleaziest form of corporate welfare: privatize the profits in good times and socialize the losses in bad times".

Now, let's talk about the new bankruptcy laws, shall we? :eyes: We certainly can't let those deadbeats escape what they owe, the MUST be held accountable for their actions! However, when it comes to corporate malfeasance....... :shrug: the taxpayers MUST come to their rescue or else our wonderful "free market" system would be in shambles. :banghead:

As if you couldn't tell, this shit drives me crazy!

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mediaman007 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-19-07 05:24 AM
Response to Reply #6
8. It's just a high-class pyramid scheme...
The investors are always playing with someone elses money.
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