Edge of the Financial Cliff
Sheldon Richman gives a glimpse of why Wall Street could not have done it alone (yes, merely a glimpse):
Wall Street couldn’t have done it alone. It takes a government and/or its central bank, the Federal Reserve System, to:
- Create barriers to entry for the purpose of sheltering existing banks from competition and radical innovation, then regulate for the benefit of the privileged industry;
- Issue artificially cheap, economy-distorting credit in order to, among other things, give banks incentives to make shaky but profitable mortgage loans (and also to grease the war machine through deficit spending);
- Make it lucrative for banks – and their bonus-collecting executives — to bundle thousands of shaky mortgages into securities and other derivatives with the knowledge that government-sponsored enterprises Fannie Mae and Freddie Mac and other companies, all subject to powerful congressmen looking for campaign contributions, would buy them after a government-licensed rating cartel scores them AAA;
- Inflate an unsustainable housing bubble by the foregoing and other methods, enticing people to foolishly overinvest in real estate.
- Work closely with lending companies to establish a variety of programs designed to lure people with few resources or bad credit into buying houses they can’t afford;
- Attract workers to the home-construction bubble, setting them up for long-term unemployment when the bubble inevitably burst;
- Implicitly guarantee big financial companies and/or their creditors that if they get into trouble they would be rescued;
- Compel the taxpayers to bail out those companies and/or creditors when the roof finally fell in.
END the FED!