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Mortgage Mess Was 100% Avoidable

Lax oversight has huge cost, American Prospect editor writes

By Jonas Oransky,  Newser Staff

Posted Aug 29, 2007 7:39 PM CDT

(Newser) – Blame for the current economic disaster should be placed squarely on the shoulders of the US government, for deregulation that allowed speculators to cash in, writes the American Prospect’s Robert Kuttner. Helping boost "ordinary people" into the "propertied class" has fallen out of favor in Washington, with the savings and loan crisis a precursor to the current mess.

Deregulation under Ronald Reagan gave us today's ill-fated, laissez-faire mortgage industry, in which some lenders "loosened credit standards far beyond the point of prudence." Lest the perverse system belch up more disaster, Kuttner urges, the government must re-regulate lenders and get back into the business of subsidizing mortgages—making sure "mortgage lenders serve as responsible creditors, not predators."

Eileen Griffin is trying to sell her house in Cheshire, Conn. Friday, Aug. 24, 2007. Like many, because of turmoil in the mortgage market, Griffin is having trouble finding a buyer. (AP Photo/Douglas Healey).
Eileen Griffin is trying to sell her house in Cheshire, Conn. Friday, Aug. 24, 2007. Like many, because of turmoil in the mortgage market, Griffin is having trouble finding a buyer. (AP Photo/Douglas...   (Associated Press)
Exterior of a World Savings branch in Oakland, Calif., Thursday, Aug. 23, 2007. Golden West Financial Corp. operates 285 retail banking facilities under the World Saving Bank name in California and nine other states. Wachovia paid $24 billion to acquire one of the country's largest mortgage lenders, Golden West Financial...
Exterior of a World Savings branch in Oakland, Calif., Thursday, Aug. 23, 2007. Golden West Financial Corp. operates 285 retail banking facilities under the World Saving Bank name in California and nine...   (Associated Press)
Countrywide customer Ruben Krakauer, 68, jokingly shows an empty wallet and pockets outside a Los Angeles branch, Monday, August 20, 2007. Countrywide Financial Corp. tries to reassure customers that the liquidity problems dogging its mortgage lending business are not affecting its banking unit, Countrywide Bank FSB, even as people worried...
Countrywide customer Ruben Krakauer, 68, jokingly shows an empty wallet and pockets outside a Los Angeles branch, Monday, August 20, 2007. Countrywide Financial Corp. tries to reassure customers that...   (Associated Press)
A sign promotes the availability of a new home in the east Denver suburb of Aurora, Colo., on Sunday, Aug. 19, 2007. As the credit crisis has deepened in recent weeks and stock markets convulsed, spurring the Federal Reserve to swoop into the banking system with billions, a network of...
A sign promotes the availability of a new home in the east Denver suburb of Aurora, Colo., on Sunday, Aug. 19, 2007. As the credit crisis has deepened in recent weeks and stock markets convulsed, spurring...   (Associated Press)
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