Who is to Blame for Subprime Mess 2

Maybe you don't believe my case for who is to blame for the subprime mess, and pending recession.

Would you believe former Federal Reserve Chairman Alan Greenspan? According to the Associated Press, Greenspan said the following last night at a dinner for energy executives:

... what began as a niche part of the mortgage market grew as hedge funds sought out the collateralized paper associated with the loans.

Greenspan said recently it was the repackaging and sale to investors of the risky home loans — not the subprime loans themselves — that were to blame for the global credit crisis.

And who let the risk be passed on via all of this speculative paper? In part, Greenspan's Federal Reserve and other regulatory bodies. They let it run amok when rocket scientists like me were saying, "Whoa. This real estate bubble is getting way out of control."

Some were saying, "it's not a bubble." As if foreign investment would sustain the high prices, even though my well paid, middle class friends were saying, "If I had to buy my house today, I couldn't afford it."

Then there is the globalization factor. First, globalized financial markets allowed the foreign money to rush into our markets and contribute to the balloon. And, just like the saying, "what goes up, must come down," that global money can flee from our markets, deflating the balloon.

My recommendation: The system has become so corrupt that you're better off trusting your instincts than the so-called experts.

Update: Who is Penny Pritzker and what is her relationship with Barak Obama and the mortgage backed bond mess? The Pritzkers were central to the invention of mortgage backed securities.

Sources:

Associated Press, No recession yet, Greenspan says, February 15, 2008.