Fifty Two Card Pick-Up

The financial deck of cards that was built into a house came crashing down due in large part to lack of over site and understanding of regulation.

This was accomplished systematically by the Clinton Administration toward the end of the 90's and brought to a whole new level by the Bush White House.

During Clinton's 2nd term in office an attempt was made to increase loan accessibility for low-income buyers which resulted in Fannie Mae, the nation's largest home mortgage underwriter, relaxing credit requirements on the loans it would purchase from other banks and lenders.

To review:

Sub prime Lending= loans to high-risk borrowers with poor credit.

High-Risk FICO score= 620< lower credit risk characteristics of the typical sub prime borrower.

Sub prime loans can offer borrowers with poor credit a chance to own a home or repair damaged credit, but comes at a price of higher interest rates and increased fees. It is not by chance when a person is hit with late fees on their credit card account causing overdrafts to their credit limit, resulting in overdraft charges. These higher fees offset the lender for the increased costs associated with servicing high risk clients.

Everyone has dirt on their hands for the degradation of the financial system. Sub prime predatory lenders and the continued lack of effective government oversight have taken the brunt of the blame in the media but others also at fault are mortgage brokers for guiding borrowers into irresponsible loans, appraisers for inflating housing values and Wall Street investors for backing sub prime mortgage securities without verifying the strength of the underlying loans.

Borrowers should also be criticized for entering into loan agreements they could not fulfill and were only approved for the loan because of falsified and unverified financial records.

We seem to be on a ten to fifteen year cycle of booms and busts. Maybe the answer is curbing growth in annual GDP by increasing taxes and creating a larger safety net for citizens willing to take high risks.

The lesson here can be summed up in the words of Thomas Jefferson, "A nation that expects to be ignorant and free, expects what never was and never will be."