Moving beyond the point that we need some type of new regulation…
The question becomes: Who’s to blame for the current crisis? Or, is there even anyone to blame?
If you’re talking to an everyday person, they’ll probably say it was the banks and the mortgage lenders. If you talk to someone from Wall Street, they’ll say it was the homeowners who bought houses they could not afford.
Homeowners
Many homeowners did buy houses that were beyond their means (and sometimes even took a home equity loan on top of their beyond-means mortgage). I feel like that is probably the main argument against homeowners.
Financial Institutions
Then, you have the financial institutions which includes mortgage lenders and the banks that securitized the assets.
First, a lot of mortgage brokers aggressively pushed mortgages on people; sometimes even knowing that they would probably default at some point [see CNBC's House of Cards]. Additionally, a lot of the “sub-prime” loans were given to people with bad credit scores and with no documentation of assets or income. Now, who does that?
Nevertheless, you have the argument saying that it is ultimately the homeowner’s choice to take the mortgage and thus their responsibility. However, is there not an ethical duty on the part of the brokers to be as transparent as possible on the transaction?
The Excessive Risk
Notwithstanding, say we assume that the homeowner is responsible for taking out the mortgage, who is to blame for all the other problems?
Financial institutions originated-and-distributed bad loans in excess. They exponentially originated and securitized all types of loans for a fee and distributed them throughout the world. Overall, this amplified a smaller problem into a worldwide nasty problem.
Summary
In sum, you have the homeowner who took out a mortgage beyond his or her means vs. the financial institutions which pushed them on the homeowner, securitized all the crap and funneled it throughout the system, and had horrible risk management.
This leads me to conclude that Wall Street is by far the most responsible entity in this crisis. In general, the homeowner made a mistake. However, what they did was uncover all the crap that had been building up for years [excess debt, bad risk management, fraud, etc].
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