My former co-worker, as well as a good friend of mine, and I were discussing the various causes of present day financial crisis. Naturally, the Real Estate Bubble of 2006 came up along with the subsequent crash of 2008. After a long spirited exchange of supposed scapegoats like oil speculation and Ponzi scheming financial firms, I went on to talk about government intervention and policy failure.
My argument centered on the deregulation of the banking industry and the loosening of the lending standards. The repeal of the Glass-Steagall Act in 1999 opened the door for Banks to become giant conglomerates that could perform savings, loan, insurance, investment, as well as other types of business under one roof. The Glass-Steagall Act was passed originally in 1933 in order to stem the abusive corporate tactics that led to the market crash of 1929 and the subsequent Great Depression. This act prohibited banking institutions from engaging in other businesses - in essence, they could no longer take on unacceptable risk with people's savings. This was one of the first steps taken by the United States to get out of the Great Depression.
The loosening lending standards began to escalate in the past decade due, in part, to the demand of the Democratic party that everyone in America deserves a chance to own a home. The other part was the realized profitability by the newly "unchained" banking institutions. So when the banking institutions saw the Democrats' demands, their eyes lit up with dollar signs. They helped the Democrats' lobby for the Federally sponsored mortgage programs, and the rest is history. Soon, the massive lending led to soaring profits which led to even looser standards and more profits. By 2006, the peak of loosening lending standards led to the sub-prime mortgage era - where people with atrocious credit rating could get a mortgage at a substantially inflated interest rate. Everyone was raking in the money and nobody was paying attention that the money earned can never be realistically realized...
Let me explain that - you wouldn't lend money to a broke man without a job, because you would never see that money again. However, with banking institutions now having government protection and willing insurance branches to protect in the event of default, the banks lost all sense of responsible lending.
My good friend argued in turn: "You can't blame the banks and politicians. Surely the people who took the loans they knew they could never repay deserve the blame."
My response to that was: "You have people who are responsible and irresponsible. The bottom line is the people in charge must put measures in place that decrease, if not eliminate, these kinds of noncollectable loans. When the savings of ordinary people and the health of economy is at stake, you have to have responsible and accountable people take the right action at the top."
My friend replied: "I refuse to blame the banks for the fools who borrowed irresponsibly and contributed to the financial crisis. The blame is in the borrower."
My response: "The borrower does have a certain degree of responsibility to themselves. However looking at the bigger picture - if you're in charge, do you really want the health of the nation resting in the hands of the people you consider to be irresponsible fools?"
There is a Russian phrase that roughly translates to - "the fish rots from the head down". In this context, it means that the irresponsibility present in the society of a nation is a direct reflection of the leadership of that nation. On the other hand in a well run society, the leadership are more intelligent having the integrity and accountability to the people. The leadership must be responsible to the rest of the people, who may not be as intelligent, but are willing to work and contribute to society as a whole.
Accountability by the leadership ensures accountability by the rest of our society, with appropriate indisputable retribution in the event anyone fails to conform in this regard. The society is only as corrupt and irresponsible as the government and the government is nothing more than the representation of the people's ambitions.
So the question is - are you ambitious enough to force a change of who represents us as a nation?
