Oh, the ease of blaming others in a crisis
When earthquake experts are sentenced for bad predictions and lenders accused of bad calls on mortgages, society needs a reminder that individuals are responsible for their actions.
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These suits have yet to convince a court of outright lies by big banks in reselling bad mortgages, which would constitute fraud. Like the Italian court case, they instead imply that bank officials should have known that they were passing on information about mortgages that turned out – in hindsight – to be hugely risky to the entire financial system.Skip to next paragraph
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Wall Street had its own convulsion in 2008 when enough people saw just how many mortgages had been signed by home buyers who likely couldn’t afford them. The financial meltdown has resulted in endless finger-pointing.
Fannie and Freddie themselves are accused of encouraging the easing of mortgage standards during the housing boom. The Federal Reserve, too, is accused of loosening credit too much. Up and down the chain of those involved in home loans, from Congress to home buyers, few people are taking responsibility for contributing to the crisis.
The practical result of this ducking for cover and assigning blame to others is that society finds it difficult to rely on those charged with assessing risk. Experts and officials in charge of problems such as terrorist attacks, natural disasters, or health warnings may decide not to speak out for fear of being sued.
It may be a long time, for example, before seismologists in Italy or elsewhere try to make a best-guess prediction on an earthquake. In the US mortgage industry, banks have become very reluctant to lend for fear of being charged as not being diligent about checking a borrower’s creditworthiness or not providing enough information in the reselling of loans.
When individuals, either in signing a mortgage or buying them in bulk as Wall Street did, don’t take responsibility for due diligence in their choices, it can be difficult to reform institutions or an industry. Fannie and Freddie need major reform, for example, yet they remain in expensive limbo under government care because of wide differences in Washington over who created the mortgage mess.
Many decisions in life require making a difficult call on the outcome. Just ask the recent substitute referees in the National Football League. Yet we can’t let someone off the hook for making a decision that bounces back badly on them. Sometimes assigning blame means pointing a finger back at ourselves.