Sail away with me on a voyage of my mind. Let’s play a game. It’s kinda like “Where’s Waldo,” but in this case, it will be common sense and logic we search for. Let us for a moment imagine what it would be like if I were a banker being blamed for the destruction of America’s economy.
Okay, here we go… Now I’m a banker just going through life minding my own business doing my banking things in the world of finance. One day there is a knock at my door and it’s President Jimmy Carter. He tells me that from now on he wants me to take a small percentage of the money I loan out and give to poor people and minorities who don’t fit the criteria of a loan applicant and give them loans. The President tells me that there is a disproportionate number of minorities and poor people who do not have access to “The American Dream” and deserve, like other Americans, the opportunity to own a home.
So, I realize that this request will end with loans that will never be paid off. However, it’s only a small percentage of my money, it is the President of the United States asking me for this and in a charitable kind of way, this might even make me feel better. To be a part of such a noble program and help out, in a small way, my fellow Americans that are having a hard time doesn’t seem too over the top. So I agree and start making these kinds of loans.
Now time goes by, I get another knock at my door. This time it’s President Bill Clinton. This visit from another American President seems a little different to me. It doesn’t have that charitable kind of feeling to it. President Clinton tells me that he wants me to take a much greater percentage of the money I loan out and give it to these people who do not qualify for a mortgage. He shows up with some other people with a very forceful stance and declares that we need to accelerate this lending process. The President, in his ominous tone, is armed with an army of regulations and regulators.
I explain to the President that I pay a good salary to what is called “bean counters” and they tell me that this is not a good direction for my bank to go. They crunch the numbers for a living and tell me this policy of loaning money out to people who can’t pay it back, could be disastrous for me. This only angers the people asking me to do this and they lay out their threats and coercion on the table. They tell me if I don’t make these loans they will regulate me right out of business. They tell me they will fill my bank up with protesters claiming that I hate black people and minorities. They explain that they won’t stop until I either loan out the money or collapse from the pressure. So in the spirit of self-survival, I start making the loans.
To my utter dismay, as years go by, the government comes up with an accounting process called “Mark to Market Accounting” where it forces me to take these loans and put them in a column on my spreadsheet that is devastating to my books. This Mark to Market Accounting will turn my books upside down and make it so hard for me to survive. Unbelievably, Wall Street takes these bad loans and starts bundling them together and selling them. They create an entire industry around the buying and selling of these bad loans bundled together. This new way of banking takes off like a rocket and gains such speed, it becomes an unstoppable juggernaut. Now, I and others realize that the core foundation of this new bundling technique is built on all these bad loans I was forced to make. People on Wall Street and elsewhere start getting “VERY RICH” and the whole thing spins out of control towards the stars.
This entire thing gives birth to a new culture of fudging the numbers on the loan applications. I mean, after all, if they want us to keep giving out these loans, we’re gonna have to get them approved somehow. It turns into a race to see which bank can alter an application where the underwriters would accept the loan. It became a whole new culture of self-deception in the banking world.
I’m not the only one who sees all of this. Other people start realizing the complete insanity of this and apperceive a day of reckoning is coming. So people from the Republican Party start to fight this. One by one, certain people start sounding off the warning bells. Sadly, even though these Republicans were in power, they failed to put a stop to any of this. People start pointing fingers, calling people racist and are claiming there is nothing wrong with Freddie or Fannie. Through subcommittee tricks and an absolute lack of a spine and follow through, these Republicans fail at stopping any of this. So it continues.
Even more time goes by and the whole thing starts to collapse and people start losing everything. Money and credit run and hide under a rock and the entire thing has some seen and unforeseen rippling effect that spreads throughout the entire economic system of America and then spreads throughout the world. It becomes the financial bubonic plague that takes out a large portion of the financial population. A complete financial pandemic sweeps across the world.
I crawl my way back to Washington D.C. and tell the government I’m going under. I tell them that I’m going to fail and go out of existence. They tell me that I can’t do that, we must have the banks survive. So in a tempestuous whirlwind, the government comes up with more money anyone has ever seen and gives it out to me and the other banks and financial institutions. They say, “Here’s the money, don’t fail.”
As a result, I go back and I take the money and put it in the right column of my books that allows me to be solvent and survive. In a bizarre turn of events, I’m summoned back to Washington and berated by the same politicians that caused this mess and were neck deep in its madness. They start yelling at me, telling me I should loan out the money! Screaming at me, telling me to put the money on the streets! Loan it out! Let the credit flow! Loosen up the money and lending criteria and lend this money out now!
At this point, I get in my car and start driving home. I’m numb and just thinking aloud in my car talking to myself. These people want me to loosen up the credit again and start lending this money out irresponsibly once again. The very thing that got us into this disaster, they want me to keep doing it! If I go back to the way I used to lend, with people needing ten, twenty or thirty percent down and require the proper creditworthiness of an applicant, I could survive. We could, as a country, slowly crawl out of this mess.
However, what they want me to do is just start lending it again with almost no one left who even ” has” good credit out there, after all this. Not only are we not, as Americans, putting a stop to this, they want me to keep spreading the money and credit around to spark the economy. They still haven’t removed the Mark to Market restriction that makes this whole thing fruitless and unsustainable. Worst of all, they blame me for all this and actually claim it was the failure of the free market and in an outrageous spin of events that not even Shakespeare could have made up, they claim this is all due to “deregulation.”
Now have you found Waldo yet? Is this voyage in my mind sailing off course? For the most part, this is what happened here. This is what’s happening now. We are, in so many ways, at the crossroads here in America. It is now time to ask and answer the questions, “What do we fundamentally want from our government? What role do we as Americans believe the federal government should play in the free market and our lives? What direction should we head? More government or less government?”