Wall Street & Main Street: It’s a Two Way Street
My fellow blogger Janis Mara wrote about the government’s bailout of financial insitutions several days ago, noting that the majority of Redfin readers didn’t think it was fair to bailout homeowners back then, so should we offer a lifeline to financial institutions? 
In reading the tons of articles that swirl around on the rescue plan, it seems to me that those who are opposed to the plan feel that Wall Street is getting what it deserves. Banks and other financial institutions, they argue, got greedy and gave out credit to anyone who asked. They too, rode the home buying frenzy, thinking home values would keeping going up, up, up and got the average joe into loans that were probably unsuitable and loaded with risks.
While I agree with all those points above, what I have found particularly interesting is that everyone is pointing their fingers at everyone else. This whole credit crisis, I believe, is the responsibility of not only the banks and financial institutions, who doled out more credit than they should, but also the consumers who readily took on credit that maybe they shouldn’t have. Like a marriage or partnership that doesn’t work out, there are two parties to this transaction. And it is the responsibility of both parties to understand what they are getting themselves. When it doesn’t work, it’s easy to lay blame.
Yes, I think the banks and financial institutions went too far with exotic mortgages, no-doc loans, minimal down payments, etc. However, let’s not forget that on the receiving end were homebuyers that probably also thought buying a home was an instant profit making machine, since prices kept skyrocketing. With no-doc loans, many probably stretched a little bit and in interest only loans, they too were making a bet on the housing market.
This credit crisis is more serious than I had imagined. It has seemed to spill out of just the housing market to affect everything else. I haven’t been a fan of bailing out anyone. Especially as a taxpayer that sat on the sidelines and didn’t take on a mortgage during the heyday I wasn’t too sure that I could pay in the long run. However, I do support the plan, only because this credit crisis seems to have infiltrated not just the housing market, but everything from car loans, credit cards, small businesses, etc. I just only wish that folks stop pointing fingers and be willing to admit that they probably contributed to this problem.
Susan Brady said:
I agree with much you say here Jenny. Flippers who took advantage of easy loans to buy properties they really couldn’t afford (and were some of the first to lose out in this crisis), people who opened huge HELOCs and spent, spent, spent, people who bought homes with “no income verification” (the bane of naivete). They are all a part of the problem, along with financial institutions that did not keep themselves in check, and a government who didn’t impose proper regulation (sometimes Republicans need to bend on less regulation issue). Those of us who have been good borrowers are the ones to pay the price, which is why there has been a revolt of sorts these past few weeks. However, do I want the bottom to completely fall out of the market? Do I want to go through what my grandparents went through (and I heard plenty of horror stories about the Great Depression)? I’m just not willing to gamble that big, not at my age. I do feel that there should be some government intervention and bailout, but with safeguards and equity in companies they rescue.
October 1, 2008 12:36 PM
David said:
I’d just like to point out, without being political, that there were significant, successful efforts by Democrats to relax regulations regarding Fannie/Freddie’s loan book. Republicans, including both Bush and McCain have worked in the past to try to restrain Fannie/Freddie, only to be stymied by certain Democrats, including Dodd and Frank.
In the name of “affordable” housing, the gov’t encouraged the removal of down payment requirements, subprime lending and the like.
The major failure of regulation in this instance actually wasn’t loan regulations in my opinion (although just because you have a subprime credit score doesn’t force you to lie on your application, nor does it force the bank to look the other way), but the SEC relaxation of leverage requirements for broker-dealers. This allowed Bear Stearns, Lehman, et al to leverage up to 30-1, instead of the previous 12-1 limit, making it almost certain the brokers would fail with just a miniscule loss of collateral value. The SEC should have also cracked down on bond raters.
Additionally, failure of regulators to impose any kind of discipline on appraisals helped fuel the bubble. So there were failures of regulations, however, the rapidly developing conventional wisdom that it was the Republicans who allowed the looser lending standards (that caused Fannie/Freddie to collapse) is simply not accurate.
October 1, 2008 2:04 PM