"Commentary"-Finding Fault In The Mortgage Mess
Monday, September 10, 2007SUSIE GHARIB: In tonight's commentary, why answering a key question is so important to fixing the nation's mortgage mess. Here's Mark Zandi, chief economist at Moody's economy.com.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: Who's to blame? That is, who is at fault for the mess in the nation's mortgage and housing markets, which continues to weigh on global financial markets and threatens the economic expansion? While answering this question is important for apportioning legal blame, it is vital for formulating an appropriate policy response. Policymakers can't determine how to make the financial system better without knowing whose actions are responsible for the systems current disarray.
So who is to blame? Lenders, absolutely, borrowers-- those who committed fraud, they've contributed. Wall Street -- those firms involved in taking the loans and turning them into financial securities, yes, investors who bought the securitized loans without due consideration of their risk, undoubtedly. Most importantly is the blame the regulatory process itself bears. Current oversight of the mortgage market is composed of a hodgepodge of regulators, including the Federal Reserve, the OCC, the FDIC, the OTS, the NCUA and a plethora of state agencies.
The most aggressive lenders who made the most aggressive loans shopped for the most lax regulator. Regulators have also been hamstrung to impose greater discipline on the industry given the difficulties coordinating among themselves. The nation's regulatory framework was developed during the great depression and it feels like it. Policymakers need to consider a substantial overhaul. This will reap significant long- run benefits, but only if it is fashioned outside of the mounting political heat generated by the fast approaching presidential election. This is Mark Zandi.
