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I agree that what is needed is a "wholesale" solution and the state doesn't have the means to conduct a discriminary review of every mortgage transaction.  However it is clear that even basic common sense and banking rules were violated:  there was often no verification of income claims, no stress testing of ability to pay, and everone in the business knew the market was grossly overheated but continued to incentivise salesmen and "securitise" or bundle assets they knew to be toxic.

So whilst obviously there would have been individual instances of home buyers irresponsibly taking on comments they couldn't afford, or not factoring in risks of redundancy etc.,the overall failure was a systemic one.

Thus regulatory reform - includes rules regarding interest rates, miss-selling, income verification and stress testing, and overall transparency of the process are required.

However larger systemic measures are also required to reduce the toxicity of existing assets - which are threatening a depression greater than anybody might have reasonably anticipated (except for a few professional economic doom mongers - mentioning no names!) - and thus measures like interest rate reductions, repayment moratoriums, income tax deductions for interest and other incentives to stabilise house prices and the ability to fund associated costs are required if the market isn't to melt down completely.

This isn't a purely Wall street problem - individual home owners also needed to be bailed out to a degree, and those banks which abused the process need to be reformed, taken over, or shut down and replaced by those that will - as is already beginning to happen.

Vote McCain for war without gain

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Sep 27th, 2008 at 07:17:34 AM EST
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