I do completely agree with post the banks should not have given so much with no penalty for people who don’t pay. They gave me $372k with 0 down and now my house is worth $150k… what do they expect? Of course if they had asked for a down payment I would have had to wait because I didn’t have one. I’d have actually been able to avoid the bubble. Prices would never have gotten so inflated if they had made everyone put 20% down. I guarantee if I had $80k of my own money I would never walk.

“If banks lend money to people who can’t pay it back, banks will end up taking the loss in foreclosure, the investors in that bank should take the loss. I think the current stock market valuations are capitalisms way of punishing these banks, we don’t need the government to do it.”

A whole host of economic leaders, elected and not elected, have decided that we do need the government involved to stop the dominos of our financial system from falling. The spectrum of people is very wide, including those that would usually be against government intervention in the market. I remember reading something from a Cato commentator that ceded this (sorry, can’t find a citation I think it was WaPo). This at least suggests that we’ve had a market failure and that it would be very painful for the market to correct itself on its own.

What I was trying to suggest is that the reason the market is having such difficulty correcting itself is that the financial industry allowed its greed to make them extremely poor stewards of our economy. Had they not, as you say, some people who made poor decisions would have lost their homes and banks that made poor loans would have gone out of business. That’s not what happened. Instead, domino after domino falls over because multiple layers of public and private regulation failed.

Its pretty clear that there’s going to be enormous overhaul of at least the public regulatory system. What the effect on private regulatory mechanisms will be I don’t know enough about the industry to say, but I imagine there will be big changes in the place of bond ratings agencies.

I think the Republican stance on regulation is perfectly clear, both in their stated policies and what they’ve done. Their general policy is to understaff agencies and make them toothless, we’ve seen that across the board in EPA, FDA, SEC, etc.

When people buy houses they can’t afford and the bank takes them back, it’s their own damn fault. They should not have the government stepping in and guaranteeing their loan just so they can stay in a house they can’t afford. Government should never have been and never should be involved in this. The people who took the risk will be punished by the free market. Those who didn’t take the risk (like myself) aren’t feeling the effects of any economic slowdown. The non-risk takers will be well positioned to make substantial gains once these issues resolve themselves _on their own_.

I substantially disagree with your assertion that the republican administration is somehow responsible for the poor rating of mortgage backed securities. Can you name the specific piece of legislation that allowed this to happen? The republicans were the only one’s willing to stand up to Barney Frank, Chris Dodd, and company against bailing out the banking industry and creating this moral hazard.

In what way do the American people have blame for Moody’s and their ilk rating securities backed by “liar loans” AAA? The heart of the economic woes caused by the subprime fallout are a classic tale of Wall Street greed and arrogance abetted by an incompetent regulatory apparatus. The American people shouldn’t need to instruct these leaders not to build trillions of dollars of our economy on top of fraud.

I agree that the American people should definitely clean house now. There’s no one to blame but the American people if that doesn’t happen. Shareholders should fire vast swaths of executives that presided over this mess. Voters should hold elected officials accountable.

The Republican Party in general and the Bush administration in particular have made it a cornerstone of their policies to systematically destroy the ability of government regulators to regulate effectively and to espouse industry “self regulation”. We are seeing the fruit of this very clear now, I hope Republicans get the credit that they deserve.