Costa's looking for a job

So we haven't heard the last of Michael Costa. He has written an opinion piece in the Australian defending financial institutions, banks and corporate CEOs.

In his article Costa berates Rudd's claims that the "Gordon Gekkos" of the world are responsible for the current financial crisis, painting the PM as "old labor" and states that it is because of

"Government regulatory failure, not the greed of investors or speculators, is at the core of present financial problems."

Okay Costa. Most financial experts agree that the current crisis began with the subprime mortgage situation. How is government regulatory failure the core of the subprime mortgage crisis?

It is true that the US Federal government at the time, under Clinton, did pressure Fannie Mae and Freddie Mac to give housing loans to candidates that "did not meet the current guidelines for a loan" i.e poor credit history, low income etc.

Thing is, neither of these stock holder owned, government backed enterprise, corporations directly lend money to home buyers. Their role, the purpose they were created for, was the boost the secondary mortgage. By purchasing and securing mortgages, they facilitate liquidity in the primary mortgage market by ensuring that funds are consistently available to the institutions that do lend money to home buyers. Basically, they buy mortgages off banks and other institutions so they'd always have money to lend to other people.

There were anti-predatory regulations in place that disallowed risky, high-cost loans from being credited toward affordable housing goals. These rules were overturned in 2004*. The subprime mortgage market boomed and then, of course, collapsed.

So, Costa was right, regulation or the lack thereof does feature heavily in the current crisis. But are the investors innocent of wrong doing?

There was obviously a market for subprime loans prior to Presidential pressure on Mae and Mac. And while the sudden market boom when regulations were lifted?

With Mae and Mac ready to buy even the most undesirable mortgages should anything go wrong, banks and other lenders went nuts. They continued to give out loans while constantly reducing their lending standards to the point where a trillion dollars had been given to people who really had no chance of paying it backed (this figure is derived from the fact that the US mortgage market was sitting at 12 trillion prior to crisis with an esitimated 9.2% of mortages being subprime) New lenders were springing up over night, onsell at PROFIT loans to bigger banks etc and disappear after making a few millions.

How is the greed of the investors not at the core of the problem? True, deregulation allowed this practices to happen, but why did these practices happen?

Avarice.

Costa finishes his article with

By the way, Prime Minister, what got Gordon Gekko into trouble was not greed but criminal behaviour (insider trading).

Mr Costa, as a former police minister, you should be aware that for a person to comit a crime three things are needed : means, opportunity and motive. What drives a man to commit insider trading? Greed.

Oh and I should point out Mr Carr has lamed to blame for the state finances solely at Costa's feet.