An interesting commentary on how the financial collapse's blame should be measured. I find myself in agreement:
Even if the bank knows it is selling a pile of **** and separately bets against it, as long as it adequately discloses that it is selling a pile of ****, that is how our market works. As a capitalist, you can't blame the banks. If they fail to disclose that they are peddling a pile of ****, they are liable civilly and criminally. So far, surprisingly, there have only been isolated (though well publicized) cases brought against the banks for misleading investors.
Why did the banks sell piles of ****? Because of the Wall Street compensation system that pays annual bonuses upon closed deal, regardless of whether those deals go bad. They made a lot of money doing so. The bankers who were more responsible and did not peddle piles of **** were fired for not making as much as their competitors. So there was a race to the bottom to sell the most piles of ****. [...]
[T]here are many others to blame:
The investors. These are not your mom and pop investors, but very sophisticated pension funds and others. Astoundingly, I would hear at conferences that they were "chasing yield," which meant that they were seeking higher returns, which meant that they were looking to buy, in my view, risky ****. Which is why the bankers could sell them a pile of ****. Further, many of the investors also suffered from the generational issues. The younger ones did not think that real estate would go down because they never lived through a market crisis and the older ones did not understand the complexity of the new-fangled deals that were being done. So these sophisticated investors, while thinking they were taking on some risk, took on more risk than they thought. In their defense, partially, they were buying rated securities.
The rating agencies, along with the complicit investors, also deserve a lot of the blame. From the early 1990s to the mid 2000s, the deals were getting riskier and more complex, yet the agencies were giving these deals higher ratings. It was the rating agency imprimatur that allowed the banks to turn a pile of **** into golden nuggets. Once again, the blame was due to compensation. The banks would shop around to the various agencies to get the best ratings, creating a race to the bottom. If the ratings were too low, the agencies would not get paid or would not get future deals. The "false" ratings colored the market and left the regulators asleep.
But the blame goes further. The deals could not get done without inflated appraisals on properties. Once again, appraisers felt the need to give inflated appraisals in order to get future business from the mortgage companies, making them co-conspirators. As someone who refinanced his house several times, I always found it interesting that the appraisal always came out to an amount which allowed the bank to lend me the amount requested.
Then there is the public. Although there is some percentage of homeowners who needed the money for medical emergencies or other legitimate reasons, for about a decade, the American public treated their homes as ATMs. Nobody forced anyone to take out a loan. Yes, there were some folks who were duped and took out adjustable rate loans that they did not understand, but who gets the blame for public ignorance? Many of these same people then took some of the proceeds and were further ripped off by unscrupulous auto salesmen or timeshare companies. Are we also blaming them? And the people ripping off the public were not the Wall Street banks necessarily, but rather the local mortgage companies and local banks.
Then there was the government to the degree you noted, but in my view the government was more asleep than complicit.
