I thought that now, finally, we could all see that the invisible hand of the free marketplace was a joke, but apparently not.
It all started when private unregulated mortgage brokers made some home loans to private home buyers. The private unregulated mortgage brokers had the home's value verified by private unregulated appraisers, who were paid for each appraisal they performed. The private unregulated mortgage brokers took their commissions and turned the loans over to private loosely regulated mortgage lenders.
The private loosely regulated mortgage lenders weren't making enough money, so they offered special 'premiums' (kickbacks) to the private unregulated mortgage brokers to encourage the brokers to sell mortgages at higher interest rates than the home buyers were qualified to receive. Many private unregulated mortgage brokers did this; many brokers aggressively sold private loosley regulated loans to unsophisticated buyers, knowing that the buyers would be unable to make the payments when the interest rates adjusted upwards after a few years. The private unregulated mortgage brokers didn't care because they got their money up front.
The private loosely regulated mortgage lenders bundled the loans into private unregulated investment securities and took them to a private unregulated securities rating service. The private unregulated securities rating service had never seen these securities before, and didn't really know how to assess the risk of these private unregulated mortgage backed securities. So they gave these securities a Triple A rating, and collected their fees for their services. The private unregulated securities rating service didn't care because they got their money up front.
The private loosely regulated mortgage lenders sold the private unregulated securities through the private unregulated stock market. (The stock market did not have the ability or authority to investigate these securities, or prohibit their sale) Many private buyers purchased these private unregulated securities. Billions of dollars of these securities found their way into investment portfolios and retirement plans; many sound and conservative businesses invested in these triple A rated private mortgage backed securities. The private loosely regulated mortgage lenders didn't care because they got their money up front.
Then the housing bubble that had been fueled by irresponsibly low loosely regulated lending standards, and irresponsibly low unregulated appraisal standards, Burst. Suddenly these phony triple A rated private mortgage backed securities turned into the Junk Bonds that they always were. Billions and Billions of phony real estate value disappeared overnight. Everyone else got their money up front, and the investors who purchased these private unregulated securities were left holding worthless pieces of paper.
What puzzles me is this:
There are Republicans who believe that the answer to this economic meltdown is, "Deregulate the private marketplace."
What planet have they been living on?