Quote:
Originally Posted by Sailormon6
sck5, there are two ways in which the government can regulate an industry. Government can enact laws and regulations that prohibit industry from doing unethical things that it wants to do, or it can enact laws and regulations that encourage industry to do things that would otherwise be foolish. With regard to the current situation, the government regulated the home mortgage industry in the latter way. The government enacted regulations that encouraged lenders to loan money to home buyers, without regard to whether the buyer could afford the home. If the government hadn't done so, then lenders would have had to use their sound business judgment to decide whether a prospective borrower represented a good credit risk. If the lenders had done so, there wouldn't have been so many failing mortgage loans out there. The primary responsibility for this mess is Congress.
In short, government should not have adopted regulations that encouraged lenders to make bad loans. Government should have allowed the industry to rely on its sound business judgment in making such decisions.
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This is exactly right. The problem was not with the deregulation of wall street, it was with the govt encouraging or even requiring banks to make bad loans. Deregulation allowed the securitzation of bundles of mortgages. If the mortgages were good in the first place, there would be no problem with the way they get traded. The part of this that wall street is responsible for is the greed that had them not doing their due diligence. Any fund manager who did his due, and didn't buy those crap mortgages, was fired for under performing those managers who turned a blind eye. How could they turn a blind eye? Because the risk was low. Everyone knew that the govt was going to bail out fannie and freddie, so how much risk did they really have?
So I guess we should pass a law that says no one on wall street is allowed to be greedy, and they should go to jail if they don't do their due, and that any stock or security they buy will have to me standards x y and z. Then we can all expect investment account returns similar to passbook savings.