Ahh, the time tested method of deflecting blame is alive and well when it comes to resolving the roots of the financial crisis. One of the most aggravating parts of constantly reading about the “starting” point as it were of the mortgage mess is that everyone has their own story to tell. Fingers are constantly pointed back and forth as to who ultimately holds the responsibility for the rather unfortunate circumstances we find ourselves in. Of course there’s also plenty of blame to go around, so you don’t really have to leave anyone out.
First, you have the mortgage lenders themselves. The Center for Public Integrity recently released a study that identified the top 25 subprime lenders that helped manufacture the economic meltdown. As you might expect, many of these firms you’ll recognize immediately:
- Countrywide Financial Corp. (at least $97.2 billion in subprime loans)
- Ameriquest Mortgage Co./ACC Capital Holdings Corp. ($80.6 billion)
- New Century Financial Corp. ($75.9 billion)
- First Franklin Corp./National City Corp./Merrill Lynch & Co. ($68 billion)
- Long Beach Mortgage Co./Washington Mutual ($65.2 billion)
- Option One Mortgage Corp./H&R Block Inc. ($64.7 billion)
- Fremont Investment & Loan/Fremont General Corp. ($61.7 billion)
- Wells Fargo Financial/Wells Fargo & Co. ($51.8 billion)
- HSBC Finance Corp./HSBC Holdings plc ($50.3 billion)
- WMC Mortgage Corp./General Electric Co. ($49.6 billion)
- BNC Mortgage Inc./Lehman Brothers ($47.6 billion)
- Chase Home Finance/JPMorgan Chase & Co. ($30 billion)
- Accredited Home Lenders Inc./Lone Star Funds V ($29.0 billion)
- IndyMac Bancorp, Inc. ($26.4 billion)
- CitiFinancial / Citigroup Inc. ($26.3 billion)
- EquiFirst Corp./Regions Financial Corp./Barclays Bank plc ($24.4 billion)
- Encore Credit Corp./ ECC Capital Corp./Bear Stearns Cos. Inc. ($22.3 billion)
- American General Finance Inc./American International Group Inc. (AIG) ($21.8 billion)
- Wachovia Corp. ($17.6 billion.)
- GMAC LLC/Cerberus Capital Management ($17.2 billion)
- NovaStar Financial Inc. ($16 billion)
- American Home Mortgage Investment Corp.($15.3 billion)
- GreenPoint Mortgage Funding Inc./Capital One Financial Corp. ($13.1 billion)
- ResMAE Mortgage Corp./Citadel Investment Group ($13 billion)
- Aegis Mortgage Corp./Cerberus Capital Management ($11.5 billion)
I don’t think there’s much question here that financial institutions were in large part to blame for this mess, as they created the securities and lent out the money. They’re not the only part in this play, though. Uncle Sam, too, is partially liable, as there were a number of warning signs that (particularly so in retrospect) this crisis was building. Many point the finger at Alan Greenspan, although you can find plenty of accusatory pieces about previous administrations as well.
Finally we, as consumers, also shoulder some of the blame for this economic downturn. Although we openly criticize the government for failing to control spending, for the past 5 years we’ve been unable to accomplish that feat, either. Total household debt grew more than four times faster between March 2001 and the middle of 2006 than it did in the 1990s. To be fair, part of that deficit was due to stagnating salaries and rising costs, but you’d think we would cut back and tighten the belt. Instead? We borrowed far beyond our salaries and continued to borrow until our credit was no longer available.
Of course as we go forward, we’re (hopefully) looking beyond blame and instead seeking solutions. After years of rampant consumerism, we’re finally realizing that it is important to have a clean financial house, and while retailers may cringer at our new found frugality, it will ultimately benefit us over the long term. The mortgage crisis continues, as does the economic downturn, but both the government and private industry alike are scrambling to find remedies to the nation’s financial ails (although I’d say many of don’t agree on the cure). It is important to find out what went wrong, vital to find the core of this crisis and take steps to ensure it doesn’t happen again, but we should also focus on moving forward, rather than focusing on the past alone.
Last 3 posts by phillenbrand
- Loan Modification Fix - July 20th, 2009
- Free Home Loan Modification Help For Homeowners - July 10th, 2009
- Would One Mortgage Regulator Work? - May 21st, 2009
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