The Way I see it.

So today congress had their first chance to sit down with an executive of a failed financial institution and lambast him with their accusations of misappropriation of funds and lying to investors. KPCC which is the local NPR station said that if anyone had comments they could post on the KPCC blog. I got to thinking, I think I should post my comments, but in a forum someone might actually read them and respond.

The way I see it, at the root of the financial crisis is one major disease that caused three major symptoms.

The effects of greed have been advised of since ancient times. The bible warned in Luke 12:15, "Then he said to them, "Watch out! Be on your guard against all kinds of greed; a man's life does not consist in the abundance of his possessions." I think this ancient wisdom can be seen in a different light in today's environment.

So who was greedy? Who was the one who caused this all? Well despite Democrats efforts to pin this on the Bush administration, or Congress' efforts to pin it on the compensation for executives, the answer is that practically everybody is to blame for the financial crisis. How you might ask? Well let's look at the groups one by one:

Mortage Investors - In the lending industry large packages of loans are assembled and sold off in packages to various investors. Fannie Mae is one of the investors who purchases these loans in bulk and resells in even larger packages with insurance should the loans default. The interest that could accumulate on these large packages of loans is the vehicle for the greed of the mortgage investors.

Mortgage Lenders - One of the key elements in the equation for any mortage investor is risk vs. return. Fannie Mae long ago set the industry standard that essentially a mortgage payment should be no more than 38% of the gross household income, and that total household debt obligations should not exceed 45%. These ratios are still fairly standard for Fannie Mae mortgages. Because this standard is so honored in the industry very few Mortgage Investors would agree to any change in the ratios without serious rate increases. In a bid to get a larger piece of the pie Lenders sold investors on a "Lite-Doc" option in which homeowners without verifiable income could essential state their income. The lenders decision to allow this practice and the investors failure to keep it under control is another major cause of the decline. Borrowers could now essentially lie about their income to get a larger house that they would likely not be able to afford.

Borrowers - Borrowers took on large debt obligations that they were unable to afford. This is the same problem we see with credit cards. Personal responsibility for using credit irresponsibly always falls on the consumer. However, because the consumer votes, blame will always appear to fall elsewhere. The bottom line is that borrowers signed loan documents for a house they could not afford and in most cases, lied about their income to do so.

Brokers - Mortgage Brokers are charged with the responsibility of providing access to money. They do not, as some people believe, represent their borrower's best interest. They do however make a commission based on the borrower's decisions. If I told you I was going to sell you a car from a dealership, handle the paperwork and take a percentage of the sales price of the car as well as charge a bunch of fees you would say no way. This is exactly what most brokers did. Their motivation (greed) was not to get the best loan for the borrower, but to get the loan that made the most money for them. I should note that not all brokers were guilty here as with the other categories as well.

The disease of greed caused Deceit of investors and consumers, Inflated housing prices, Uncalculated Risk taking. Hence the crisis we are in today.

My sympathy doesn't go out to the borrowers losing their home because they thought they could afford a million dollar home on $50,000 of income, or who failed to educate themselves about the mortgage process. Nor does it go out to the banks who willfully took a greater risk to get a greater return. Or to the brokers who are now broke because they spent all the money they earned decieving borrowers. My heart goes out to the homeowners who purchased a home they could afford only to see the housing prices crash the following year.

These people are what I would call the silent victims of the crisis. Why are they silent? Because they bought homes they could AFFORD and even with the dip in housing prices they can still afford to make their payments. So they sit and wait watching the value of their investment go ever lower, praying that the greed of others will not drag the world market into such a recession that their job and therefore home might also be in jeopardy.

At any rate, those are my thoughts on the crisis. Perhaps not very eloquently conveyed, but my lunch hour is ending so it will have t do.