What about the rating agencys who given these subprime assets AA standards ? Like Standard & Poors..it seems that these rating agencies are also the blame for this mess. These rating agencies have analysts that are suppose to check the credit worthiness of companies, bonds and other investment assets. Average investors use these reports to help make an inform decision what to invest in. For example, If X company bonds are rated a C+ rating and Y company has been rated an AAA+ rating then which company would that Average investor would buy? So how come the gov’t has not prosecuted these rating agencies for not providing accurate ratings like they did with accounting firms in the late 90’s.

How about mortage interest deductibility ? it has a role in this subprime mess. If one can deduct mortage interest payments off income tax then their is no incentive for the homeowner to own that home. The only people who benefit for mortage interest deductability are the banks. Banks in the US are basically Pimps and homeowners are the junkies. So if Bank can then ask client X to trade up from their home which these homeowners can afford to a higher valued home (after all the mortage interest can be deducted from income taxes). US bank had no real interest of protecting the homeowner ability to pay /credit wothiness (and bank future balance sheet) US banks only cared about their short term profits and the revenues that was generated from those interest payments with those new higher value homes . In essence US banks did not care about risk assesment of pushing this policy and their own future existence like Washington Mutual ,Wachovia etc. So when a homeowner loses a job, the homeowner is now in a difficult situation in paying for these homes (though interest payments and mortage itself) they could not afford to buy . So the Homeowner has the following options : 1) default 2) rearrange their house loan or 3) Bank foreclose

1)So perhaps the Banks have been too greedy ?
2) Homeowners buying big homes they couldn’t afford to buy (at the beheast of aggressive Bank home mortage representatives and Real Estate agents ) and
3) Gov’t idiotic policy of mortage interest deductability policy which gives the incentive not to own ones home. If u own a house then the person can’t deduct from his/her home on income tax the interest payments so its better for the owner just deduct the interest payments thereby reducing ones taxes then homeownership. Of coz , the Banks make large amounts of monies/revenues from these transactions and its these Banks and executives from these Banks which contribute to political parties and politicians. Politicians are then beholding to these contributors and make laws to the satisfaction of these individuals and corporations.

If you work and your employment income pushes your savings up into a higher bracket, no matter how low your interest goes, you still lose up to 50% of it, which can push your returns below inflation. This, of course, forced savers to move into the stock market to find returns that at least equalled inflation, causing bubbles there.

Even if you put it into your RRSP, saving it as fixed income would only yield you, lately, 1-1.5% over what the government claimed inflation is, but many people argue is an artificially low figure based on some CPI shell games, such as declaring ground beef an equivalent substitute for steak, so again, if you want to get ahead for retirement, you’re looking for higher returns.

Lower interest rates pumped the market and pushed everyone to spend, and the only long term solution at this point is a period of higher interest rates after the crisis to allow families to build up their savings again in a safer environment than the market.

http://www.cbsnews.com/video/watch/?id=4502673n

I’ve got to disagree with your response to Curt with regards to interest rates. Banks have been setting their prime rate based upon changes by the various CBs. And of course, the CBs have been keeping rates low.

The reason this matters is because it has led to horrible missallocation of resources. Companies that shouldn’t exist surving on cheap loans. People buying furniture and electronic gadgets on credit. Higher rates would have helped prevent this (would you buy a $1000 couch on credit if it cost you 8% per year?)

Brad: Funny but that pretty much sums up Wall Street’s conduct.

Eric: That’s a great article — unregulated derivative markets look excessively stupid in retrospect.

Curt: Low interest rates are hardly to blame here — inflation is low and it figures that interest rates would be low as well. Look at long-term interest rates that are mostly set by market forces, which have remained low.