Quote:
Originally Posted by Baraka_Guru
I don't know if much of the blame in the U.S. can be pinned on the deregulation orgy of the past couple of decades, but I will say I'm all for balanced regulation of banking as you see it here in Canada.
I guess the question I have is, will the American system move toward this kind of regulation? And will it help prevent future failures such as these?
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Much of the blame can be directed at US lenders making the availability of credit to easy, especially in the housing market. And to a great degree that was supported by the US Gov't. Fannie Mae and Freddie Mac (both quasi governmental agencies). Fannie and Freddie were one of the first two to fall when the bottom dropped out. Providing mortgages with little or no down payment was the issue. That was exacerbated by inflated property values. Banks wrote the loans, the appraised values exceed the loan amount, the loans were sold off to either Fannie or Freddie who packaged them as investment vehicles that were sold worldwide. The bank that wrote the loan may have received $500 plus closing costs and had no skin in the game after the loan was closed. It was to their advantage to write as many as possible (i.e. approve as many as possible). It was a disaster waiting to happen. And it happened.