Give the Devils Their Due

The US gets the credit for the downturn..."this is a blond blue eyed recession", "the financial crisis was a US creation"... we can easily find many such quotes in international journals over the past 12 to 18 months. Yet:

• Deutche Bank's debt was 80% of German GDP and Barclay's exceeded Great Britain's GDP;
• ~$300 million of AIG alphabets [CDO, CDSS] were for European banks to game their regulators capital requirements;
• The housing market bubble was far frothier in Ireland, Spain and Great Britain;
• Hedge funds and private equity are under attack in Germany and France- their sin outside of short sales appears to be their very existence and
• The IMF estimates US banks are more than half way the write down/off restructuring process while Continental banks have barely scratched the surface.

My conclusion is: greed, self interest and incompetence know no boundaries. But to give credit where credit is due, the US should get a large share. The credit belongs to more than just creative and greedy bankers...it belongs to individuals pursuing credit they couldn't possibly repay. It belongs to an incompetence congress which in concert with poor managers bastardized the GSOs in pursuit of increasing home ownership.

Its all too easy to forget the current financial crisis had its origin in the housing market excesses including sub prime lending, people buying what they couldn't afford without serial annual compensation increases that could only be figments of vivid imaginations as well as investors chasing flips with far too much borrowed money. Bankers, loan brokers et al focusing on getting a bigger piece of the ever increasing housing market bubble deserve even more of the credit than do naive and or greedy buyers. Let us not forget Fannie and Freddie, their devoted regulator and the Congress who nurtured these "government sponsored enterprises" that were for profit while tax payer supported to chase the "widespread political lust in the US for subsidized housing".

These GSOs have chalked up enormous losses. As Wall St ate into their traditional mortgage securitization business, both bought debt securities of over $1.5 trillion of which nearly $250 million are toxic. In the meantime the agencies guaranteed almost $5 trillion of mortgages with growing delinquency rates presumably mirroring unemployment rates. One wonders if the taxpayer will ever get their money back from this fiasco.