Bouvier - It's called CRA, the Community Reinvestment Act. In the mid-90's the president demanded of Congress to expand the already broad powers of this act to qualify people for mortgage loans that had previously been unqualified based on credit history, income, etc. Banks are judged on their performance under CRA by Federal regulators and if their performance is deemed less than satisfactory under government standards, those banks are penalized. (Good performance = more loans in the community to certain protected classes) Fannie and Freddie offered guaranties on this paper because the secondary market would not accept it as is - too risky. Fannie and Freddie's guaranty made this questionable paper investment grade and liquidity to make more loans was ensured. To further complicate matters, the really toxic stuff that Fan and Fred would not touch was made good by friendly ratings agencies for a fee. All the AAA paper you want for a nice fee to Moodys or S&P. This is a gross oversimplification, but you get the idea. The notion that this mess was caused by "greed" alone is insufficient, whose greed? Investment bankers, Fannie and Freddie execs, lenders, real estate agents, ratings agencies? Take your pick, everyone was making money. A few saw it coming, but they were shouted down. In the end it was social engineering and bad public policy on behalf of Congress and a presidential adminstration hell-bent on giving out free lunches that created the perfect financial storm. EDM is spot on, easy credit created a bubble that inflated our economy and created demand for goods and services not based on economic fundamentals, but wants and wishes. My advice for anyone on the fence is to pay down debt and gird your loins, because it's going to be rough for the next 12-18 months. DOW futures are in the way in the can this morning because the hedge funds are making margin calls. As far as prices, commodities are going through the floor which may offer relief on ammo prices in 6 months. I wonder how many orders Galazans, Purdey, et al have had cancelled? I bet more than a couple.
Last edited by eeb; 10/24/08 09:06 AM.
