The markets keep falling down and everybody is looking for someone to blame. Main Street and politicians blame CEOs from different companies accusing them of incurring huge risks, getting incredible payouts from those risks and now the American taxpayers have to pay the bill for their mistakes.

Unfortunately things are not that simple. Of course some people made terrible mistakes on their assumptions and basically financial firms created products that did not fully understand. I also think that it would be fair to put some kind of restrictions on the payouts and salaries Board of Directors and top management receive in public companies. But at the same time, it is not fair to blame everything on them. The truth is that those same politicians that are calling every CEO in the country a thief are also to blame and actually they have a huge percentage of the blame in this problem. In 1999 under the Presidency of Bill Clinton, Congress passed a law that aloud and encouraged Fannie Mae and Freddie Mac to lower their standards for mortgage loans. They said that Fannie Mae and Freddie Mac should accept mortgage from people with no so good credit reports because everybody in America has the right to purchase a home. That was the beginning of the credit crisis in America.

Later in 2001 the five investment banks (Bear Stearn, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Goldman Sack) asked the SEC to aloud them to increase their leverage to 40 to 1 instead of the 12 to 1 they were aloud at that time. The SEC accepted immediately that proposal and that was the second most important reason for the real estate bubble to start. The 5 investment banks started to demand more and more mortgages from brokers in order to create the infamous CDS and other mortgage products that started trading with no regulation and no transparency in the markets. More demand in mortgages meant giving more money to people with less and less restrictions.

Finally, in 2005 the Government of George W. Bush tried to pass a law limiting the risks taken by Fannie Mae and Freddie Mac. Congress rejected that law, both parties Democrats and Republicans. We all know what happened next. The Government took Fannie Mae and Freddie Mac, and the 5 investment banks disappeared; only Morgan Stanley and Goldman Saks are still in business but as commercial banks.

Next time you hear your politicians blaming everybody for what is going on today, ask him/her where were them when those laws were passed and why he/she never sounded the alarm based on everything that was going on. Everybody knew there was a bubble in the real estate market, and nobody did everything about it. Today, as always when we are in the middle of the crisis, everybody is blaming at everybody. History will repeat itself because nobody assumes its own faults, in the future will have another crisis and then you will hear again the same politicians calling everybody a thief. We won’t learn from this painful experience.

JCM