Are you mad yet?

You may find these days depressing — watching the value of your portfolio and possibly your home drain away, day after day, in this dismal market. But that’s really the wrong way to look at things. You shouldn’t be despondent. You should be furious.

Bear markets happen, but this bear market could have been easily prevented. We got here through rash speculation and atrocious judgment on the part of speculators, but guess who suffers? You. Your portfolio will take the hit, your savings will be ravaged by inflation, and your tax dollars will go toward cleaning up the mess.

Four groups are primarily responsible:

 Real estate speculators
Real estate speculators are the most obvious target, and they include everyone from “investors” to subprime borrowers who just wanted a home — basically, everyone who bought real estate but couldn’t truly afford it.

And speculation was truly out of control. In the first quarter of 2006, 26% of loans were of the interest-only or negative amortization variety. For a small group of knowledgeable borrowers, loans such as these made sense. But for more than a quarter of the market? No way.

You may argue that borrowers who couldn’t afford their payments should be absolved of blame, since they’re just victims of predatory lending. Yes, predatory lending definitely exists, but the bottom line is that it’s the borrower’s responsibility to understand the terms of the loan.

Mortgage originators
Of course, borrowers couldn’t have assumed ridiculous loans without the help of mortgage originators such as Countrywide Financial, H&R Block, and Merrill Lynch’s First Franklin unit.

The statistics are damning. In 2005 and 2006, 20% of all mortgages were subprime, and a further 12% to 13% were low-documentation Alt-A loans. What’s more, according to the National Association of Realtors, in 2005, the average first-time homebuyer made only a 2% down payment, a level that left no margin of safety for declining housing prices.

So a huge portion of the market consisted of high-risk loans. But why would conservative banks suddenly assume risks that they’d been avoiding up until then?

Ultimately, their necks weren’t on the line, because they wouldn’t keep the mortgages. Instead, they’d use investment banks such as Morgan Stanley and Lehman Brothers to securitize mortgages. In other words, they’d dump these junk loans on pension funds, hedge funds, and anyone else desperate for high yields. Sure, the buyers would end up owning questionable debt, but by then, the originators were on to the next deal. No skin off their noses.

Rating agencies
But mortgage securitizations couldn’t have gotten so out of hand without Moody’s  and other rating agencies giving asset-backed securities much higher ratings than they truly deserved and, thus, concealing the true risks.

Since 2006, hundreds of billions of dollars in securitizations have been downgraded to better describe the risks involved. For instance, in 2006, 76% of the Moody’s-rated dollar volume of securitizations that were backed by subprime closed-end second-lien loans were downgraded after “materially significant underperformance.”

Clearly, the original models the rating agencies used were horribly inaccurate. Though housing declines have been rare, at minimum the agencies should have considered this possibility before handing out AAA ratings. After all, when evaluating a company like Exxon Mobil  they wouldn’t assume that oil is certain to remain above $50 a barrel — even if it looks that way now.

 The Fed
At the end of the day, Alan Greenspan’s Federal Reserve holds a great deal of responsibility for this bust. All of the other players in this drama can claim, however feebly, that they were just trying to make money. The Fed, on the other hand, is nominally responsible for acting in the best interests of this country and guarding against anything that might destabilize the system. In reality the Fed is the most profit centric organisation of the lot!

However, Greenspan kept interest rates low for way too long. He didn’t recognize that the liquidity he pumped into the system was building a national housing bubble, even with prices up more than 70% in real terms over eight years. Or else he was working to his own agenda and not to that in America’s interest.

It’s baffling that the nation’s chief economist could look at facts like this graph, see housing equity at record lows, and not think that something was seriously wrong. But Greenspan is also the guy who said that there was “no evidence that home prices are going to collapse.”

Again, what agenda was he working towards? Certainly not towards the benefit of the millions of Americans who now face repossession and homelessness. Maximum profit for the Fed? I would say so…..

so are you mad yet? Mad enough to want to get out of the corrupt system that creates money from nothing and then asks you to repay it and more on top? You know you don’t want to support the unsupportable any longer. Join us and learn how to get out.