Let’s Play: Name That Regulation!

You guys should really stick with security and not securities (Yeah, that’s funny, I know). 

To put the blame on greed is kindergarten simple.  This "crisis", like most, was caused by the same feckless government that is now trying to fix it. 

First, this all has to do with the subprime crisis.  To find the root of that, don’‘t look to greed, look to liberal egalitarianism.  Thank Jimmy Carter and the CRA, which gave low income folks incentives to get loans they could ill afford. 

In 1995, Clinton revised the CRA, forcing banks to issue these sub prime loans.  He made it palatable by mandating by law that good old Uncle Sam would back these bad loans.  *Poof*, about 1 trillion in new subprimes were issued.  Remember the number. 

McCain explicitly warned 4 years ago that this was a looming crisis, that Freddie and Fannie were at the core of it and, since they were essentially government agencies, that steps must be taken then to fix the problem.  The liberal chattering class was, of course, outraged and denied that the problem existed (you can read the congressional record and see for yourself).  Now they blame anyone else, when they should be focusing on themselves.  Sure, banks share the blame, they didn’‘t complain and stood to make safe money with federal backing, but they were the horse, not the rider. 

Also consider that for the last nearly decade, our "friends" in the Fed have kept interest rates insanely low, making normal "safe" markets unattractive.  So, these mortgages were bundled up and sold as securities.  Seems like a good idea, housing was booming and these were "can’‘t lose" investments.  Even insured.  Unfortunately, now no one wants them (except, I guess, us as taxpayers, since we are buying nearly a trillion dollars worth of them). 

Long story short, blaming greed is a nice little bromide, but it rings hollow, misses the point, and has nothing to do with this blog!

I find it interesting that we need to "regulate" when risk is understated. Currently regulations and government intervention (PCI,SB1386,etc) are being implemented because business don’‘t see the financial incentive to secure themselves. Business look at the cost of losing data verses the cost of securing it, if the cost of loosing data is lower guess what the business does. Unfortunately they often don’‘t evaluate the inconvenience to the owner of the lost data. (And I just got a letter from CountryWide that they lost my PII, errr!). I suppose this is a valid reason to have oversight. The difference I see with the mortgage crisis is that business thought they were adequately evaluating risk. After all originating and buying loans is all about evaluating risk (borrower credit histories, loan-to-value ratios, and borrower income). The reason for the foreclosures is poor evaluation of these risks. I don’‘t think the government or the CRA is the major blame, the majority of the subprime loans were not even made by banks fully governed by the CRA.

Alright… I’‘ll bite…

Poster Child: CountryWide (I totally agree with you here)
Politician: Barack H. Obama (He’s the "regulate everything" guy… he needs a cause)
Law: Federal Data Privacy and Security Statute - Makes data security a federal mandate and establishes more regulated, audited federal guidelines for data security.