The Responsibility of the Federal Reserve for the Mortgage Meltdown
The only time mortgage confusion was higher that it is right now is back when sub-prime mortgages were not known to be the cesspool that we now know them to be. The global economic system has been collapsed by people who were confused about mortgages and didn’t know it. Whose fault was it? It was the fault of the sub-prime home buyer. It was the fault of the sub-prime mortgage broker. It was the fault of lazy financial advisors who put their client’s money in asset backed paper that turned out to be worth whatever recycled paper goes for and no more. Of these, the most dangerous and most responsible party, the Federal Reserve Bank, is also the malefactor fingered the least.
The Federal Reserve increased the amount a bank could loan relative to the amount the bank holds in deposits. It is hard to argue that the increase to a 30-1 ratio was simple idiocy. Jon Stewart repeatedly hammered this point home when demolishing Mad Money host Jim Cramer on March 12th. Why is Republican Congressman Ron Paul the only politician in Washington pointing at the Federal Reserve Bank? Why are heads not rolling and careers ending at Treasury?. And they should pay. Congress must rescind the Bank’s charter and replace it with a central bank controlled by the Treasury Department.
Mortgage brokers tried selling a subprime mortgage to any prospect that had a pulse. With interest rates at historic lows (until now, and God help us), mortgages were made to people that mortgage brokers knew could not afford the payments if interest rates were to return to their historic averages.
These shaky mortgages were then bundled and sold to financial firms as ‘asset backed paper,’ the now infamous ‘toxic assets’ we, the taxpayer, are buying from the banks. Toxic assets don’t exist in the real world. In the real world they have a different name: liabilities. The government is effectively using your money to buy these liabilities named toxic assets.
And lastly are the people who bought homes they couldn’t afford, and then started whining that they didn’t know they had an adjustable rate mortgage. I know that’s harsh, but it is the truth. Pity them, yes. Bail them out? Not a chance.
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