Here is a great short article on the current financial crisis. Turns out the entire thing is tied to politics and government policy…
For all the complicated financial instruments and relationships involved in the current financial turmoil, the underlying cause is still relatively simple: the bursting of the housing bubble.
The most dangerous thing we can do right now is to assume that massive government intervention is needed to shore up home prices. After all, massive government intervention is what caused the housing bubble in the first place.
Fannie Mae and Freddie Mac were created by Presidents Franklin D. Roosevelt and Lyndon B. Johnson to make homes more affordable for Americans.
In 2004 alone, they bought 44% of all subprime securities.
(subprime is a politically correct term for “bad loan”.)
When the FM’s got into financial trouble, they lobbied Congress. Who, in particular?
According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie’s PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000.
Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them.
(from the comments:)
One final little known fact is that the SEC in 2004 changed the lending ratio from 15:1 to 30:1. These are the same people who have given nearly $44 million in campaign contributions this election cycle.
Corrupt and rotten – through and through.