Who Caused the Current Financial Crisis? Not Bush and not Wall Street

What a day! The Dow suffered its worst loss in history. The S&P and Nasdaq also got clobbered big time. How did it come to this? The genesis was in the sub-prime market meltdown and the consequent inability to value these assets on the books of banks and other financial institutions. Note that these securities are not valueless but no one knows how to fairly value them.

Now here's where it gets interesting. One of provisions of Sarbanes-Oxley is that companies are now required to take a conservative approach in valuing any balance sheet assets. Since no one can put a fair value on the securitized mortgage assets, Sarb-Ox requires that they be written down to essentially zero. This is what is causing the failure of banks and other financial companies such as Bear Sterns and Morgan Stanley.

So what happen? The short answer is that up until 2 years ago Frannie and Freddie were prohibited by law from providing security for mortgages issued to unqualified borrowers. In other words there were specific borrower qualification requirements that banks had to follow in order to use the Fannie and Freddie facility. Guess what happened. The congressional Democrats were unhappy that so many low income people could not qualify under these rules so they forced (remember that the Dems have controlled congress for the last two years) Frannie and Freddie to lift their requirements. This gave banks and other lenders a free reign to sign up mortgages with as many people as possible regardless of their ability to pay. Not only that they were allowed to market all sorts of non-conventional products such as interest-only and teaser rate adjustable loans that the GSE's were now allowed (in fact encourgaged) to securitize. In addition liberal activist attorneys sued lenders - e.g. Citibank - if they did not aggressively market this junk even though most bankers realized that this was a very risky move.

Who raised the alarm? The Administration and John McCain were on the forefront in issuing warnings but they went unheeded. Bottom line is that we have the congressional democrats and their leaders to blame for the current crisis and no one else.

You can perhaps understand why I am outraged at the blatant and unabashed hypocrisy of BHO, Pelosi and in particular Barney Frank who orchestrated the situation we now have to fix.

Even more remarkable is that they try to blame it on Bush and "greedy" Wall Street! Unbelievable. This is a very important election issue that can not and must not be swept under the rug.