Also, while considering the effects of Congress, the Fed and Corporate (Bank) America's destruction of one institution, i.e. the Savings and Loan Industry, ask again why Bush, the GOP and Wall Street say trust us that privatizing social security is a guaranteed boon to our aging citizens.
My labored point is that the financial big boys go on binges. They regularly wipe out enormous chunks of their equity capital and in so doing they wipe out their lending capacity. If free markets were efficient this would not occur. In this fiasco the financial industry bought crap assets. Forget both the borrower and the broker who made the loans. Billions of these mortgages were known to entail a high degree of risk and yet they were bought at par so to speak. There is no evidence of market efficiency here. The supposed best, biggest and brightest bought junk.
Let's hear Alan Greenspan's (hilarious) euphemism on this subject: "Over the past five years, risk had become increasingly underpriced as market euphoria, fostered by an unprecedented global growth rate, gained cumulative traction." (As I said the big boys, hedge funds, etc bought crap loans.)(Hence gov't intervention.)
Another different light that could be shed on the Collateralized Mortgage crash is that, in overview, housing is or became a commodity. I was a lender in the oil patch in the early eighties when the collective equity of the Texas and other Southwest banks seemingly disappeared overnight. A barrel of oil had risen to $26-28 and when it fell to $12, a domino of bad loans left the US Government as the Southwest's banker.
A regulator presenting a case for earlier intervention by using this commodity analogy might have presented a simpler, more cogent and forceful argument. Saving John and Jane Doe from resetting mortgages was not an argument likely to get a patient ear from our entwined Corporate America and Congressional decision makers.
And harken well to the underlying economic rationale and philosophy espoused when George Bush, the GOP and Wall Street attempt to entice the public that placing their retirement benefits in security related private accounts is a guaranteed boon to their retirement well being. The banks and the Fed and their Congressional enablers had their way with the Savings and Loan Industry and the results have not been pretty. When they come asking for commissions on the nation's social security assets ask them to explain that bit about how markets only rise in value.