How Washington Enabled a Financial Crisis

Barry Ritholtz writes a satirical Op-ed for Barron’s Magazine, thanking the Government for enabling Wall Street, helping them create this financial crisis. In his piece, Barry includes the failure of Congress to protect honest appraisers.

The article starts:

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

But here’s a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

The article continues citing one specific area Washington failed to act that relates to appraisers:

2005-’07: Unscrupulous home appraisers found that they could attract more business by inflating appraisals. Intrinsic value was ignored, so referrals kept coming in. This helped borrowers obtain financing at prices that were increasingly unsupportable. When honest appraisers petitioned both Congress and the bureaucracy to intervene in the widespread fraud, neither branch of government acted.

I would only quibble with the statement that unscrupulous appraisers thought they could “attract more business”. I think it was much more dire than that. He should have said, “for many appraisers the only way to stay in business was to inflate appraisals”.

-Justin Morton
Manager of Appraisal Specialties

  1. Ronald Keeler

    I response to the comment “for many appraisers the only way to stay in business was to inflate appraisals”, if that was the case, then then those appraisers should have found another line of work. But greed compelled those appraisers to compromise their values. No one can force an appraiser to write a report that is misleading or deceptive. A decision was made to compromise values in those cases and the fault lies squarely on the shoulders of those that made that decision. But, let’s not forget the pressure that congress brought on all phases of the industry to make mortgage loans to people who were not qualified to get those loans, all under the guise that its honorable to put everyone in a house because housing is the foundation of our society. Well, now the foundation is comprised of faulty materials (people who cannot make mortgge payments), they couldn’t make their payments before they got a mortgage. Why do we belienve they would make their payments after they were granted a loan? Would those congresspeople have lent their own money to these unqualified borowers? I think not. But the public trough is a big pot, so who cares? Certainly not the congressional banking committees who make the rules and impose those rules on the regulators, bankers and yes, appraisers. Then the congresspeople look around and say, Who, us? They caused the collapse of the Savings and Loan industry in 1986 because they were going to punish the rich, Well their irresponsible actions punished the whole nation for several years, Now they are back at it again. Shame on the nation for keeping these people in power term after term. Enough said.