Ultimate Blame

Regarding Douglas Freeman's letter to the editor published in the June 10 edition ["Federal Disaster Area"], I wonder who Mr. Douglas thinks are the debtors in the "black hole of debt that the Federal Reserve... continue[s] to pump fiat currency into..." While I remain undecided on whether the Federal Reserve produces a net benefit to the U.S. financial system and economy, I know for certain that the past efforts of Cuomo, Reno, Frank, Dodd, Raines, Clinton, et al. to promote risky lending practices, and to coerce lenders to make loans to unqualified applicants, resulted in multitudinous loans to individuals who the lender and borrower both knew had little chance of repaying them.

Collateralized Debt Obligations are all three of those things. Any high school accounting or business law student knows that the lender claims the collateral when a debtor fails to honor his obligations on a collateralized debt and, when the collateral is worth less than the loan balance, the balance may be uncollectible. Sadly, thanks to the abuse of credit by their parents, a lot of younger children now know about foreclosure and repossession, too.

Selling securities to investors does not obligate the seller to repay a debt. Borrowing money does obligate the debtor to repay a debt. Again from high school accounting, that is the key difference between equity financing and debt financing. The "2008 financial meltdown" could not have happened without the willing and cognizant participation of the irresponsible individuals who borrowed money in amounts they knew they could not repay and under terms they knew they could not honor. Until the new health-care legislation was signed into law, there was no legal coercion to purchase any commercial product for one's own benefit. No one forced people to borrow money irresponsibly. The only correct placement of the ultimate blame for the current credit crisis is on the debtors who did not honor their obligations.

Claire Austin