The Government Made Me Do It

I heard it again the other day in what was a reasoned debate/conversation about the financial crisis of the past few years, someone said: "It wasn't Wall Street and the banks that made all those loans, they were forced to lower their lending standards by the government."

There is one and only one way to address that assertion - "Bullshit!" Unmitigated, unfounded, truthless bullshit! But presented with the facts, some people still need to cling desperately to their own fantasy version of reality.

Here are the facts, you only need to consider two numbers:

$1.4 trillion U.S. dollars
$140 trillion U.S. dollars

Notice that the second number is 100 times larger than the first. So here goes the easy explanation even for those who consider themselves math challenged. In the U.S. the grand total of "bad" real estate loans at the peak of the financial crisis was 1.4 trillion dollars. If the U.S. government wanted to step in to prevent the near financial collapse caused by these "bad" mortgages it could have done so for 1.4 trillion dollars. Just buy up all those bad loans and manage the portfolio. Crazy? Well since the U.S. government spent 2.5 trillion in the bank bailout, 1.4 trillion would have been a discount. And. . . less than half of those "bad" loans actually defaulted, the other half are still making their monthly payments.

So why didn't this happen? Well let's go back to the ridiculous argument that the banks and their Wall Street backers were forced to make these credit risky loans. Say the U.S. government had bought all the loans for 1.4 trillion and apologized for forcing the banks to be so financially irresponsible, wouldn't all of the financial problems gone away?

Well no, you see the 1.4 trillion of subprime ("bad") mortgages were not the problem, no matter who originated those loans or why they made them. You see Wall Street (AIG) used those 1.4 trillion of actual mortgages, loans with real property behind them; Wall Street used those loans to create 140 trillion dollars worth of fake collateralized investment paper . Mortgage default swaps and other byzantine derivative investments all based on that original 1.4 trillion in actual loans. That 140 trillion was sold worldwide and other bankers in other countries followed Wall Street's lead and ventured into the same speculative investment instrument creation based on their real estate markets.

Understand these "other" investment contraptions had no financial basis other than the actual mortgages. One hundred times more money was generated in investment paper than the real estate mortgages held in value.

1.4 trillion in mortgage debt X 100 = 140 trillion on top of the actual mortgage paper

Nothing justified the creation of wealth out of thin air. The mortgage back securities were worth 1.4 trillion the rest of the 140 trillion was slight of hand. No one, not one single soul on Wall Street has ever suggested that the government made them create that pile of worthless investment paper. It was fraud, it was irresponsible, it was greed and it was criminal.

And most of all, the government did not make them do it.

Now does anyone want to know why there is this movement called Occupy Wall Street?

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