Michael Lewis has written some great books on finance related topics (Liar’s Poker, Moneyball, et al), and is a writer for Bloomberg. He wrote a great article about the AIG bonus kerfuffle the other day; I got around to reading it this morning on the way in.I thought the gist of his article was this:
Since the beginning of the crisis I’ve wondered why the government has found neither the will nor the way to attack the root of the problem — the people who borrowed money to buy homes they shouldn’t have bought.
While that’s a good place to look, it brings up a deeper problem. I wrote him back:
Michael:
Your article about AIG bonuses hit the nail on one of the heads.Yes, there are thousands of people who got Alt-A, liar loans, etc. to buy houses that they never should have been able to afford, and you and I are on the hook for bailing out the busted mortgages, and to help keep some of those who never should have had mortgages in the houses they shouldn’t be in.Yes, securitization removed the diremoral and financial hazards to writing mortgages to the ne’er do wells, enabling the mess. Yes, those that bought these securities relied on the derelict ratings agencies, and the MBS buyers in turn, underestimated the risk.
But where did all this really come from? Washington. Congress, the executive branch, the Fed, all of them, by sins of both commission and omission, pressed for easier lending standards, lax lending, and poor oversight. With proper and diligent oversight, would there still be a cycle to housing prices and mortgage defaults?Yes, but not to the completely asinine degree that we’re seeing today.
The issues for Congress and the President (Obama yes, but Bush and Clinton as well) are:1. There are far more voters in upside down mortgages, default, or foreclosure than there are at AIG. 2. The reform/bailout/fix issue is getting pressure for a solution that benefits big investors (Goldman) rather than average, Main Street taxpayers. Sure, the solution gets painted over as “we’re helping Main Street”, but that’s putting lipstick on a pig (to borrow Joe Biden’s phrase).Washington is broken; what will it take to fix it?
Your comments welcome.
.gif "Michael Lewis on AIG Bonuses, and My Reply")
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