Fabrice explains who’s really behind the financial meltdown…

I’m reposting this from my friend fabrice grinda who explains who is really responsible for this mess.

Its ridiculous to hear a people say that capitalism doesn’t work or that this was a few greedy bankers. Capitalism is a machine and we are the operator. We don’t blame our car when we crash it.

To: Fabrice Grinda

Subject: Whodunit?


As a society and as individuals we are loth to take responsibility for our actions. We much prefer finding scapegoats or blaming circumstances. I was recently asked who was to blame for this crisis.

Like in Agatha Christie’s Murder on the Orient Express, we all did it!

The culprits include:

· The American Dream: Guilty of having changed from being the opportunity of becoming successful through arduous effort, perseverance and determination regardless of your starting circumstances to the pursuit of home ownership.

· Politicians: Guilty of pushing home ownership as an end in itself and of distorting the tax code accordingly thus encouraging individuals to pile on debt.

· Fannie Mae and Freddie Mac: Guilty of using the fact that no politician felt he could publicly oppose home ownership to lobby for and succeed in expanding the number of mortgages they cover. Doubly guilty for piling so much risk given its structure that “privatized the profits, but socialized the losses”.

· The Fed: Guilty of keeping interest rates too low for too long, inflating both the credit and real estate bubbles. Guilty of deciding that its role is not to deal with asset bubbles arguing it cannot tell whether there is a bubble even though many experts and most indicators were showing that real estate ownership and prices had increased unsustainably.

· Alan Greenspan: Guilty of publicly advocating variable rate mortgages even though rates where at an all time low – a suggestion made even worse by that fact that he then promptly increased rates.

· George Bush: Guilty of cutting taxes while massively increasing spending on frivolous projects like agricultural subsidies and similar pork-laden projects during a boom period leaving the US in a precarious financial position entering the downturn.

· Banks: Guilty of relaxing lending standards to expand origination profits.

· Investment Banks: Guilty of creating complex derivative products whose riskiness they did not understand.

· Investment Bank CEOs: Guilty of not looking at the riskiness of the derivative products their banks were creating because of the profits coming from those operations.

· Investors (all of us though our 401ks): Guilty of expecting 10% annual returns and ignoring risk in order to chase yield.

· Home Buyers: Guilty of buying homes they could not afford believing they had nothing to lose because house prices would always rise.

· Consumers: Guilty of spending everything we earn and more by borrowing through home equity loans and credit cards to buy things we don’t really need, instead of saving a reasonable percentage of what we earn.

The judgment is in: we are all guilty!

The penalty: Increased taxes and slower economic growth for many years as we return to a sustainable economic environment.

9 thoughts on “Fabrice explains who’s really behind the financial meltdown…

  1. Don’t forget the Rating Agencies and the buyers of CDO’s, and the insurance writers (ie AIG et al) for these piles of garbage!
    If it weren’t for the AAA rated toxic paper funding the peak of the boom in the housing bubble from 04-06, we would not be facing *nearly* the problems we are facing today.

  2. Many of the points of this list do get at the one core thing that was different about the economy of the past few years. The housing bubble. Most of the items listed not related to the bubble are stuff that’s there all the time: Greed, politics, corruption, weak legislators, greedy banks, insolvent buyers etc.
    The bubble changed all this. As long as it kept bubbling you could get away with anything in real estate, because the price kept going up and fixed any mistakes you made. As soon as it stopped going up, the mistakes become visible, and then compounded, and whoosh.

  3. Just a little quibble. You give Congress too little credit, and the President too much. The President didn’t cut taxes. The President can only propose budgets. He can’t force the Congress to accept them. The Constitution gives sole responsibility to the House of Representatives for originating appropriations and taxes. If we have low taxes and big budget deficits, it’s because Congress wants them.

  4. I love the quote “privatized the profits, but socialized the losses,” which resounds very true with the recent bailout plan passed by congress. There’s no single person or group to shoulder all the blame, but this problem could have been prevented by some general fiscal responsibility by all.

  5. I may have missed it but I didn’t see anything about spending trillions of dollars and exporting a large portion of the consumer population to foreign lands so they can fight a fake war with real guns made out of real money. When were all homeless at least we won’t have to worry about terrorists from other countries?

  6. It seems that your friend Fabrice (and you) shot yourself in the foot, because if you add all the “guilty parties” mentioned above it equals Capitalism.
    I do NOT think capitalism is at fault …
    I love America …… AND I am patriotic.
    Now that we took those WMD’s (Weapons of Mass DISTRACTION) out of the way, let’s talk about the real issues.
    Fabrice’s reasoning and yours is a smart ploy to exonerate the MAIN guilty /parties by spreading the guilt to everyone.
    Greed was at fault not those who had 401k’s, etc. You can not blame the altar boy and the priest who molested him equally … You can not blame the altar boy at all.
    Senator Phil Gramm (his wife and himself high-ranking officials at USB, the European Bank) deregulated banks. He eliminated the barriers between investment banks & commercial banks, those barriers were erected after the Great Depression to avoid such disasters. As a result the banks got into a corporate feeding frenzy.
    The Honorable Phil Gramm also co-sponsored the so called “Enron Loophole” legislation.
    I’m not blaming him alone, but I do blame people like him, all those who were preaching the new religion and the new God: “The Market” …
    I blame the greed of those who were preaching “Market Knows Best” … , “Praise be to the Market and to deregulation” … “Market shall save us all” … and “deregulate the Market and he, in his eternal wisdom, shall guide us to the Promised Land ….”
    These people were worshiping the proverbial Golden Bull of the Market and, as a result of their greed, it seems that we’re gonna be stranded in the wilderness of economic hard times, if not for 40 years, for many many years to come.
    Former Fed Chairman and two of his associates testified on Capitol Hill just recently that it was NOT Freddie and Mac’s fault, even though Fabrice puts them highest on his list. To his credit, Greenspan admitted his own fault.
    Read it on Fox Business News how USB (and his officials like Phil Gramm) helped to hide 18 Billion dollars from the US government and took the money offshore illegally to evade paying their dues:

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