The Financial Crisis

The financial crisis is clearly the most important historical event since the al-Qaeda attacks on 9/11/2001. A tremendous amount of wealth, imagined wealth as it turned out, was destroyed with devastating effects for millions of people. The basic outline that’s emerged and doesn’t seem to be in question is that mortgage backed derivative securities were assessed at inflated values. When the housing market started to weaken causing the backing of the derivatives to lose value in turn, the over leveraged investors couldn’t deal with the market down turn and this led to a snowball effect. The government and the FED finally responded with TARP and 0.01% interest lending in an attempt to soften the bottom. One of my goals is to really understand how this came to be more exactly. As I blog on this topic I’ll begin mainly with background facts and data and less analysis and the slowly try to come to some conclusions. In beginning my research I have noticed an early politization of the causes of the financial crisis. My suspicion is that political infighting prevented both parties from regulating or addressing flaws in the sacred cows of the opposing party. Thus Charles Schumer defended Fannie and Freddie from regulation that was likely sensible while the GOP defended the freedom from regulation in the private market that led to “To big to fail”.