Isn’t it ironic that the game of free market capitalism, the economic system responsible for creating the world’s richest country, is now to blame for the financial collapse of the $ 13 trillion US economy? Foreign leaders around the world have pointed to American-style capitalism as the reason for the global economic depression. In hip-hop culture, there is a saying “don’t hate the player, hate the game”, but in this situation I must say, “we can’t hate the game, we must blame the players.”
So who is to blame? We could start with the Federal Reserve, which kept the money cheap by cutting interest rates below 2 percent between 2001 and 2004 and sparking sub-prime mortgage sales. As of 2001, subprime mortgages were a $ 200 billion industry, accounting for less than 10 percent of the mortgage market. By 2004, the industry more than doubled to approximately $ 600 billion and its share of the mortgage market increased to 18 percent. However, former Federal Reserve Chairman Alan Greenspan was just trying to jumpstart the economy after 9/11, so I think he deserves a pass. Next, borrowers with poor credit history promised to pay back and agreed to the exotic mortgages issued by mortgage brokers only to default later. They deserve a partial pass because while many of them knew they couldn’t afford the houses, the brokers manipulated them into the deals and didn’t fully explain the terms of their loans. Greedy brokers also had great incentives to earn commissions and fees and actually played sleight of hand with borrowers’ applications and documentation to ensure they received financing. But they were only selling mortgage products offered by banks, so next, please. We presented the credit rating agencies, which approved the subprime loans that Wall Street “securitized” and resold as mortgage-backed securities to investors around the world. The rating agencies did not perform due diligence and since investment banks pay them to rate their products, I repeat after me, “conflict of interest”: Flagrant foul!
Eventually, Wall Street commercial and investment banks relaxed their credit standards and began buying lower-quality loans, only to resell them to eager investors hungry for higher returns. Banks knew they were issuing and selling poor-quality loans from borrowers who had a history of defaulting or were not paying their bills on time. They created products like the declared income loan, in which a borrower declares how much money they make and the amount of their assets without documentation to prove it. Why would banks create such a risky product? Because they were able to easily combine multiple loans, repackage them, and ultimately sell the loans and transfer all the risk to the buyers. It was like playing “mortgage musical chairs,” and the banks knew they would always have a chair once the music stopped. “Double technical expulsion!”
While economists and political experts are calling President Obama’s bank bailout and stimulus plan an indirect socialist scheme, I don’t entirely agree. Socialism, an economic mindset, suggests that a government manage and plan the economy and ultimately control the production of products and services and ensure that wealth is evenly distributed to all citizens. I don’t think the Obama administration umpires want total control of all players in the game of American capitalism. However, I think the administration understands that some of the players have indeed cheated in a way that has compromised the integrity of the game and now they need to review and amend the rules. And no, the game of American capitalism is not over, we just need to amend the rules and add a few more referees.
