It might be easier to list five reasons that did not lead us into these desperate financial days, wallowing in ill-defined, gargantuan bailout proposals made shrill and accusatory so close to a major election.
What a gift to leave the new president on his first day in office.
But let's pick five reasons that did put us in this pickle because the proposed $700-billion federal bailout — whatever final form it takes — will be a pricey burden upon us as retirees, upon our working children and upon their kids as they seek opportunities in what will be a tougher world to live in and prosper.
We'll need to understand it better when our grandchildren ask us later how we managed to screw things up so badly.
So here goes. Short and sweet. Five big fumbles that brought us to this unfortunate day.
REASON ONE: Follow me closely on this one because it's a critical stumble and has not gotten the attention it deserves. We already know too many "subprime" mortgages were issued to home buyers and speculators who were not truly able to afford the monthly payments. We already know those mortgages by the millions got funded then funneled through Fannie Mae and Freddie Mac and were sold in bundled pools as securities to investor groups worldwide.
But what hasn't been properly examined is: Who put the "Good Housekeeping" seals of approvals — who stamped a AAA credit rating — on these obviously tainted mortgages? Two big players in this more obscure part of the meltdown are the Moody's and Standard & Poor's credit rating companies.
Here's how the fumble happened, a tale well told in a recent Bloomberg News investigatory series. Driven by competition for fees and market share — rating companies Moody's, whose biggest investors include Warren Buffett's Berkshire Hathaway, and S&P, part of the McGraw Hill Companies — issued top ratings on pools of debt that included $3.2-trillion of loans to home buyers with inferior credit between 2002 and 2007.
Without those AAA ratings, insurance companies and pension funds wouldn't have bought the products. Bank writedowns and losses on the investments totaling $523.3-billion led to the collapse or disappearance of Bear Stearns, Lehman Brothers and Merrill Lynch, and compelled the Bush administration's $700-billion Wall Street bailout.
Ratings chicanery is the biggest contributor to today's ills that's received the least amount of critical coverage.
REASON TWO: It was the perfect 2001 wedding: A brand new Bush White House determined to let the free market blossom joined with a Wall Street machine poised to tap new sources of wealth worldwide, courtesy of the new globalization boom. The formula was perfect for revving up global sales of packaged U.S. mortgages — the more, the better to meet demand and earn Wall Street big fees.
Fortunately, at the start at least, our housing prices took off, sparked by ever-lower interest rates and the proliferation of new mortgages — "pulse" loans because anyone with one qualified — that required no money down and little or no proof of ability to pay. Remember when Bush touted his "ownership" society? That included housing.
REASON THREE: Free money. When you lower interest rates close to zero, borrowing money becomes almost free. That's the flaw of Federal Reserve Chairman Alan Greenspan's years. He complained about "irrational exuberance" but apparently failed to grasp he was feeding the frenzy with interest rates so low that nearly anyone wanting a house could become, briefly at least, a homeowner or, more likely, a speculator.
It all fed the spike in home prices and the bubble that has now popped so loudly.
REASON FOUR: Us. Do you remember the get-rich atmosphere right after the Tech Bubble popped in 2000-2001? People fled the stock market in search of the new, new thing to invest in for the next big return. Viva the housing market! Folks with outlandish expectations were already primed to act.
REASON FIVE: A watchdog media was about as effective as a three-legged chihuahua. When we warned things were too hot as home prices soared, the real estate industry complained we were killing the golden goose. When we've since documented the dramatic price declines, the real estate industry complains we are flogging an already cooked goose. Either way, the press did a sorry job of explaining what was happening.
In December 2004, I asked Randy Johnson, chief of hefty Market Street Mortgage in Clearwater, if we were in a dangerous bubble with housing prices soaring 17.7 percent annually. No way, he said. New people moving in, more first-time home buyers and the coming flood of retiring boomers will absorb it all.
In May of 2005, I asked Donnell Smith, another Market Street Mortgage executive if we were in a bubble.
"There's no cooling off in housing for now," Smith told me. "People wonder if they should invest in the stock market or real estate. Look at Florida's housing appreciation. It's crazy!"
Crazy it was. Just not in the way Smith or a lot of other people expected. Market Street Mortgage closed its doors not long after that.
Here's hoping the next generation learns and remembers.
Robert Trigaux can be reached at firstname.lastname@example.org or (727) 893-8405.