Jail them? Why not just fine them? Make them scrape up the funds to recover us out of this mess some.

You people who think you are the REAL victims can’t be classified as such by the definition JLP cites. Are you injured? Aside from the balance of your 401K and investments (which will rebound if you invest intelligently and for the long run)? Have you been mistreated? Were you tricked or duped in any way? Are the terms of your mortgage (if you have one) changing on you? Are you less likely to be able to afford a home?

As long as you invest for the long term and stay in your house through this crisis, home values will go back up and neighborhoods with lots of foreclosures will recover. If you ask me this just gives you “victims” another leg up. If you want to buy a new home you are the ones with the credit scores, savings and incomes to take advantage of buying foreclosed homes or getting your next house at a reduced cost.

Investments in the stock market are volatile. Are you saying that you are not smart enough to understand “Past performance does not guarantee future results.”?

So here is the list of those responsible in no particular order. It’s not even complete – most likely I’ve forgotten a few:

- Congress that pushed to give mortgages to low income people and to relax the rules.

- Whoever came up with the idea of mortgage-backed securities. Allowing mortgages to be packaged and sold removed incentives from mortgage bankers to verify that borrowers can repay. After all, if you plan to sell the mortgage, do you really care if it’s going to default or not? Incidentally, in 2003 Warren Buffett called these new type of securities: ‘”financial instruments of mass destruction” which were creating “mega-catastrophic risk” for the economy’.

- SEC, specifically Christopher Cox deregulation 2004 decision that gave exception to limits on leveraging rule to 5 largest investment bankers. BTW, three of 5 major investment bankers that got this exception are out of business now; remaining two are Goldman Sacks and Morgan Stanley. Some of these companies ended up leveraged 40 to 1 i.e. for every dollar they had in reserve they could borrow $40 and use the money to buy mortgage-backed securities. This amplified the problem with defaulted mortgages exponentially. Additionally, SEC decided to trust the risk models these companies used, i.e. it essentially allowing them to police themselves.

- rating agencies that gave inflated rating to mortgage-backed securities relying on mathematical models that failed to consider all the risk. As hearing last week showed, some of them suspected the models didn’t allow for half of the risk, yet they gave some of these securities AAA rating. Many companies all over the world bought these securities thinking they are buying AAA rated commercial paper.

- Mathematicians that came up with these models and failed to consider falling real estate market. The idea was spreading the risk i.e. if you have 100 mortgages and the probability of one defaulting is 10%, the probability of two defaulting is .1*.1=.01 i.e. 1%; if you get 3 mortgages it is only .1%, etc. Of course, this assumes that these are independent events which is not true when the real estate market start declining, but they haven’t thought of that. As a result, when mortgages started to default, the value of these securities dropped, then nobody could even trust AAA rating, so the market value on all MBS dropped even more; even those MBS that contained a fair amount of good mortgages.

- Insurers and investment bankers selling credit default swaps – an “insurance” on mortgages backed securities in case of default. Except for as it wasn’t called “insurance”, it didn’t need to follow the rules for insurance such as having enough capital to cover the losses.

- Bankers who gave mortgages to people who cannot afford including mortgage bankers who came up with idea for all those fancy mortgages.

- Borrowers who took on more mortgage they can afford sometimes lying about their income.

- mark-to-market rule for mortgage backed securities. This rule may have contributed to banks being forced to get rid of these securities further driving their price down. Here is a good explanation I found on how mark to market rule contributed to crisis: http://www.parapundit.com/archives/005597.html

As to victims, I think the real victims aren’t the people who bought houses they couldn’t afford. The real victims are those of us who managed our finances responsibly, never bought more then we could afford, but lost money in this crisis; those whose neighborhoods are destroyed by foreclosures even if they themselves were responsible; those who have already lost or will lose their jobs in this crisis; businesses that suffer because of bad economy.

Barack Obama?

I thought the birds were ALREADY deregulated????

Deregulation is for the birds.