Last night I watched the CNBC documentary, House of Cards, presented by David Faber. I wanted to see if, after extensive research, Faber would identify the real source of the building material for the financial “House of Cards.” What I saw did not surprise me.
I think that Faber did a good job of portraying many of the activities involved in the crash of the real estate mortgage market. He also followed the trail from the mortgage origination to their bundling in mortgage back securities.
Viewers of this show might leave with a better understanding of the mechanics of this market. But, would they really have a better understanding of the root cause of this crisis?
The metaphor of the house of cards fits the situation quite nicely because the structure of this market did not have the strength to maintain the staggering growth rate. But, even when building a house of cards the builders must have a supply of the building material. If this building had run out of building material, the builders would not have completed the unsound structure.
So, if not cards (of course), what material did these builders use to construct this doomed structure?
Money. Without the continual artificial expansion of the supply of money the mess would have never occurred. Lenders would have had a stricter limit on the amount of loans they could make. Buyers, conversely, would have had few opportunities to borrow money they could not repay. With less money available buyers would not have bid house prices to ridiculous levels. And without this artificially stimulated volume of mortgage money securities backed by mortgages would have had a much smaller market.
Does that mean we should all point our fingers at Ben Bernanke or Alan Greenspan? Or should we pick on the bankers who made these loans?
No. To continue the building material metaphor, the problem rests with the factory that manufactures the building materials, not the various managers. The factory consists of the reserve banking system. As long as someone has the capacity to manufacture money the economy will continue to suffer these ups and downs.
Quit trying to find someone to blame. Shut down the “card factory.” Terminate the reserve banking system.