The number of failing financial institutions and the actions under way for their governmental bailout hit unprecedented levels in recent days. From Fannie Mae and Freddie Mac to AIG and proposed government liquidity pools, actions by the U.S. Treasury, the Bank of England, and other central banks have been broad and monumental. Rarely are we confronted with such important and far-reaching events, and seldom have the stakes been higher.
To a certain extent the following participants are to blame for the creation and magnitude of the subprime crisis ....
- Individual real estate speculators who took out the loans in the first place.
- Mortgage underwriters and their misapplication of loan standards.
Financial firms that engineered and proliferated highly structured mortgage-backed securities. - Financial firms that hold these securities—often in off-balance-sheet structures—with inadequate risk and internal control systems.
- Credit rating agencies and careless or negligent ratings on mortgage-backed securities.
- Lax regulators and insufficient regulation of investment and banking institutions.
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