Question/Comment: With all the discussion of the mortgage crisis, there is still hardly any mention of actually cleaning up the mortgage industry. The “experts” all seem to be on the side of the status quo, but maybe this is contributing to its demise. Why can’t we hear from people inside the industry who really want to reform it? I think this is why Wall Street is walking away from the financial sector. It has become a parasite on the economy.
Paul Solman: But Shela, the financial sector is Wall St., isn’t it? To the extent they’re “walking away,” they’re saying: “Don’t invest in us.” That is, “sell financial stocks.” Or they’re not saying it so much as doing it.
As to why the “experts” seem to be on the side of the status quo, it’s probably because no one knows how to clean up the mortgage industry. If by “status quo” you mean the government bailouts, as a July 18 NewsHour piece of mine noted, bailing out mortgage lenders and investors is dangerous because it might induce them to take reckless risks the next time, believing they’ll be bailed out. Besides, it costs us taxpayers money — maybe BIG money. But if we don’t bail these folks out, the whole system might freeze, and then we’re all in really hot water.
The Federal Reserve, the Securities and Exchange Commission and Congress say they’re going to “reform” the system in return for the bailouts. The main reform will be more supervision, and forcing everyone to put more money down – when buying a house, investing in a mortgage, and all the way down the line.
As to whether Wall St. has been a parasite on the economy, some people are certainly beginning to think so. I’m a great fan of James Grant. You might look at this piece of his in the July 19 Wall Street Journal.