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Who Is To Blame For This Housing Mess?

I don’t know if you can single out one main culprit in the real estate collapse, but if you could, they were the late to the game real estate speculators and the Wall Street firms who bought the toxic mortgages and then hedged their bets on these mortgages without any capital in reserve using credit default swaps.

The speculators jumped on condos and single family homes in Florida, California, Arizona, and Nevada. The Wall Street firms packaged these loans and sold them off and even insured them with credit default swaps.

But again, there was no money to backup these already risky and ill-defined assets and the insurance to back the swaps up.

But also, aren’t we all partly to blame? We allowed for the increased incentives for property owners, and we elected the officials who make these decisions.

Those decisions were probably based on extremely low interest rates, low down payments, or avoiding of capital gains taxes through 1031 exchanges. The bottom line is that the real estate game was risky and those who got involved were taking on more and more risk, especially over the past few three or four years. Housing prices kept going up and up and everyone thought they'd never go down.

There was even more controversy when discussion arose concerning Fannie Mae and Freddy Mac. A number of politicians received a lot of campaign money from these two government-backed entities.

Some politicians even received favorable mortgage rates from Countrywide, the now-owned Bank of America lender. It’s extraordinary the degree to which some of these entanglements reach. No one is really immune as we see today, with the $700 billion dollar bailout planning being paid by tax dollars.

At the same time, though, politics has only hindered the ability of the Federal Reserve to solve this crisis.

Rather than take quick action, politicians were grandstanding and trying to make themselves look better when really what was needed was action right away.

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