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Placing blame for the subprime crisis

James Pethokoukis, the money and politics blogger for U.S. News & World Report, has an interesting piece today on a conversation he had with former Senator Phil Gramm.

The question Pethokoukis was looking to answer was whether the Texas Republican, who's now John McCain's campaign economic adviser, was at least partially to blame for the subprime crisis.

That charge has been leveled by political opponents who say 1999's Gramm-Leach-Bliley Act, that allowed banks, securities companies, and insurance companies to directly compete with one another, led to the creation of financial conglomerates. Those mega-financial businesses then starting offering ill-advised mortgage products to win the most customers.

Three guesses as to what Gramm had to say, and the first two don't count.

Phil_gramm "I see no evidence whatsoever that the subprime problem was in any way caused by making our financial structure more competitive by allowing banks and securities companies and insurance companies to compete against each other. I have seen no evidence whatsoever to substantiate that claim," says Gramm.

You can read the rest of his comments here. And Pethokoukis promises more from his talk with Gramm in a future blog post.

Fox, meet hen house: As much as it pains me to agree with Gramm, the mere creation of ways for financial institutions to compete with each other and offer more products is not to blame. But the excessive extent of such competition is a natural by-product of such deregulation.

And it's no secret that self-enforcement is not effective. Just ask the mother of small children. They do what they want as much as they want until mom whacks their misbehaving behinds.

Even Dubya's administration admits that more needs to be done to rein in these companies, although the just-announced overhaul of financial regulators is already taking hits as too little, too late.

And the reality is that nothing substantive is going to happen here until after the November election.


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It amazes me how so many people think government regulation will stop these issues. I worked at a large Headquartes in DC (Coast Guard) so I have seen how the federal government works. Acutally, I should say how it doesn't work.

While self-regulation is an oxymoron, the real regulation is pain. If someone does something stupid with their money, they deserve to lose it. This will focus the party on risk going forward. Expecting the government to protect you is nothing more than expecting the Wizard to help Dorothy.

This current situation is a perfect case in point. The banks, investment banks, and mortgage folks created these stupid subprime, no doc loans. Now they are losing their shirts. The markets have adjusted and you would be hard pressed to find these products today. The involved parties have adjusted their behavior due to the pain.

Even if the government outlaws this kind of loan and installs new government regulators, there will be other blow ups. The markets will find new products to sell. The government will sit by idly as these products gain traction. Then, when they blow up, the government will "come to the rescue" after the losses and pain have been suffered.

The reality is every individual needs to understand what they are doing. They need to actually take care of themselves. Had this happened, we wouldn't be in this mess. The government is too dysfunctional to help you avoid mistakes. You must take the desire to help yourself.

Gramm? Whos wife sat on the Enron board? Probably saw nothing wrong with energy deregulation either. What a tool.

Economics advisor for the McCain administration? Kind of like putting the Halliburton CEO in charge of foreign policy..oops been there, did that too :(

Stephen Gutknecht

Please Austin folks, go see the movie The Unforeseen! It is a very limited screening that ends this week.

The first 1/2 I found showed some of the negatives the local Austin housing boom build up. It has all happened before, not it is nationwide.

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