WHO'S AT FAULT FOR OUR FINANCIAL CRISIS?

Today the financial world is a very dangerous place and our leaders need to take the blinders off.

We do have a major financial crisis. So many are blamed--Democrats, who insisted on banks lending money to high risk borrowers, inept bank regulators, credit rating agencies, and the Federal Reserve's monetary policy (too low interest rates). But those who were most at fault are the bankers and investment bankers themselves. Out of sheer greed, they concocted an elaborate, legal, but risky scheme to obscure risk that is tanking the world economy. Our world needs financial globalization. If it fails, the large financial institutions and their regulators will have to bear a large part of the blame.

Why are they the cause? Why isn't it a result of the sub prime loans and the housing bubble that burst? Here's the story: Traditionally, a bank would lend a buyer the funds to purchase a home and then hold that mortgage for the duration of the loan. During the life of the loan, the bank was responsible for the risk of the mortgage. In this new economy, banks resorted to a different system to come to terms with risk. The bank collected all its loans into a single pool and divided the collected sum into separate pieces called interest income streams. In other words, the banks securitized the loans, selling off the repackaged individual income streams (now called mortgage-backed securities) to the global market. The banks also encouraged their independent, off-balance-sheet vehicles to buy these mortgage-backed securities, some of which held pieces of mortgages that were rated subprime. The large financial institutions made huge fees selling these bundles to their own independent investment vehicles.

Then things got really complicated. The independent off-balance-sheet vehicles, using the just purchased bundles as collateral, went to the global credit markets and borrowed money by issuing commercial paper. Traditionally, commercial paper was a highly safe form of debt investment, widely used as one of the safe backbones of money market funds. The burst of the housing bubble set this course into a downward spiral. Financial stocks collapsed. The bankers faced no risk once they had sold the bundles to the off-the-book vehicles. They did it--risk free risk with enormous profits. The regulators and the rating agencies were so lax. They never asked to look at the whole picture. Never looked at all the sub prime exposure, thinking it was tied to real estate so the debt was securitized. What they failed to understand was the real estate was a bubble about to burst because the value of the real estate had dipped below the amount of the mortgages. They thought real estate prices always went up, but that was their stupid mistake. And now we're all losing because of it.

To understand this, think of inflated grades in our schools--consistently giving inflated grades so we never really know the true aptitude and ability of the students. Same with the bundling of the mortgages and the clever risk avoidance.

When will we ever learn??? Obama is not the answer. He is into a redistribution of the wealth and class warfare. Let's hope he's a one-term president replaced by someone who wants America to once again be the shining city on the hill. We must stop allowing the left wing media to select our leaders by destroying competitors to their politically correct choice. Obama has a toxic agenda for our country.