Can we learn a lesson here?  Albeit, it is a very expensive one.

We entered into this global recession back in September ’08, which is about 10 and half months now.   What is unfortunate is many or most have no idea what events were at the crux of the financial system imploding on into itself.    It was the sub prime mortgage system that was the trigger for our financial collapse that was created by our political class.

It began with the creation of the Community Reinvestment Act that was passed in the Carter Administration.  As is often the case, the seeds for our economic quandary began innocently and inauspiciously.  During the nineties there was a push to provide more “affordable mortgages”, so that everyone could own a home.  It is only “fair”.  Barney Frank and Chris Dodd were the key players in pushing for an expansion of the Community Reinvestment Act.   They got what they were pushing  for and they are still telling us how we should live and behave.  The titles of the acts always sound so good and beneficial, perhaps that in and of itself should be a red flag.

The result was more flexible financial arrangements and more flexible standards of who can qualify for a home  loan.  The proven creditworthy standards of the past were no longer necessary and were considered to be restrictive.  The past standards of prudence were evidently discriminatory and were adjusted to allow and create more “rightful” home buyers.  In case it is not clear, this was another entitlement policy where rights are provided and declared, but responsibility is only an option.

Interest rates were at one of its lowest levels early in this decade.  With the wonderful flexibility of no or very low down payments, getting a mortgage was indeed becoming very affordable.  This is eureka!  However the loans were variable based on the current and changing interest rates, evidently it was a surprise to many when their monthly payments were increased as the current interest rates increased!  Payments or de facto rents began not to be paid and defaults began to mount and mount.

Almost naturally, these mortgages were packed into securities that did not accurately represent their true value to say the least by innovative investment bankers.  These values were very inflated, because many or most of them were the sub prime mortgages that were not being serviced.  Whatever losses that might occur from these packages, we could count on them be covered by the federal guarantees.  Oh, that did not work out very well either as we witnessed the huge repulsive bailouts of Fannie Mae and Freddie Mac.

Of course, we can climb ourselves out of this economic cavern and wreckage if we choose to enact and follow the common sense practices of a free market system.  Certainly the political class cannot help themselves from tweaking the market and riddling it with their paralyzing regulations,  and then clamoring that the free market does not work!  It is almost to convenient.

From our collective experience, perhaps we can learn when we become consumed with constantly creating “fairness” and practice entitlement/ liberal policies, there are inevitable consequences that will follow that are dubious to dire.  Be aware of fair.