Endless Curiosity

February 24, 2009

How did we get into this Mess?

Filed under: Economics, Republicans — Alec @ 5:52 am

This financial recession/depression is going to last a long time. I’m sure the stimulus will help, but most people are running scared at this point, thinking more about saving money in case they lose their job than going out and spending money. And of course, spending money is what is needed.

It’s amazing really that we could cause such a crisis that’s going to affect so many people for so long. Although, as an aside, there’s a silver lining for some people. As Dean Baker points out, “… the baby boom cohorts have just lost trillions of dollars in housing and stock wealth with the collapse of the housing bubble and the stock market plunge. This is to the enormous benefit of younger generations who will be able to buy homes and stock at huge discounts compared to the prices they were looking at just two years ago. It is astounding that a newspaper could have a piece devoted to questions of generational equity and never even note this enormous transfer of wealth from older generations to younger ones.”

Back to the main point: depending on who you ask, the crisis was caused by Bush, Republicans, Democrats, greedy bankers, Fannie Mae and Freddy Mac, conflict of interests on the part of Moodys and Standard & Poors, sleazy mortgage brokers, buyers who bought more than they could afford, and the list goes on.

But in a sense, all of this is irrelevant. The more important question is how were they able to do these things? How were buyers able to buy more than they could afford? How were mortgage people able to give mortgages that were unaffordable? How were bankers able to slice and dice mortgages and sell them as AAA securities? How was all this possible?

Societies have rules and laws to define acceptable behaviors. They have polices forces and court systems to enforce those laws. Why? Because people generally want to get as much as they can. Evolution programmed us to always want more. If people are allowed to do something that benefits them, they will very often do it. And there will always be people who push the envelope of what is allowed.

So to answer the question of how were these things possible: they were possible because the people in power had removed oversight and regulation to the point where people were able to do things that benefited them, but which would hurt the nation in the long run (actually not so long in this case).

However, the government is responsible not only to the current moment, but to the future, to all Americans too young to be able to buy houses or work or vote, and to all the as-yet-to-be-born Americans. But the government abdicated this responsibility, removing the regulations and oversights that prevented people’s greed from destroying the financial system from within.

And which party is the party that believes in lack of regulation and lack of oversight. Which party does Phil Gramm belong to, he who was most responsible for the lack of monitoring of CDSs, those financial weapons of mass destruction?

I think you know the answer.

Now, if you’d like to read a couple of articles about the devastating impact this lack of regulation has had on the country, here are two articles by Nick Turse. The first is about the impact the financial crisis has had on towns across the country, and the second is about the impact on individuals.

Tough Times in Troubled Towns: America’s Municipal Meltdowns

Meltdown Madness: The Human Costs of the Economic Crisis

At the end of the second article, Turse mentions a link that provides the Greenspan Body Count, which stands at 81 as of February 13th.

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