House of Cards

The House of Cards is a CNBC documentary about the greatest financial crisis in the United States since the Great Depression. If you didn’t get a chance to see this program, the trailer is below.

As mentioned in the post Milton Friedman on Greed, this is part of a new series of posts dealing with the free market system.

In this program, correspondent David Faber:

. . . reveals how a financial house of cards was slowly built following the 9/11 attacks. As the U.S. government tried to revive the economy by repeatedly dropping interest rates, families lunged at the opportunity to refinance their mortgages. Faber introduces viewers to mortgage lenders like Daniel Sadek who drastically reduced borrowers’ credit requirements and raked in personal profits of $5 million a month.

Wall Street began to consume risky mortgages and turn them into products they could sell to hungry foreign investors. Banker Michael Francis tells Faber that no matter how risky the package, during the peak of the lending frenzy any mortgage-backed security could find a home on Wall Street.

Exploring just how far the effect of the credit crisis extended, Faber travels to Narvik, Norway, a town far above the Arctic Circle that was convinced it could solve its budget problems by investing in Wall Street’s wares. Mayor Karen Kuvaas and Narvik’s other town leaders hoped to become “great heroes” by reaping the income from financial ventures they believed were safe.¹

I especially enjoyed Alan Greenspan’s comments. In this video he “defends decisions he made that critics say laid the groundwork for the crisis. Greenspan also admits that even he did not understand the details of the more complex securities on the market.”²

In 2004, in the midst of the housing boom, President George Bush had a chance to do a little bragging in his State of the Union Address.“This economy is strong and growing stronger,” he said, to applause in the House chamber. “New home construction (is at) the highest in almost 20 years. Homeownership rates (are at) the highest ever.” Just one month later, then-Federal Reserve Chairman Alan Greenspan encouraged the mortgage industry to come up with new kinds of loans — so even more people could buy homes. “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan recommended in a speech to the Credit Union National Association.³

Those are rather telling statements from the former Chairman of the Board of Governors of the Federal Reserve System. How much confidence should we have in our elected leaders – let alone their appointments? If you’ve been reading this blog, then you already know that there are quite a few appointed economists with pseudo-knowledge. Perhaps that’s how they got appointed in the first place. . .

Enjoy the teaser to the House of Cards!

Sources:

1. Dauble, Jennifer. “CNBC Original Documentary ‘House of Cards’ Uncovers the Reasons Behind the Greatest Financial Collapse Since the Great Depression”. 2 February 2009. CNBC. 3 April 2009.↩
2. Ibid.↩
3. Jacoby, James and Jill Landes. “CNBC Special Report: House of Cards“. 13 February 2009. MSNBC. 3 April 2009.↩

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• Milton Friedman on Greed
• Great Depression and Current Recession Compared
• Federal Reserve and the Constitution
• Introduction to Socialism vs Capitalism
• Crisis and Laissez Faire