Blame Game

Surely Main Street didn't contribute to the financial crisis

So there we were, walking down Main Street: Innocent. Pure. Virginal. Then a big black limo stopped and the Wall Street gang jumped out, bent us over a bus-stop bench, and repeatedly raped us.

Just a few years ago you could buy a house in West Knoxville for $150,000. You put down 5 or 10 percent of the purchase price and you made your payments on a 30-year mortgage. The house appreciated in value and you were on the right side of the investment curve. You could pay off your house before you retired and your net worth increased as a result. If you sold it, you got equity.

Then the agents of Wall Street, who happen to be your neighbors and friends, lured you into a title office. They told you that you could buy a $500,000 house. And you could just pay the interest. Then when the house increased in value, you could sell it for a profit. And you could deduct the interest! What a deal. Assuming houses always go up in price. Just sign here.

I haven't heard of any cases where the real estate agent and the mortgage broker got the home buyers drunk, slipped them a Mickey or twisted their arms before having them sign the loan papers. No. It wasn't necessary. There is nothing more intoxicating than free money. Nothing can confuse you more than a financing agreement. And who had time to study the financials, when it was more fun to pick out drapes and landscape the yard? Can you even find a copy of your mortgage?

It was in the seller's interest to ask for more money than the house was worth. The appraisers saw house prices increasing, so they had to be worth it. The higher the mortgage, the more money the mortgage bank and the real estate agent made in fees. Once the deal was done, the seller moved on. The real estate agents moved on to the next deal. Only the mortgage holder had to worry about whether the homeowner could make the payments. But wait. The mortgage banker took all the paper he accumulated and shipped it off to an investment bank. They bundled thousands of these loans and sold them in bulk to Freddie Mac.

Who are the Main Street victims? The homeowners, from Lonsdale to Westmoreland Hills, who bought more than they could afford? The buying/selling factories up and down Kingston Pike, generating a blizzard of paper and phenomenal profits? If a mortgage broker in Knoxville wrote a mortgage for more than a house was worth, it's not totally the fault of the derivative holder five times removed that the asset was overpriced. It would seem that the Wall Street gang was just the last stop on this Road to Perdition.

You can argue that the Wall Street gang was a financial version of the Medellin drug cartel, sending these intoxicating packages out to our neighborhoods to entice unwary citizens into dependency. But it seems to me there is enough greed—and blame—to go around. Both Republicans and Democrats have had a hand in pushing loans, ignoring regulation, and promoting financial madness.

So here we are. Congress has authorized $700 billion. Added to spending by federal agencies like the FDIC, and we're proceeding to spend over $1 trillion to clean up the mess. We watched the Wall Street gang aim a gun at Congress and the administration last week: Give us the money or we will wipe out every pension fund, IRA, and bank in America. No one can say with certainty that the trillion dollars will solve the problem. We are in a recession. The stock market will continue to go down; as I write, the Dow is below 10,000. But the mortgage business is being artificially inflated by the infusion of taxpayer money.

Where is the leadership to navigate us through the next four years?

That's a rhetorical question.