However, as home prices skyrocketed from 2004 to 2007, each agency issued the highest quality ratings on billions of dollars of what is now unambiguously recognized as low-quality debt, including subprime-related mortgage-backed securities (MBSs).
As a result, millions of investors lost billions of dollars after purchasing (directly or through investment funds) highly rated MBSs that were, in reality, low quality, high risk and prone to default. The phenomenal losses that followed had many wondering how the credit rating firms could have gotten it so wrong. The answer lies in what might euphemistically be called the "cozy relationship' between the rating companies and the financial institutions whose mortgage assets they rate. Specifically, financial institutions that issue mortgage and other debt had been paying off the three ratings firms . . in order to get good credit ratings! In effect, the "referees" were being paid off by the "players."
Bottom line: when home prices reached their peak, and then began their fall, and kept falling, billions of dollars were lost by those who invested in MBSs -- and these investors included a great number of big banks, pension funds, and various kinds of institutions all over the world, as well as private individuals. Millions of people collectively lost trillions of dollars, which were in a very real sense siphoned off to the very rich, and those who became very rich, who bet against the millions of "fools' who invested in these near-worthless MBSs that were comprised of, or based on, sub-prime loans masquerading as good sound loans. The result of all this was that our economy suffered accordingly, in a very major way, as consumer purchasing (which is responsible for two-thirds of all purchasing) began to dry up, as the "fools' realized that they had just taken an enormous financial loss. As home prices continued to fall, a point was eventually reached where one out of every four homes could no longer be sold for enough to allow the "owner' to pay off the mortgage.
Would any of this have happened without the Republican-initiated elimination of the Glass Steagall (protection) Act, and the total neglect by the regulators at the Fed and elsewhere, who should have been monitoring and putting a stop to all this? No.
(Source article)
(Click here to watch the highly rated Charles Ferguson documentary, Inside Job, narrated by Matt Damon. It provides a very comprehensive explanation of the origins of the mortgage meltdown and the financial crisis that ensued. )
So yes, the mortgage meltdown added to our woes, and was largely a matter of outright theft -- theft from the gullible by the clever -- theft that is, so far, still unmitigated by policy changes from Washington. And this one fact alone justifies the hammering that politicians like Obama, Chris Dodd and Barney Frank take, from disappointed progressives.
As Bill Sardi recently said at LewRockwell.com, "The government wants Americans to believe that the greatest economic collapse in history was the result of "ineptness and mistakes," and yet still have confidence in their financial institutions."
So, should American bankers be let off the hook because they self-declare, before an investigational panel, that the failure of their new and cleverly-invented "risk swaps" and other highly leveraged investment schemes were simply due to "mistakes"? Not malfeasance -- just every-day mistakes? Bankers just fell asleep at the helm at a critical juncture in American history? Is that what they want us to believe?
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