We do not even have enough fingers on our hands to keep “pointing the finger” at others and playing the blame game. The Federal Government, the Federal Reserve, Depository Institutions, Wall Street, and borrowers are all at fault.
Wall Street now acts as a bitter reminder of the recession. Although this is the case, there is always a root to all evil. In this situation, the root is our old friend “securitization”.
“Securitization is the process of taking an illiquid asset, or group of assets, and, through financial engineering, transforming them into a security.” The explanation of this process, in layman’s terms, is not as crucial as the fact that most Americans probably still fail to understand its meaning. As a result, they are easily swindled and deceived into making bad financial decisions that lead to situations like the crisis our country is in now.
There are quite a few vultures on Wall Street and they are looking for vulnerable prey. If college students made being financially savvy a top priority, credit card companies might not target them as much as they do. If anxious first time homeowners would have known that a low percentage down payment combined with an adjustable mortgage rate was not the way to go, a lot of the burden we face today could have been avoided.
Education is the key to bridging the gap between us and financial institutions. Basically, you can’t play a player. It’s time for us to understand that we are players in this game and knowledge of our financial circumstances can be used both offensively and defensively.
Securitization is obviously not on our side, although it seemed to have been through all of the years that we were prospering.
This economic disaster started when a financial institution (our bankers) originated a great amount of mortgages from which they receive an origination fee. This mortgage pool was then sold to investors on Wall Street. At this point, there was no relationship between the lender and the borrower. This led the banks to believe that it was no longer their responsibility to carry out their job in the same manner. If these banks were selling these mortgages, they would no longer care about whether or not the mortgages would be paid back.
Next, everyone was receiving loans with bad credit or no credit. Wall Street turned these mortgages into mortgage-backed securities which were sold to retirement funds, college funds, and much more. However, this plan backfired as many individuals became unable to pay back their loans.
Rating Agencies knew that these mortgage-backed securities weren’t good and still gave them high ratings. After all, they were being paid by Wall Street. Banks were still receiving origination fees and money from selling securities with investors on Wall Street still making a fortune.
Our country is now in an economic crisis that both the Federal Reserve and Federal Government are trying to fix. Where were they before? Certainly not standing outside picketing on Wall Street or forming rallies and protests against our common enemy, securitization.
Improvements need to be made in the financial infrastructure and along with it needs to be more law enforcement. There are so many policies and laws that exist at the moment. The problem is that nobody cares to enforce them as long as the economy is doing well. The United States always seems to wait until situations hit rock bottom in order to initiate change.
Bail them out or leave them on their own is the current dilemma that our government and Federal Reserve face. The answer is both. The really big companies such as AIG can’t afford to not be bailed out because our crisis would go from rock bottom to six feet under.
Our financial system is large but fragile. With that in mind, the little slices and dices of securities that were created may have seemed small, but they posed a great threat to our nation.
We view the cause of our financial crisis every single day. The question is no longer what the cause is but, rather, what will we do to prevent it from occurring again? Knowledge is power. Be a player, and not the one who is played for a fool.