Capital New York

Karlarove commented on Bloomberg: 'Plain and simple,' Congress caused the mortgage crisis, not the banks

Dear Mayor Bloomberg, thanks for reading my blog, but its not that "plain or simple". While I agree Congress is to blame, they did have some help. Your comments are extremely simplistic. Here are some details that you may have overlooked. Congress was lobbied to dismantle the Glass Stegall Act, A change in the business model of banking, mixing credit with equity culture was like added gasoline to a fire. This model, when combined with complex interactions from incentives emanating from macro policies, changes in regulations, taxation, and corporate governance, created the global financial melt down in 2008. And the current melt down. Back to 2004 - 1) Interest rates are 1 percent for banks and investment banks, 2) the SEC has approved the change to double and triple the debt to equity ratio, 3) mortgage securitization began to explode with the very attractive loans, 4) Banks and Mortgage Companies are writing loans, deciding due diligence - qualifying people for a mortgage - was no longer necessary once the Bush administration said Freddie and Fannie would guarantee those mortgages. Off to the races! The liquidity dam was overflowing, and then the rating agencies rated everything Triple AAA

Posted on November 3rd, 2011 7:46pm