While I’m willing to stipulate that many people in every Sector contributed to the Housing Bubble and it’s intendant collapse, I hold some more culpable than others. People like YOU and all the other Financial Experts I expect knew better, but did it anyway.

The Sub-Prime Borrowers and Individual Speculators were easily duped, in my opinion, by the ‘Experts’ and their advice and behavior. They are not supposed to know the ends and outs, the subtleties, of Financial Systems. They followed YOUR Lead! (You do still claim some expertise in these matters, yes?)

And the bad advice and behavior still continues from your Colleagues. The thing to do is NOT figure out how to continue the activities that caused the trouble! The Solution IMNHO is to reinstate the Glass-Segal Act (Depression Era Legislation that created the separation between Commercial banks and Investment Banks) with the understanding that any Contracts made prior to its new effective date will stay in force until their Renewal Date. At that point they will expire. No new deals will be made and no existing deals will be renewed that violate it. The system of Securitization will then ‘unravel’ itself and we will get back to a Financial System that there is some hope (however small) of understanding.

From an insider’s perspective, and as near as I can tell, this is roughly what actually happened.

The spark for the housing bubble fire was lit by two different, and very poor, government policy decisions:
1) mandate that banks make more home loans to poor people that can’t afford to repay them and
2) reduce interest rates after the fairly minor “internet” recession of 2001 to “save” us.

While, on the surface, encouraging lending to lower income families seems like a good idea, the broader real economic ramifications were bad:
1) these loans have much higher default rates and the banks lose money.
2) these “artificial” loans that wouldn’t otherwise be made in a real economy where banks want to be repaid, thus inflating housing prices because there were 10million new buyers that there otherwise would not have been.
3) disreputable individuals took advantage of the “low income” label to get no-income-verfication loans to make speculative bets on real estate.

On top of this, the FED dropped rates to ridiculously artificially low levels. When interest rates are 5% rather than 10%, the monthly payment after tax is just over half. You can pay 2x for the same house and have the same payment, thus housing prices go up too much.

In general, government makes very poor long-term decisions in favor of short-term voter happiness. The liberals can really screw things up in the name of “good” by not considering broader secondary impacts.

Then the “greedy conservatives” took over and broadened the ultimate damage done with various mortgage packaging schemes that pooled mortgages. The concept was “there are 1000 mortgages in this pool, they can’t all be bad…” Famous last words.

So wall street took bad government policy and made a lot of money expanding it far further than it ever should’ve been expanded (helped in the interim by more bad government policy in the form of freddie and fannie).

Bad on top of bad made for really bad.

In the interim, small banks weren’t even remotely innocent in this picture. They originated and sold many, many, many, many bad loans getting their little piece too. My favorite line from a small town banker in the middle of the mayhem in 2006: “if you lend on dirt, you can’t get hurt.” expressively beautiful idiocy.

Then the regulators came along and encouraged all this. They threatened to revoke charters of banks that refused to make bad loans at the top of a huge bubble. They approved millions of speculative real estate loans and kept right on approving them over the edge of the cliff. Bottom line is that mid-level bureaucrats don’t make decisions, they check boxes.

We don’t have a problem of too much regulation in this country, we have a problem of regulations that aren’t adaquately followed or enforced.

Then everyone and their sisters and brothers started making money on their houses, buying more houses, “flipping” houses and borrowing more and more and more and more. How many of those people stood up and said “STOP!”

Bad policy, poor enforcement, greedy wall streeters, greedy “regular people” all combined to create a massive problem.

Everyone at the party got drunk on the easy money and didn’t realize they were drinking shots of plastic-bottle tequila until too late. How many drunks make the decision to stop at 2am on saturday night when the parties still feels lively?

We are all to blame for this. The government shouldn’t save us from ourselves. Wall street shouldn’t regulate our economic good sense. We shouldn’t borrow money just because the government or wall street will lend it to us.

A huge bubble requires that many people make lots of poor decisions, which is exactly what just happened.

It’s amazing what you can learn at a Chinese restaurant on Elvis night in the UK!

With a degree in banking and finance, I can assure you banks exist today for one reason; to make money.

The fact is the shares of most of the large publicly institutions, mentioned in the thread so far, are probably owned by mutual funds, which are owned by the folks who’ve posted as part of their IRA’s and 401k’s.

It’s not about where you keep your savings or whose credit card you use, as you can see from Zora’s post about her mortgage. The financial system is so intertwined with government it is difficult to remove yourself from it.

You mention the self-dissolving Building Societies in the 1700’s. Remember in the early years of the United States government, the offices were filled by men who returned to their farms and businesses after serving their term. Now, we have lifelong politicians.

Unless you can stop government, you’ll never gain control of the banks.

My suggestion is not to run and hide your money in a small institution unless they are truly solvent. To know that fact, you should understand how to read financial statements.

Take your financial destiny in your own hands and learn as much as you can about the world of finance.

This is a fascinating article in the Wall St Journal about the history of banking in America. Are you a Jeffersonian or a supporter of Hamilton?

http://online.wsj.com/article/SB122360636585322023.html

However all of this is beside the point. There is a fundamental misunderstanding of the nature of reality by these people. There is no shortage of wealth. It is available to everyone. If there was a limited amount to be divided up we would still have the same amount in the world as when money was invented. WHERE DID ALL THE REST COME FROM?