Friday, September 19, 2008

Twenty-Four Questions

We Ask Questions
About Wall Street
Who is to Blame?
What to Do Next?

We wanted to write about the Wall Street crisis after it settled down. Apparently, however, matters will remain unsettled for awhile as Congress considers a massive bailout, and other developments are sure to come.

Rather than waiting for the dust to settle (We predict it never will), we would like to make a few observations today and ask two dozen questions that occurred to us over the last week as we watched seismic shifts take place the world of finance. 

These deconstructive events are likely to have a substantial negative effect on the finances of New York City and the economic and social well-being of its residents, as well as the thousands of New Yorkers who have lost their jobs in the private sector and those in the public sector whose jobs are endangered by shrinking tax revenues.



  1. Anonymous12:12 PM

    Greenberg loaded his company up, not his successors.

  2. Anonymous12:13 PM

    Those are all good questions. Whatever the responses are (and they will include bailouts, working groups, lawsuits, government employee time, huge legal and accounting fees, distractions from life/liberty and the pursuit of happiness activities), let's not forget that ADDING BILLIONS OF COSTS TO BILLIONS OF LOSSES will not aid the deserving and innocent public. Frantic government activity and interested accountants and lawyers activities is only padding the pockets of those who do not need more pocket padding. No doubt most blame will go onto financial sector actors, and little will go to government/accounting and lawyers. Words are cheap, but unproductive activity is not. Ultimately, the little guy will pay. It is fitting that the little greedy guy pays, but the larger community of little reasonable guy has no reason to be saddled with more costs for fat cats than it will already have to cope for.

  3. John Tepper Marlin12:47 PM

    The Durst clock says $9.5 trillion and that doesn't count
    - an estimated $90 trillion of unfunded Medicare and Social Security liabilities
    - another $5 trillion that Bernanke and Paulson are putting on Uncle Sam's credit card

    23. What will we do about our national debt, which now exceeds eight trillion dollars and is increasing by one and a half billion dollars every day, before any bailout?

  4. Martin Hassner12:48 PM

    These are not impertinent questions and your audience contains any number of professionals who can provide some basic, very informed data as answers. I hope you will compose another piece or two that contains these answers even if some of them are speculative as they may have to be...please bring these answers forward in your communications to us rather than leave them on the website. Each of these questions are worthy and should be worthy of answers.

  5. Joe Cherner12:50 PM

    Hi Henry,

    As always I enjoy reading your blog. If the U.S. wants to avoid a (another) financial crisis, Congress needs to pass two very important laws:

    1. A law must cap the maximum interest rate banks can charge on credit cards to a level much lower than they currently do. That will force banks to investigate credit applications more severely and stop them from giving credit to those who shouldn't be getting it.

    2. We need a law that prevents banks from issuing mortgages for more than 75% of the value of a home. Home owners must own at least 25% of their home, and they should not be allowed to take out loans against that 25% ownership.

    Many countries do not allow credit cards at all. They only allow debit cards. If the money is not in the bank, users can't spend it. In addition, no country (other than the U.S.) allows banks to issue mortgages representing 100% of a home's value.

  6. Henry - Perceptive and wise questions - most of them can be answered only by those with special knowledge but I'll give you answers to #23 and #24 because those two have basis in history with which I'm somewhat familiar. I'm also aware you didn't ask all those questions to get answers - just knowing the questions to ask is important. But to get back to them: national debt - perhaps Zimbabwe is not the poster child here, nor, even the German inflation following WWI. But such debt is "solved" by printing (and cheapening) money. (I printed money for a living you may recall, and it always did our heart good to receive an order for lots more bills - providing the ordering nation paid in dollars.) No longer, I fear - it is our money that is eroding - imperceptibly at first but shortly, when a cup of coffee costs a thousand dollars - some people will get the idea.

    As to #24 - very simple: when China pulls the plug we'll all be left up the Yangtze without a paddle.

  7. Henry,

    You are completely wrong as to the financial castrophe not being an act of terrorism. Six years ago, Lieutenant General (Ret) Bernard W. Hughes, formerly head of the Defense Intelligence Agency, warned in a speech at Harvard that Middle eastern "terrorists: would attack our economic system in the coming years--and not our physical plant. He was prescient.

    How did they do it? By self-validating the Koran's ban on the charging of interest.

    All of our financial woes are tied to interest. The sub-prime crisis; the Fannie Mae and Freddie Mac crisis; the bad mortgage loans that ruined Merrill's balance sheet; and, the insurance losses of AIG that were tied to interest rate derivatives. Plus WaMu and all of the other banks that have/will fail.

    Mideastern wealth was used to buy the packaged mortgages thereby encouraging more of them to be made. They after selling out, they pulled the plug. Suddenly there was no buyer and the market collapsed.

    Now 3 things will happen:

    1. The outflow of $500 billion a year to buy foreign oil will continue and exacerbate.

    2. American assets will be marked down lower each passing month.

    3. The sovereign wealth funds will buy America on the cheap--or provide funding to banks like Barclays to use to buy Lehman.

    Manhattan will be especially cheap. The BofA will relocate Merrill's HQ to Charlotte. This will release an enormous amount of space in the World Financial Center. Buildings mindlessly coming on stream in the World Trade Center will expand the supply of office space at the time that demand is falling. The demise of Bear Stearns and the sell-off of AIG will further reduce space needed by them and their attorneys and accountants.

    Before the fall, the NYC Comptroller's office estimated the market value of all tax-paying real estate in Manhattan at $250 billion. It will become much less. So it can be bought by Arabs with a fraction of our annual $500 billion payments for foreign oil.

    The lesson. The golden rule. Whoever has the gold--rules. We need to reach an accomodation with the Arabs--as our European allies have done--quickly or we may see a free fall of the American economy.

  8. 18. Was there any elected official, Democrat or Republican, who spoke out to call attention to the growing financial crisis before it became a national disaster, injuring millions of civilians (that is, people who were not market professionals)?

    Yes - Bush reforms to reform Fannie and Freddie died in Congress at the beginning of his first term. Then, three Senators, including John McCain tried to get reforms done in 2005. The bill is Federal Housing Enterprise Regulatory Reform Act of 2005, and John McCain said on the Congressional record, on May 25, 2006:

    "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

    This bill never made it out of committee, blocked by members of Congress, notably Chris Dodd, protecting the GSE's, due to intense lobbying efforts by Fannie and Freddie.

  9. Allan1:02 PM

    Washington Brewed the Poison by Jonah Goldberg

    BLAME for the financial crisis is settling on those old standby scapegoats, Wall Street fat cats. So: Who should go to jail?

    The answer, as far as I can tell, is: No one - at least no one on Wall Street.

    That may turn out to be wrong. But even if a bad penny or two is in the pile, nobody will say this CEO or that banker is responsible for the mess. And so far nobody's aimed a bony finger of condemnation at any Wall Street fat cat who did anything criminal... (continued in the above link)

  10. Woody1:23 PM

    In answer to #24, if Mort is still publishing the DAILY NEWS, the headline, parodying Jerry Ford might read: "BEJING TO US: DROP DEAD." We'd be in so much debt by then, not even the fabled Steinfeld characther the Soup Nazi would sell you a cup of wonton soup on credit!

  11. Larry1:58 PM

    Two things you missed (I think):

    Why did so many traders believe that CDO’s were different than the CMO’s that blew up in the 90’s?

    The big problem now is not naked short selling or short selling of any kind, it is credit default swaps (CDS). The 1987 panic was caused by portfolio insurance that didn’t work. The current crisis is caused by CDS that don’t work. Imagine making a bet that the world ends in a week and by some chance you’re right – you still can’t collect.

    The government should issue a 1 month moratorium on new CDS contracts. The government should regulate CDS. They should create a marketplace to standardize CDS and to protect against counterparty risk. AIG went keflooey because of CDS. It would be nice if the government went after the right problem.

  12. Edwin2:03 PM

    Dear Henry,

    I do not have the time or energy to answer all of your questions. However, I’ll tackle the first two.

    Q: Who, if anyone, should be held responsible for the losses which may exceed a trillion dollars, and what, if any, penalty should be imposed?

    A: Primarily – not totally, but primarily, the federal government. For a good expose’ on the subject, see a recent Forbes op-ed by Yaron Brook, president of the Ayn Rand Institute, here: Of course, we cannot penalize government. Rather, we must abandon most government interference in markets.

    Q: What would the consequences of this loss of value have been if social security had been privatized, as President Bush recommended in 2005?

    A: Nothing. Assets fluctuate, but over a span of seventy-five years, a balanced portfolio has historically yielded some 7% on an inflation-adjusted basis. Furthermore, had personal accounts been implemented, they would be in their infancy, with very little funding. But the question implies that there is something wrong with funding pensions. I hope that you are not opposed to saving for retirement, especially since it a certainty that Social Security can never pay all of the measly benefits it promises to younger workers.

  13. EXCELLENT!!!

    Muriel Siebert --CEO of a brokerage with her name called out the warnings in her (hardcopy) monthly free newsletter to clients.

    A Message From Muriel Siebert

  14. Melissa3:27 PM

    this one is particularly FANTASTIC!!!! You nary missed a question.

    As for one answer to #18 – I’m well aware that as Manhattan Borough President, C. Virginia Fields and her chief of staff, Luther Smith, were quite vocal and active in their work to stop subprime mortgage practices in Harlem many years ago. They alerted the press, the community and the businesses that were doing the bad lending as to the crippling effects this practice would have on the village of Harlem.

    There may have been others, but I’m quite sure about Virginia. I give personal thanks to her as I didn’t fall victim; however, now we are all victims.

  15. Thank you for the insightful questions we all need answers to regarding the "Wall Street Crisis".

    For discussion purposes, I would like to add my two cents worth to the first eight of those questions. I will try the other sixteen later.

    1. Who, if anyone, should be held responsible for the losses which may exceed a trillion dollars, and what, if any, penalty should be imposed?

    a. First and foremost, the directors and officers of those financial institutions must be held responsible. They gambled and lost badly, but they did not lose their own money. The risks they took, if found to be legal, did not correspond to potential reward for employees and shareholders. Either they knew or should have known their actions were foolhardy. Second, where were the "independent registered public accounting firms"? Are the standards of the Public Company Accounting Oversight Board (United States) really that weak? Here again, they either knew or should have known. As to penalty, there should be personal liability for the damage they caused. They will probably be off the hook under their D&O policies, but if fraud was involved beyond immense stupidity, of course they should pay. A fund should be established to recompense those who lost, i.e. employees and shareholders, with monetary penalties received. This may play out on it's own with shareholder and employee class action suits for the next twenty years.

    2. What would the consequences of this loss of value have been if social security had been privatized, as President Bush recommended in 2005?

    a. The consequences would not be very different from what they are now. If ten percent of workers social security assessments could have been placed in private savings or investments, and those investments included Bear Sterns, Fannie May, Freddie Mac, and Lehman Bros. stock, and individuals were permitted those options, there would be losses of the ten percent allocate4d to private accounts. The New York State Retirement System lost because of those investments in the fund, but the effect is minimal. Here again, recompense would have been appropriate once negligence and breach of fiduciary duty are established. The personal accounts may still be a good idea for young workers, if structured and managed correctly.

    3. What about the employees of a firm who have 401K's invested in their employer's stock? Should they be treated the same way as speculators?

    a. The 401K's are optional for participants. A "speculator" may also be an investor, who relies on information provided by management. An employee may be in a better position to judge the accuracy of information provided by management of his or her firm. The 401 K investments should be treated the same as outside investments. If fraud or breach of fiduciary duty is proven, both should be recompensed equally.

    4. Is it possible for an insurance program, to be paid for by the employee, the employer, or both to guaranty all or part of a 401K from catastophic loss?

    a. Yes, of course, why not? We now see it is a good idea.

    5. Should people who hold stock in these plans be warned periodically that there holding are not insured..etc.

    a. Same answer as #4.

    6. What is the question?

    7. What should be done with those who sold CDO's with knowledge that they were unlikely to be redeemed at face value...etc.

    a. If they lied, that's fraud. If they did not know, but should have known, that's negligence or breach of fiduciary responsibility. In either case, they should pay. Sue them.

    8. Why should the Federal government save some institutions while alowing other to go bankrupt? What citeria have been used to make these decisions? Is "too big to fail" an adequate standard?

    a. Some institutions, like AIG, would have had such repercussions throughout the financial world that panic, depression, and violent gridlock of the economy could have occurred. Does the fire department walk away from a fire that is too big? FNMA and Freddie Mac were political sewers, partially built by our Federal government, and ill conceived or abused as to their objectives for political motives. The parent is responsible for the child. It should have been fixed, now it must be replaced.

  16. Jacqueline11:42 AM

    Re: Questions 1 and 15. No senior manager or officer of a company in trouble should receive a golden parachute when his/her company is being bailed out by taxpayers. And, the senior managers and officers who received bonuses during the time frame when their companies were buying heading-toward-worthless securitized mortgages should be forced to disgorge their bonuses prior to any bailout. (I know the dollar amount is insufficient to make their companies solvent, but I feel strongly that taxpayers should not be made to pay to sustain such bonuses.)

  17. great questions. I wish I had the time to join the dialogue. Suffice it to say 1) “A fool and his money are soon parted” and 2) There is so much blame to go around that everyone involved has some responsibility for the mess including virtually every victim. Jim

  18. Elaine11:50 AM

    As usual your questions go to the heart of the problem.

    I do wonder about the role that Spitzer played in an activist AG why didn't he go after the real problem, i.e. the over valuing of these "non-securities"? Why did he avoid the real issues? Why did he depose Hank Greenberg? I too am curious as to when AIG got into the mess.

    Where were the AG's when Glass Steigel was overturned by Congress and signed by Clinton?

    I too am very concerned about foreign investment leaving....

    Thanks for being sane in this moment of insanity.

    Where were our Senators in this mess?

    And as an aside when will Charley Rangel resign? I believe he is too damaged to continue to head the Ways and Means Committee. The role is too important in this economy for him to hang on.

  19. The important thing for you to know is that the structure of our current monetary system is inherently dishonest. In addition, it is unauthorized by our Constitution, i.e., it is illegal. No amount of regulation can cure these defects.

    Here is a photo depicting how this kind of system plays out, with no exceptions. It is a street scene in Hungary in the 1930s. The stuff that is being swept into the sewer is the Hungarian money. That is the fate of our legal tender irredeemable paper-ticket-electronic dollar.

    The remedy about what to do is to reassert the monetary powers and disabilities of the Constitution. No one is talking about that!

  20. e.s. savas11:53 AM

    The fundamental cause was the decades-old, bipartisan government policy of encouraging home ownership by people who can't afford to own their home or even to make a reasonable down payment. This policy culminated in President Clinton’s Community Reinvestment Act, which led to bald lying by loan applicants, mortgage-loan originators, and assessors in an environment of easy money created by the Federal Reserve Bank. With so much cheap money around, others also piled into housing as a sure-fire investment, and prices soared. Fannie Mae and Freddy Mac happily insured these risky mortgages, bundled them with sound mortgages, and swelled to gargantuan proportions. They were supported by members of Congress who received millions from them in campaign contributions, while the Clinton-appointed officials garnered large bonuses based in part on fraudulent earnings statements. Financial engineers devised opaque instruments to hedge and distribute the risk posed by the loans. The result was a monstrous housing bubble that inevitably burst and a series of financial disasters starting with the subprime-mortgage meltdown. Government accounting regulations (“mark to market”) hastily imposed after the Enron swindle guaranteed a downward spiral for AIG and others when there were no immediate buyers for their assets, although these were, in fact, quite valuable. That's what happened.

  21. 2. What would the consequences of this loss of value have been if social security had been privatized, as President Bush recommended in 2005?

    As a former pension consultant, the opposition to "privatizing" Social Security does not take into account the full picture, and is a great idea compared to what is done with the money now. The Social Security trust fund has 2.3 TRILLION dollars "invested" in special issue US Government Bonds. In other words, the Feds spent all the money, and owe it to themselves. Its like using your retirement funds for a shopping spree, and saying your retirement money is invested in "debt obligations" to yourself. In reality, spending your savings is a 100% loss. Even is the stock market is down temporarily, privatization takes the money out of the hands of the government, and doesn't allow them to spend it. This is why many in Congress were really against privatization (in addition to the fact that it was an easy way to demonize Bush). Congress would have to reduce its budget, raise taxes, or borrow more from the public if they could no longer spend your savings.

    But the picture is much worse. The Feds have looted so many more Federal retirement and medical trust funds. So much of the US government debt is owed to itself, 4.172 trillion of it to be exact. So these trust funds don't really exist. Here is the US treasure site.

  22. ulrike11:55 AM

    Hefty questions, Henry. I couldn't even begin to digest all of them on a
    Sunday night.
    Here's a quick response, though: to #3, I shout a loud and definite "NO." Employees should not be the scapegoats, especially when the CEOs always get so much money while they are there and when they leave (whether voluntarily
    or not).

    And hand-in-hand with that, to #15 I give the same answer.

  23. 1. We know that this is not a crisis initiated by terrorism (9/11) or a natural disaster (Katrina or a tsunami). It appears to be the result of bad decisions made by individuals who managed institutions of great wealth and power.

    Who, if anyone, should be held responsible for the losses which may exceed a trillion dollars, and what, if any, penalty should be imposed?

    There's more than enough blame to go around.
    1st: snake oil salesmen who devised and concept of giving sub prime mortgages to unsophisticated borrowers who were lacking in
    creditworthiness, and the concept of bundling and selling these
    instruments downstream.
    Historically, the most conservative lenders, neighborhood banks, would give mortgages to prospective homeowners, who, in order to be deemed creditworthy and eligible, were required to make a down payment of 33%, 25%, 20%, 10%, 5%, and have money in the bank and a good job history. The bank would be familiar with the property and the borrower.
    2nd: the government regulators who were asleep at the wheel and
    permitted this to occur on their watch without blowing the whistle,
    followed closely by; 3rd; the ideologues who, in their rigid belief that that government
    governs best which governs least, reduced the number of regulators,
    stripped those remaining of their powers to regulate, and sent a message that anything goes, and that the traditional laws of economics no longer applied to the brave new world which they claimed now existed. I don't blame the subprime rate borrowers: they did what was expected of them: goodies (i.e., home ownership) were dangled in front of them and they grabbed at it, without having an explanation (let alone understanding) as to what it was that they were getting into.

    2. What would the consequences of this loss of value have been if
    social security had been privatized, as President Bush recommended in

    grandma and grandpa would be packing shopping bags at the local
    supermarket and eating pet food for dinner. Forget about filling their prescriptions.

    3. We agree that outside investors who buy stocks in the hope of a
    prompt and substantial increase in value ought not be protected by the
    government if the company they have a stake in does poorly, and its stock falls rather than rises. Capitalism has its risks as well as
    rewards, and the state cannot insure prosperity.

    What, however, about the loyal employees of a firm, saving for
    retirement, who have 401(k)s invested, conservatively in their minds, in their employer's company? Should they be treated the same way as speculators?

    They should be treated the same way as all investors in the company's stock (not as speculators). A description of the plight of junior partners in a famous law firm which went belly up, leaving them liable for the firm's debts (run up by the senior partners): "mushrooms": they were kept in the dark and fed

    4. Is it possible for an insurance program, to be paid for by the
    employee, the employer, or both to guarantee all or part of a 401(k) or similar plan from catastrophic loss? anything is possible. The question should be whether the SEC should impose such a rule.

    My answer would be yes. Perhaps a percentage of the 401(k) - whether paid by the employer, the employee, or both- should be set aside as an insurance premium into something like Workers
    Compensation insurance.

    5. Should people who hold stock in these plans be warned periodically
    that their holdings are not insured by the FDIC or anyone else, and are subject to partial or total loss? The Montana Power Company case is a particularly sad example of such a misfortune. Should there be any requirement for diversification in employee stock ownership plans?

    One good warning should suffice.

    6. We know that the sub-prime mortgage crisis did not appear overnight. It surfaced publicly around January 2007, twenty months ago, and was known in the industry before then.

    Executives in finance and real estate were well aware that the CDOs (collateralized debt obligations) were in great danger. Yet they continued to sell them to unsophisticated investors - people who did not want to get rich quick but simply wanted a safe place with a reasonable rate of return to store their money. They were told that auction rate securities were perfectly safe.

    7. What should be done with those who sold CDOs with knowledge that
    they were unlikely to be redeemed at face value? Does it make any
    difference if the sale was made to another trader, or to an uninformed
    or misled individual purchaser?

    To put it another way, what if a broker knowingly suggested the purchase of a CDO to a customer who had never heard of them (that includes many of us before the current crisis), and was completely unaware of the difficulties to which they were subject?

    Look back a few years to the investigation by then Attorney General Eliot Spitzer into Merrill Lynch (and others) who allegedly engaged in "pump-and-dump" securities sales,touting securities to small, unsophisticated investors, urging them to buy, while, at the same time, telling their fat cat investors "this stock is ... [rhymes with a hit] and urging them to sell. Such brokers should be personally liable for damages sustained by the mushrooms, measured by the difference between the value of the stock when sold and what the investor paid for it.

    8. Why should the Federal government save some large institutions while allowing others to go bankrupt? What criteria have been used to make these decisions, apparently on a day's notice? Is "too big to
    fail" an adequate standard for government intervention?

    If it has a Jewish sounding name (like Solomon Brothers), cut it
    adrift. The government should have a facially neutral policy, not an ad hoc one.

    9. What is the total amount of mortgage debt outstanding that will not be repaid? How much of it was sold irresponsibly, with no down payment required, to people who had bad credit and no jobs? How many mortgages were sold with low interest rates for the first years, jumping to much higher rates thereafter?

    Objection as to form. this contains several questions.
    I haven't got a clue as to how much outstanding mortgage debt is out there, let alone how much will not be repaid. It's probably anybody's guess.
    Probably most, if not all, of it was sold irresponsibly.

    10. Who is responsible for the false statements that accompanied many of the mortgage applications? Did anyone rely on the information on these applications, were the banks aware of what the mortgage sales companies were doing? Some of them must have been. Should they have done due diligence on the people who were getting mortgages which they were funding directly or through a mortgage broker?

    see answer to Q 1.

    11. Why should Countrywide Financial, said to be among the worst offenders in selling worthless mortgages, escape into the sheltering arms of the Bank of America, without any penalty or sanction imposed on the officers and directors of Countrywide, who appear to have overseen, or failed to oversee (its opposite, but equally bad) the perpetration of what now appears to be massive fraud?

    I'll answer the Q with another Q:
    How much did they, or their lobbyists, contribute to the Republican Party and to whom did they make the donations?

    12. Conrad Black, Dennis Kozlowski, Bernard Ebbers, Kenneth Lay, Jeffrey Skilling and others were convicted of various crimes in
    connection with the failure of their companies. Were their convictions and sentences justified by the extent of their misconduct? Are executives in any way responsible for the bad decisions they make?
    Errors of judgment in the ordinary course of business should not be
    punished. People have the right to be wrong. But what about an
    intentional strategy which will inevitably injure others, particularly the ordinary shareholder or owner of an IRA.

    As Meg Ryan famously said in "When Harry Met Sally," "Yes. Yes. Yes."
    As for the last Q, see my answer to Q 7.

    13. After Hank Greenberg was forced out of AIG (American International Group) in 2005 by NYS Attorney General Eliot Spitzer's threats against the AIG Board, was the company that he built managed better or worse by his successors? How many billion dollars in shareholder value have been lost since he was removed? As Mark Antony said, "the evil that men do lives after them." Is that a fair statement applied to this case? You can take either side.

    Worse managed.
    I'm sure the $ number is out there, but I can't quantify it.
    I assume you're referring to Eliot Spitzer when you say: "the evil that men do lives after them."
    However, Spitzer shouldn't bear the blame for the fall of Wall Street: it would be like blaming the loss of jobs in the illicit drug industry on the narcotics cops who arrest the king pins.

    14. Would Greenberg have loaded AIG with the toxic paper the company purchased, which caused the Federal government to have lent the company $85 billion to prevent what they felt would be a worldwide financial disaster? Would he have disposed of the junk sooner than the new
    management tried to do? Was his offer to assist in the final days of the crisis worthy of consideration?

    Who knows what might have been. Isn't this Monday morning quarter

    15. Should executives of bankrupt or rescued companies receive the
    golden parachutes their boards gave them in happier days? Should limits on officers' and directors' compensation be imposed as a condition of taxpayer rescue of these companies? Why should the corporate elite benefit personally from their misjudgments, while their employees are thrown out of work or see their IRAs evaporate?

    Golden parachutes: Absolutely not!
    If the ship goes down, the captain should go down with it, not get into the first life boat, before the women and children. As a condition of taxpayer rescue, the compensation package of all high ranking officers should be renegotiated de novo.

    16. Did the Federal government, through HUD or any other agency, play a role in inducing companies to grant mortgages to people who could not afford to make the monthly payments in order to promote "equal housing opportunity" or some other social goal?

    Probably. The lenders should have quoted Nancy Reagan, and "Just say
    Someone in the banking field should have remembered the story of The Emperor's New Clothes.
    Financially, the lenders had nothing on. You can't lend $ to a person who can't reasonably be expected to pay it back, and, if you/re going to make a gift (i.e., write it off as uncollectible), then first notify the donors that this is going to be a gift from them, so they can either ratify the gift or take appropriate steps to prevent your making an unauthorized gift of their money (the "they" being either the taxpayers, depositors, or stockholders who "own" the financial institutions).

    17. Since the crisis developed over a period of years, and was widely known in banking circles, why did the Feds take no action to stop the process, or to protect anyone until major financial corporations were about to collapse?

    Self delusion. They fantasized that the bubble would keep expanding: with nary a thought about the possibility of its bursting.

    Who was responsible, the SEC, the Federal Reserve, Fannie Mae, Freddie Mac, the Administration in general, Congress, the GAO, any other acronym agencies? Was there a point person in the Federal government handling this issue? Did s/he ever issue a report, a public warning, on the

    All of the above.
    There were warnings out there. Nobody ever listened to Cassandra.

    18. Was there any elected official, Democrat or Republican, who spoke out to call attention to the growing financial crisis before it became a national disaster, injuring millions of civilians (that is, people who were not market professionals)?
    probably, I don't know who.

    19. How much have the banks, the mortgage issuers, the investment
    bankers, Fannie and Freddie et al. spent on lobbying Congress in the
    last five years? What favorable results for them can fairly be
    attributed to their lobbying efforts and the political contributions they made to individual candidates and party organizations?

    No one will ever be able to quantify that.

    20. What (if any) was the role of the 50 state governments in all this. The mortgages were bought and the properties foreclosed all over the country. Were there any state or local objections to what was going on?

    What was the attitude of the Feds to state regulation of the securities or mortgage industries? (We think we know the answer to the last question, they argued that the states were pre-empted from doing anything.)

    21. What will the next financial scandal be, and when is it likely to break?

    There will be another financial scandal.

    22. Is the subprime crisis part of the larger weakness in the economy,
    possibly caused by our transformation from a manufacturing to a service economy? Are there problems out there which we are not yet dealing

    Yes. We have to manufacture and sell widgets in order to survive
    financially. In the long run, we won't make it by relying solely on
    financial services. Anyone anywhere in the world with a computer and a modem can render the same services from a location which lets them keep their money, paying little or nothing in taxes.

    23. What will we do about our national debt, which now exceeds eight trillion dollars and is increasing by one and a half billion dollars every day, before any bailout?

    Pay it. Hopefully.

    24. What will happen if other nations stop buying and turning over our borrowings, as the banks did when they stopped lending to New York City in 1975?

    They're stuck with us, for better or for worse, in boom or in bust. If we go under, everyone else goes under. If the Chinese don't buy our government's securities, we won't be able to buy their wares, and they won't be able to fund their expansion and urbanization and military buildup, and may face angry citizens, who might actually question their government's decisions.