The Autopsy of our Economic Crisis

So we've been bombarded with articles, commentary, and assessments of our economic situation. At the top of the heap are accusations of blame. The epitaphs are incendiary and, depending on your political views, cast a different set of villains responsible for this morass.


In one corner we have the conservative view that the primary culprits for the crisis are the government sponsored programs (CRA, Fannie, Freddie, etc...) that have loosened lending standards in the name of getting everyone into a house. Lenders were forced to comply with these absurd standards as a means to get uncredit worthy applicants into their piece of the American dream. Along the way corruption and mismanagement of the programs (ie. Fannie Mae) became rampant and ignored. Until now. I am all for everyone getting an opportunity to get a home or car but I think that it has to come with the traditional strings attached such as down payment, credit history, collateral, and responsibility.

In the other corner we have the liberal view. Because the Republican leadership was so focused on deregulation it allowed the suits on Wall Street the chance to get creative with financial instruments that were highly risky and fundamentally unsound. The environment created by Fannie Mae lead to wild speculation and these mortgage backed securities. Everyone assumed that things would continue to go up and these people took more risks and became more careless. The proliferation of derivatives and other financial instruments got reckless. So, according to this view, we need more government oversight into how credit is extended and how the rules of finance are governed.

This is a pretty obvious over simplification of the problem. But it begs a fundamental question. Was it government involvement or non-involvement that caused this mess? And is government involvement or non-involvment the needed prescription to solving it? We'll see. I just hope that it is objective and non-partisan economists who come up with a solution and not the earmarking, pork barreling politicians. I hope that these politicians who are responsible for voting on "our"solution do so in a manner that reflects everyone's interest and not just their own.

Here's to hoping. Are the Visigoths at the gates yet?