On my commute into the office this morning I heard of the most recent government bail-out of a private bank, CitiGroup.  This is the second second installment, at CitiGroup alone, of taxpayer dollars being used to try and fix problems the average taxpayer did not create.

While it makes some sense to put measures into place to ensure that major financial companies do not fail and collapse industries beyond the financial sectors, are we fundamentally doing the right thing by the American taxpayer?

Of course not!

photo courtesy of dalydose

Have we reached the point that our government is borrowing money to cover for haphazard and irresponsible behavior by investors and BANKS?  Why yes, yes we have.  But who started this mess?

The way I see it, here is how the snowball began rolling downhill:

• For the past 10 years or more since the tightening of regulation following the savings and loan crisis, government regulation of the U.S. financial markets has loosened significantly.
  
• Banks saw this combined with low interest rates as opportunities to increase their revenues significantly by tapping into the elusive "subprime loan" market.
  
• A increasingly credit hungry society took advantage of achieving the previously out of reach so-called "American dream" of home ownership, regardless of whether or not this made good financial sense for them at the time.  (The former "dream" is now more of a nightmare.)
  
• Banks decided they could crank up profits by closing a bunch of loans quickly and immediately selling the loans to someone else so they didn't have to keep these risky investments in-house, on their own balance sheets.
  
• Banks, unsure of exactly what was the current risk with these subprime mortgages started selling "mortgage backed securities" like hotcakes.  Investors and other banks bought them by the truckload.
  
• Ratings agencies tasked with rating the risk of these strange new investment vehicles did a rotten job rating the actual risk and kept slapping AAA ratings on everything in sight
  
• Mortgages within these investment backed securities start failing exponentially, and banks start cleverly hiding them off their balance sheets.
  
• Banks start to fail, starting with smaller players, then major banks and financial powerhouses start to fail when they can no longer hide their failing mostly-imaginary-now investments.
  
• And then....the story comes full circle....and here comes Uncle Sam to save the banks by throwing BORROWED money at the problem to buy up these toxic financial investments.

Who screwed up?  Most everyone involved screwed up in one way or another.  But who enabled this to happen?  As we have seen, given enough rope, investors and banks will hang themselves. 

Perhaps we should stop providing the rope and repeal the Gramm-Leach-Biley Act that allowed the creation of Citigroup and others? 

Hindsight aside, why did we let Lehman fail and others who made the exact same bad decisions survive?

It's time for a large helping of what everyone should have had more of all along, Fiscal Responsibility.