It was more a lack of enforcement of proper accounting standards (obviously aided by the (legal/legislative leverage) via their extensive lobbying and gift giving to influential congresspersons (on both sides). Let's not also forget the subsidies handed out by the federal government to companies to help provide low-income families with housing, encouraging more risk taking. It was a bubble, and the over-invesment was worsened by government (and aided by their inability to enforce current accounting standards).
Um, sorry, no, but "proper accounting standards" had nothing to do with it.
Let's put aside, for just a moment, that banks are allowed to commit fraud every day that they're in business.
In 2001, Alan Greenspan told the banks (to paraphrase) that they were not loaning enough money to enough customers, and that they needed to get off their asses and find new ways to loan loan loan.
Now, when the chairman of the Federal Reserve tells the banks to take additional risk, the implication is that the Fed and the federal government will be there to catch the banks when they fall.
The bad mortgages were variable-rate loans with a very low opening interest rate sold to people with insufficient or incorrectly reported incomes which were not properly vetted before the deal was closed. Subsequently, either the loan was never affordable for them in the initial stages, or it became unaffordable when the interest rate got jacked up.
Meanwhile, lots of big boys bought up securities backed by these mortgages because they were rated AAA. They were rated AAA because the banks selling the securities wouldn't pay the ratings house for rating the securities until
after the security sold.
Lots of them, like General Electric, have since been forced to post billions of dollars in losses because of the self-desctruction of the AAA securities they bought for a safe place to put their excess profits.
Now, if you're like me, and you do business with a small-town bank, you might be wondering why they seem to be more stable in the midst of this crisis than, say, the gigantic investment banks tanking on Wall Street, or the bigger deposit banks or S&Ls.
The answer is really quite simple.
The Federal Reserve, the FDIC, and Congress only reach out to "save" the big boys. They have to have tens of billions of dollars on the balance sheet before anybody can, with a straight face, make the argument to the authorities that their collapse would threaten the economy and thus be a national security risk.
The "national security risk" claim, by the way, is nothing new. That one's been getting thrown around with regards to potential bank collapses which "required" government intervention for decades now.
Anyway, the small banks get no such consideration because they don't have enough assets to make waves when they go down. If a small bank collapses, the FDIC pays out the minimum required by law to the depositors and retirement account holders, and lets everything else fall by the wayside.
If you're someone like J.P. Morgan-Chase, however, when you're about to collapse the FDIC, the Fed, and Congress all line up to throw money at you until you're back on solid footing again.
This has nothing to do with accounting practices, and everything to do with a financial system rigged to benefit the big boys on the backs of the little boys and the taxpayers.
It's as simple as that.
