Blaming the sub-prime mortgagees for the sins of bankers

I keep trying to explain the current financial crisis to myself for two reasons. One, I believe there must be simpler explanations than the ones that seem to prevail in media reports and on op-ed pages. And two, I'm discovering that far too many people believe that one of the major causes of our current problems lays with homeowners who took mortgages that they couldn't afford.

There is of course, still a class of pundits who believe that too much regulation is a significant cause of the collapse of the financial markets, the freezing of credit, and the abysmal performance of American auto companies. We are going to have to agree to leave such people out of the conversation--they are market fundamentalists whose cultish practices are no doubt constitutionally protected however much they might frighten children and the simple-minded.

But to apply, at least minimally, the notion that it is markets that decide (rationally or otherwise) who gets what, when, where and why, it seems both wrong-headed and unkind to blame individual homeowners who have fallen behind or defaulted on their mortgages for our current financial difficulties. These homeowners must live with the decisions of markets. They are not the deciders, as our soon to be ex-president might say.

After all, a good many people who received sub-prime mortgages actually qualified for conventional mortgages at more favorable rates. They were channelled into the sub-prime market, which created huge difficulties for them when affordable adjustable rate mortgages suddenly climbed to much higher rates after the housing bubble popped. It is shoeing the wrong horse to ask such people to predict the end of the bubble when bankers themselves believed (or pretended to believe) that we were all going to profit from an endlessly inflating housing market.

Mortgage applicants are consumers, not financial experts. They rely, mistakenly as it happens, on the expertise of others.

It is arguable, of course, that it is the buyer who ought to beware. But historically, it is banks and mortgage companies who have decided who is eligible for their services and who is not. If we are to take reasonable steps toward resurrecting the housing market, it makes far more sense to examine the practices of bankers, mortgage brokers and the buyers and sellers of bundled mortgages than it does to swing away at people who are losing their homes.