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Richard Barr

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Richard Barr - Citadel Advantage Ltd.

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Who is to blame for the current financial markets crisis

29 September 2008  |  4921 views  |  2

Who’s to blame for the current financial markets crisis?

The simple answer is everybody! That out of the way, onto my rant..

When Mortgage Brokers and Bankers are pushing home loans like too much candy at the county fair, what can we expect but an upset stomach the next day? Worse, we see the sickness but continue in order to feed the gods of profit. So they are blame.

So everybody blames the greedy bankers. And that’s true; however they’re not alone in this blame game. For too long the average person has bought into the fallacy that, above all, he must own his own home. It’s become part of our collective psyche.  We as individuals have to take responsibility for our decisions and actions. When we take out a mortgage that eats 70% of our income each month, the outcome is foretold. We cannot claim fiscal illiteracy.

The middlemen buying the mortgages and bundling them up for investments are out to make a profit above all, forget about risk, forget commonsense and forget about their responsibility to their clients all in the name of profit above all else. They’re to blame for not tempering their risk appetite with a healthy dose of prudence.

The investors are equally at fault for not understanding what they’re investing in. Here too we cannot claim fiscal illiteracy. A 3rd grader wouldn’t be reading “War & Peace”, nor would I, a confessed banker, understand an advanced book on quantum physics. So why are people diving into complicated investment schemes without truly understanding them or the associated risks?

The government is to blame for over-regulation in some areas and under-regulation in others. Pushing banks to issue home loans to the masses because that’s what looks good in the polls. Even going as far as creating huge institutions to guarantee home loans, allowing the “people” above all to own their own home.

It’s no wonder financial liquidity is drying up in the market. I’d want to hoard my cash too if I were one of the financial institutions. So credit dries up for market players, which increases the failures, which in turn spurs financial institutions to stockpile their liquid assets for the day they might need them.  

So when we dish out blame for the current crises, we, as a society, need go no further than our own bathroom mirrors.

TagsRisk & regulation

Comments: (2)

A Finextra member
A Finextra member | 29 September, 2008, 16:02


Richard Barr said "For too long the average person has bought into the fallacy that, above all, he must own his own home."


Normally, I'd agree but having lived in the U.S. for most of my life, I have to explain life in the United States to 'defend' these 'average persons'. Mortgage interest charges have always been tax deductible in the U.S., which truly makes owning a home a wiser financial decision than renting. 

We should remember that consumers are always the weakest link. Unlike bankers and politicians, consumers are expected to know the least about what's truly good for them. This is why businesses put a lot of money into ad dollars and marketing campaigns. Hence, consumers are prone to being victims of predatory lending, for example.

I noticed from your profile that you lived in the U.S. (bay area as well). I would like to recall to you that way back during the Clinton era that the U.S. Government started giving HIB visas to allow migrant workers to come in and work in the U.S. Year after year, more and more HIB visas were issued. Although the cost of living remained the same, most americans found their salaries flatlining because they just could not compete with the low wages given to the H1B visa workers. Don't get me wrong, I'm not laying the blame on business or migrant workers. As a business owner, I would certainly make use of workers with low wages. Neither did the politicians have a choice in the matter since they knew that companies would just take the work outside of the U.S. if H1B visas were not issued.

So while wages remain stagnant and sometimes even decreased, the value of real estate kept on going up. Americans were spending on credit (credit cards) and we also know how high the interest rates related to U.S. credit cards are. Their multiple credit cards got maxed out, they received invitations and were bombarded with ads telling them that they can refinance or get a home equity loan and as long as the total mortgage loan is not over 80& of the current appraisal value of their homes, that their ability to pay will not be evaluated at all. They got the refinancing or the HELOC. They then paid their maxed out cards. Then the whole cycle of spending on credit started over again.... and again.....  The purchasing power was based on overvalued assets. Hence, the bubble. Obviously, consumers were just too happy to know that the values of their homes have risen.

So, who is to blame? hhmmm... I'm a bit disappointed that Wall Street and bankers didn't see where this was all leading to. I don't think we should count on politicians to see all this but we always hoped that they had good economic advisors who looked beyond a government's 4 year-term.

I'm a bit skeptical about this bailout. I think its being done in haste and yes I do understand that the decision must be taken quickly. I'm a bit worried about Mr. Paulson's statement that illiquidity is the problem, because I think INSOLVENCY is the issue. The bailout is supposed to un-clog the credit flow. I don't see this solving the insolvency issue. Somehow, I get the feeling that this bailout will not work and might just exacerbate the problem. When Mr. Paulson was asked : "What if this bailout does not work?" His answer was : "It has to work."

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Joe Pitcher
Joe Pitcher - Irrelevant - Wirral | 07 October, 2008, 15:15

I’m not a banker, I have been called many things in my life but never a banker…I'm just an interested observer

Whilst contemplating the impact of the current financial crisis on my personal circumstances I can’t help but think this is in part the legacy of Blair and Bush.
There other great legacy for the world is their ill thought ‘War on Terror’.
Is it too simplistic to say one problem caused the other (indirectly) and that the removal of one of these problems would remove the other?

According to the BBC the costs to the US of the ‘war’ in Iraq are:

Direct costs: $750bn
Future direct costs: c$500bn
Cost of US casualties: $600bn
Losses to economy: $400bn
Added interest: $600bn
Macro-economic impact:
$1-$2 trillion

Blair and Bush spent the last years in office focussing their attentions on ‘war’ and spending a vast fortune on killing innocent people. Would the world economy be in the state that it is if a) they focussed more on problems at home and b) they hadn’t wasted trillions of £/$ on this personal crusade?
Rather than spending trillions destroying two countries they could have spent a few on aiding the economy. How many $700bn bail outs could you get from $2trillion??

Is the world in a better state today than it was 6/7 years ago?

Are they to blame?

Just a thought

p.s. when is the last time you heard reference to Iraq on the news? I assume its all gone peaceful over there at the moment…

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Richard holds a B.S. in International Business Administration from San Jose State University in California. His professional experience spans 20 years, 5 of which were spent with Wells Fargo Bank. Ano...

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