Got news for those who drink the administration and media Kool-Aid. The Dems claimed that their "Financial Reform" bill recently passed fixed the problem that caused the economic melt-down. Fact is, the root problem is still there waiting to sink our economy again.
What they fixed was the problem with derivatives. What is probably news for most folks is that wasn't the root problem. And their 'fix' will NOT keep the root problem from causing more (worse?) problems in the months ahead.
Derivatives are a way to package various types of investments. Derivatives in and of themselves are NOT 'investments'. What they allow traders to do is repackage actual investments and it is the investments that did and can again(!) cause collapses like that latest big one nearly two years ago.
Sub-prime mortgages were the "toxic investment" that caused the collapse ... and they're still 'out there'!!! The only thing that new "Financial Reform" did was prevent sub-prime mortgages from being re-packaged as derivatives and re-sold as if the re-packing itself made them less risky (which it doesn't). The financial reform did NOTHING to reduce the sub-prime mortgage risks out there. Those things are still there! The reform did nothing to make that practice (selling sub-prime mortgages to people who previously wouldn't have qualified for the loans) or the existing under-water mortgages go away! And the key people and government bureaucracies contributing to the collapse are UNtouched by the reform. In fact, Frank and Dodd who did the most to cause this are touted as the key heroes fixing this mess. Huh? Does that make any sense? ONLY in the government where CYA and DENIAL are the collective job one!
People and institutions holding the sub-prime mortgages are just hiding them, hoping that the economy (esp the real estate sector) will rebound before they have to write those bad investments off. Do you know what'll happen when they write them off? How about a second collapse that could be worse than the first one?
The ONLY thing that would have prevented the financial collapse is not having those sub-prime mortgages in the first place. If mortgages had only been sold to those who REALLY qualified for them, the collapse of 2008 would not have happened! It’s not the existence and use of derivatives that caused it although derivatives aggravated it to some extent. Even if derivatives had not existed, sub-prime mortgages would have been given to hundreds of thousands of UNqualified buyers anyway! And those mortgages would have caused our economy trouble ANYWAY, just not in the form of derivatives!
So, what did the Dems' "Financial Reform" bill fix? Yes, it reigned in the use of derivates. Did it fix the sub-prime mortgage mess that caused the collapse and is still out there? Absolutely not!
The two key ingredients in the 2008 collapse went unaffected by the Dems’ highly touted reform bill. The fact that sub-prime mortgages were allowed by any lending institution was key. Perhaps MOST KEY was the fact that Fannie and Freddie pushed sub-prime mortgages to over 50% of their holdings. To accomplish that they loosened loan qualification requirements to the point where anyone who was breathing qualified, regardless their ability to repay the loan. NOTHING was done in the Financial Reform bill to make them stop.
NO reform of sub-prime mortgage loan practices. NO reform of Freddie and Fannie. And the TWO KEY GUYS in Congress who consistently pushed these toxic loans and lower qualification rules, Frank and Dodd, got this reform bill named after them … as if they are the ones who fixed the problem when IN FACT, they’re most responsible for causing it! Gads! These people have NO CONSCIENCE!
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