It doesn't matter how they are designed. They are eventually changed to suit the various lobbies.
Things are seldom re-evaluated logically. These programs go on for decades without obvious problems being fixed.
If you have a business and you figure out that something that was supposed to make you money was NOT actually making you money, you change it ASAP.
With government, change only happens when something becomes a political issue. Nobody even knows the true cost of things so nothing can actually be weighed without great effort. People are incented to do things that validate the program, that give a politician a big number he can point to.
The housing bubble is the worst example of this. There's no way people would spend so much to buy so big a house without all of the subsidies and tax breaks and assistance.
Notice how things devolve over time. Assistance for first time buyers, for example. Now they've changed the definition of what a first time buyer to include people who've owned homes before. But they won't every change the name of the program, as they still want to misrepresent as something it no longer is.
You are cherry picking parts of the narrative to fit your beliefs.
Your assessment on the causes of the fin crisis overlook other more significant factors.
Primarily the effects of deregulation and under funding the SEC.
Those choices playing out against the development and evolution of CDOs as risk transferring instruments.
The utter rapacious greed with which the financial services industry reacted to its incentives.
In a thread about risk, it's worth remembering that total dislocation from risk led to NINJA loans, and mortgages being sold to people who would never have qualified other wise.
I find the narrative that subsidies were the cause to be amusing when I remember that loan salesmen were fully aware that they were both, selling junk, and selling it to people who they knew they could out talk, out think and out educated.
And how was that total dislocation from risk created?
It started with government insuring banking deposits. And Glass Segal kept that part of the financial industry separate. But eventually, the lobbyists broke that down and they used it to export risks to the banks using credit default swaps/
And they also got Fannie and Freddie to take on all the lame mortgage risks. That made it easy to shift even more risk to the government. How did that happen? Subtle changes pushed by lobbyists.
Can't disagree. Consistent efforts to water down those safe guards paid off.
And why discuss just the mortgage bubble? There are so many other damning independent events in the past 4 years.
1) The mess with LIBOR. If you want to improve spin and double speak, you can do worse than remember this line "LIBOR has become dislocated from itself."
2) The failure of mortgage managers to maintain chain of ownership, and the robo signing scandal. Which is a nice way of wrapping up flat out fraud with a different set of words.
3) The flash crash - fine lets call it teeting issues with new technology. But what about deals where GS knowingly sells crud instruments to its clients? Or the oversight that creates such lovely euphemisms like the "London Whale". I'm currently betting that the Citi CEOs ouster will add itself to this list.
4) Too big to fail - If we say "market forces will handle it", and at the same time create institutions which are too big to fail, then haven't we essentially given up on free markets as we know it?
What I find amusing, is how the narrative is divorced from the historical timeline.
Fannie and Freddie were great ideas for their time. They were terrible ideas for a time where they were used by people who considered scruples to be ballast to be discarded, and that risk would be "managed by the market".
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On a separate note - I think any discussion that ends up overlapping the finance industry with entrepreneurship is broken. The finance industry / wall street are so removed from the spirit and intent of the law compared to the tech industry and SV startup-land that the we need separate dictionaries.
Things are seldom re-evaluated logically. These programs go on for decades without obvious problems being fixed.
If you have a business and you figure out that something that was supposed to make you money was NOT actually making you money, you change it ASAP.
With government, change only happens when something becomes a political issue. Nobody even knows the true cost of things so nothing can actually be weighed without great effort. People are incented to do things that validate the program, that give a politician a big number he can point to.
The housing bubble is the worst example of this. There's no way people would spend so much to buy so big a house without all of the subsidies and tax breaks and assistance.
Notice how things devolve over time. Assistance for first time buyers, for example. Now they've changed the definition of what a first time buyer to include people who've owned homes before. But they won't every change the name of the program, as they still want to misrepresent as something it no longer is.