There seems to be some appetite on BoingBoing for a more comprehensive but quick-to-grok analysis of the credit crisis and what to do about it. While "I told you so's" are fun in a sick sort of way, I'm passing on this link to my last spring's Arthur Magazine columns(if Dreamhost is still unable to meet the demand for links on that page or here, then see the whole piece in the extended post, below). I'm sharing it as a way to review the steps that led to our current fiasco, explain it in the greater context of centralized currency, and help people not feel so very terrible about it all. (I also mean to introduce you to Arthur magazine, a free coffee-shop distribution I'm proud to write for alongside folks including Erik Davis, Thurston Moore, and Peter Lamborn Wilson - who all write for free, like me.)
...Bush’s tax cuts and other measures favoring the rich led to the biggest redistribution of wealth from poor to rich in American history. The result was that the wealthy–the investment class–had more money to invest, or lend, than there were people and businesses looking to borrow.
The easiest way to bring more borrowers into the system–and to create more of a market for money–was to promote homeownership in America. This is precisely what the Bush administration did, touting home ownership as an American right. Of course, they weren’t talking about home ownership at all, but rather pushing people to borrow money tied to the value of a house. If people could be persuaded to take mortgages on homes, real estate values would go up for those already invested (like land trusts and real estate funds) and banks would have a market for the excess money they had accumulated.
In short, there was a surplus of credit in the system. Americans were encouraged to borrow in the form of mortgages, which created demand for the credit banks wanted to sell. In many cases the credit itself wasn’t even real, but leveraged off some other inflated commodity that the bank or investor may have owned.
Banks and mortgage companies invented some really shady and difficult-to-understand mortgage contracts, designed to get people to borrow more money than they could . Banks didn’t care so much about lending money to people who wouldn’t be able to pay it back, because that’s not how they were going to earn their money, anyway. They provided the money for mortgage companies to lend, and in return won the rights to underwrite the loans when they were packaged and sold to other people and institutions.