As for the financial crisis, there is one word that represents everything that happened in the financial crisis, FRAUD. Fraud at all levels.

Borrower: Misrepresenting income or ability to pay. Not questioning loan documentation. Borrowing with no intention to pay back.

Lenders: Mortgage brokers committed fraud in numerous ways including changing of terms and conditions, pushing for higher appraisals (regardless of actual values), changing metrics for borrowers and pushing them into products that were going to blow up.

Banks: KYC, Know Your Customer. It is a central tenant to the banking laws. The banks did not know their customer, go figure it blew up in their face. Front loaded fees that guaranteed pushing loans at all costs.

Investment banks: Not doing the due diligence on the product including even a cursory glance at the loan level data.

Brokers: KYC again. Brokers are required to know your customer and only sell product that they know their customers know and understand and is at the risk tolerance appropriate. How many QIB (qualified institutional buyer) forms did many of these customers sign?

Rating Agencies: Rating Agencies get special dispensation from regulation FD in order to do a thorough job at digging deep into the data. The data was there that it was fraudulent but they chose to ignore it.

Federal Govt: Here is the biggest fraud. No there is not over regulation and no their is not under regulation. Ya there are flaws in some laws such at the commodity futures modernization act, but all government had to do was their job, which they refused to do.

Why did laws that have worked for 70 years all of a sudden fail? How about an administration that believed in “free markets” so much that they essentially appointed administrators that were going to do NOTHING. Add on top of that, starving each regulator for funding and personelle to do their job. Think how many fiascos we could have avoided if we didnt spend half a trillion on a fraudulent war. Add on top of this the massive power grab from the federal government away from the states and it just compounded. And even more we are still not following the laws. Prompt Corrective Action is required to deal with insolvent banks. Not TARP, not bailouts. The FDIC has the know how and the ability to deal with Citi, and the other dead horses. Let them.

As for financial products, most of these products are sound and have been around for many years. What happens is when things are done fraudulently, no amount of regulation or prudence will help you.

Mortgage Backed Securities have been around since 1979. Yes 1979. The first CDO was in 1990, Subprime and Credit card paper since the early 90s’. What happened, fraud, fraud, fraud.

The community Reinvestment Act has been around for years and never caused problems. The CRA was more about ensuring lending in at risk communities, i.e. no redlining. The lending that happened in the last 5 years has been way in excess to requirements under the CRA. Again, even without the CRA, lenders would have jumped on the sub-prime bandwagon given the high fees it generated.

What really scares me is when insurance companies start pushing for federal instead of state regulation of their industry. Look at AIG, almost all their state regulated insurance subsidiaries are extremely strong. National Union alone has 12 billion in surplus. It was a failure at what should have been a federally regulated subsidiary that brought it down.

God I could go on but lets face it. All this happened because of fraud. Enron collapsed because of fraud. Worldcom went into bankruptcy because of fraud.

1) Greedy people maxing out their credit to buy the biggest house, best cars, and everything else their heart desired

2) Greedy lenders willing to do it without regard to credit worthiness, debt-to-income ratio of borrowers, or, in some cases, if borrowers even had a job

Is there some element of law involved in some cases? Sure. The government forced lenders to make loans to people who couldn’t pay in order to be “fair.” After all, why should only people who can pay get loans?

I say they all need to suffer. When I hear of someone making $30k having trouble making their $2,500 house payment, I really don’t lose sleep. That’s a person who needs a smack in the head along with the question, “What on earth were you thinking?”

When the lender doesn’t get paid, having made that loan to that person, well… ditto the head slap.

I don’t really care what the stock market does today or if housing starts improve significantly, at this point I’d pay real money just to hear all the whining losers shut up.

Here’s a good read for you: http://www.campaignforliberty.com/blog.php?view=2632

Some tidbits:

*In the early 1990s, Congress eased Fannie and Freddie’s lending requirements (to 1/4th the capital required by regular commercial banks) so as to increase their ability to lend to poor areas.

* In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas.

*In addition, Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership. What all of these did together was to create an enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers.

*While all of this was happpening, the Federal Reserve, nominally private but granted enormous monopoly privileges by government, was pumping in the credit and driving interest rates lower and lower. This influx of credit further fueled the borrowing binge. With plenty of funds available, thanks to your friendly monopoly central bank (hardly the free market at work), banks could afford to continue to lend riskier and riskier. The final chapter of the story is that in 2004 and 2005, following the accounting scandals at Freddie, both Freddie and Fannie paid penance to Congress by agreeing to expand their lending to low-income customers. Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them.