Wednesday, December 29, 2010

Wall Street and Main Street

As Republicans prepare to take control of the House and seat their members in the Senate, much criticism is still launched at Obama over the "bailout" of Wall Street. A strict dichotomy is being drawn between Wall Street and "main street." However, such a distinction represents a distortion of of the issues surrounding the credit crisis the world finds itself. The argument goes something like this: The banks and mortgage lenders got us into this mess by making imprudent loans which resulted in the vast numbers of foreclosures and other financial defaults experienced in the financial sectors." I am not defending Wall Street for their irresponsible purchasing of "toxic" mortgages or causing such loose regulations in the lending sector. But, Wall Street does not deserve all of the blame here. If one can recall, the US government is in part to blame for the burst of the housing bubble. It was Alan Greenspan who is largely responsible for keeping the return of US Treasury bonds at 1%. This may not seem like a big deal, but what it did was ensure that global investors were going to look to other places that yielded a higher return. With mortgages returning on average 8% and above, many viewed the housing sector as a much more attractive investment.

While Wall Street struggled to keep up with the demand of shareholders desiring a stake in the housing market, loans were issued with no proof of income or job assurance. While Wall Street is culpable, so are those who took out loans that could not be paid back. If Wall Street is irresponsible, then those individuals who took out these loans are even more so. Whether they realize it or not, they are the ones who entered into a contract and agreed to the terms of repayment. Many will complain and lay blame on the financial sector (and much of it is deserved) but to absolve themselves of responsibility in this quagmire is equally disgusting. In large part, capitalism is based upon greed and competition. When you agree to enter into its arena, don't complain if you get hurt because in all likelihood, you had a part to play in it as well. We are a nation that has a strong sense of entitlement, but if you are not too big to fail you really have no argument.

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