reply to post by poet1b
Isn't deregulation fabulous.
The problem wasn't a lack of regulation. The problem was a lack of liability.
Institutions like Fannie Mae and Freddie Mac have the full backing of the U.S. Federal Reserve and went around buying up Mortgage Backed Securities
issued by smaller banks. They were, essentially, able to tap right into the printing press and buy up mortgages.
Meanwhile, banks were given every incentive to issue mortgages to the sub-prime market. Compound all of this on top of the FDIC that (once again)
insures the monetary value in everyone's savings' accounts (up to $50,000 or something like that)... banks are little more than middle-men for the
Federal Reserve with, almost literally, no liability to their own business practices.
In a truly free market, Fannie Mae and Freddie Mac would be looking very closely at the practices of banks they purchase MBSs from and the security of
those loans. However - Fannie and Freddie don't have any reason to care, because when they repackage those mortgages and sell them, the holders are
guaranteed stock value by the U.S. government (they are, in a sense, government issued securities). Share holders have little reason to raise issues
with the practices of the business, as they are - in a sense - investing in government securities/bonds and will get paid when they decide to return
ALL of the problems we've had in the lending industry these past few years have been enabled to expand to the extent they have by Fannie Mae/Freddie
Mac and the Federal Reserve coupled with legislation enacted by Congress.
Under a free market - you will still have some of this going on (and you can still call it illegal) - but the difference is that it would never have
grown to be this large. A single chain of banks may use similar bad tactics - but then come crashing down much earlier, and without such
broad-sweeping effects on other banks, institutions, and people. Bad business will always lead to an eventual failure. When people and companies are
not sheltered from loss and liability by the government printing press, they will have a much more keen eye and vested interest in the practices of
the businesses they choose to invest in and support.