Who Is Responsible for the Financial Crisis?

In the home stretch of the presidential election, sound bites are flying as to who is to blame for the USA's current financial train wreck. Newsweek has a good article that looks at the various arguments and also relies on information from factcheck.org. Personally, I have maintained for over a year that the failure to regain stability in the housing/mortgage market was going to lead to a disaster. Here are some highlights that look at some of the true contributing factors of how things got so screwed up (only by recognizing the real cause - and that lack of regulatory oversight WAS a big factor - can a real solution be achieved.):

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As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:

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The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.

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Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

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Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.

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Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

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The Clinton administration, which pushed for less stringent credit and down payment requirements for working- and middle-class families.

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Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

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Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

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Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.

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The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.

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An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

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Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.