Did Poor People Make the Banks do Bad Things?

Some of my wingnut conspecifics appear to have fallen for the GOP talking point that poor people caused the meltdown of the financial system. That's right. Poor people, whom the government encouraged or required banks to lend to, took down the whole system. They made those unsophisticated financiers raise their leverage ratios to unimaginable levels and develop exotic products free from regulation and from any sound banking practices. Those poor people mess everything up, and now we have to pay the piper.

It's hard for me to swallow it when people despise the poor and exalt the rich. I am suspicious of any explanation for a crisis that involves this type of reasoning. Let's be honest about the financial meltdown. Mortgages are only part of the problem, and subprime mortgages went to a lot of people who are by no means poor. It was a rational risk a few years ago to get into a house with financing that would become problematic a few years down the road, because you were going to flip that house for a profit or get more conventional financing when the equity went up to permit you to afford a conventional loan. Many people did this and succeeded. Others got left holding the bag when the housing market became depressed and they owed more than the house was worth and couldn't refinance. It was a bummer for them but hardly indicative of moral decadence.

Now it's easier to get a kidney than a mortgage, and the housing market is depressed even more by that. The depression of the housing market erased most people's primary base of wealth, so they had to retrench and stop buying things. This caused the economy overall to slow down. This caused businesses to be strapped and to be unable to pay for supplies and to pay down their credit lines on time. This made corporate bonds less secure. Meanwhile, the big banks were leveraged out the wazoo and circulating overvalued and risky credit default swaps to the tune of $62 trillion. Poor people didn't cause this mess. Smart, rich people did.

And it wasn't accounting rules that brought everything down. Blaming mark to market for the crisis is like blaming your thermometer when it shows that you have a fever.

Making things worse is that the big banks are public companies whose stock price is not just the market's gauge of performance. It's a signal to everyone else that the bank might not be trustworthy. When a bank loses the confidence of other banks, it's game over. The banks can't trust each other, so there's a credit crunch. Before you know it, there's a credit freeze. You can't get a car loan, the dealer can't finance his inventory, the car maker isn't selling cars, the vendors and employees of the car maker don't sell as much, none of these businesses can finance anything after a while. Folks get laid off in droves.

I think I'll invest in the ink they use to print money. And in wheelbarrows. People will need them to carry their currency.