This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stop Blaming Lehman and Banks, Congress Created the Collapse

NEW YORK ( TheStreet) -- Five years after Lehman Brothers (LEHMQ) declared bankruptcy and gave us a new term called "breaking the buck," we are no safer from a banking crisis than we were before the whole mess started. In fact, we are worse off; at least most of us are with notable exceptions that include the usual suspects.

To be sure, you can make too much of Lehman, and if you don't follow the money all the way, you stop at the wrong entity to cast blame. Many claim the greediness of bankers caused their own demise, and while that's partially true, it's not the real question to ask because everyone, including you and I, are greedy too.
[Read: <a target="blank" data-add-tracking="true" href=""><em> Wall Streets' Great Recession Cost Us All $30 Trillion </em></a>]

Greed is part of what makes us human and to pretend that some aren't motivated by self-interest is pure fantasy. If you set up a system that doesn't anticipate market participants to maximize revenue and profits, you're doomed for failure -- but that's exactly what the government did. The housing market wasn't the first time a government program had horrible unintended consequences and, unfortunately for all of us, it probably won't be the last. That is especially true considering few are demanding changes in the government.

When one bank collapses because of bad loans, we can all agree that management screwed up. However, when Bank of America (BAC), J.P. Morgan Chase (JPM), Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and many others needed a capital infusion to keep the doors open because a housing bubble popped, it's the system, not the banks.

The housing crisis didn't start in 2008. It started years before when Freddie Mac and Fannie Mae were allowed to guarantee and promote high-risk subprime lending to buyers the "evil banks" would not loan to otherwise. It was government-controlled entities that distorted the market and set the table for banks to fail more than eight years before.
[Read: <a target="blank" data-add-tracking="true" href=""><em> Investment Ideas From Day 1 of the NY Value Investing Congress</em></a>]

Nicholas Taleb understood the destruction of wealth Congress was creating, as he wrote in The Black Swan published in April 2007:

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. Not to worry though: their large staff of scientists deemed these events "unlikely."
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%
YHOO $36.01 -1.42%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs