Congratulations, Taxpayer, On Eating That Shit Sandwich For Us:
By making information about investments as honest, comprehensive and accessible, through laws and oversight, investors could avoid the most questionable of financial junk food and thus get fat on the rest. If they did pour money into something obviously dubious, it was far easier to allow the market to do its job, and make the investments as valueless as they had appeared to be. You could easily tell it was crap before you put your money in. You lose it, it’s your loss.
These were the regulations written out of existence, or circumvented, in the years leading up to the present crisis.
Like with junk food, the companies and people doing the processing make most of the profit—making the producers (the investors) and the consumers (the borrowers) pay dearly for participation in the market—all while whining they cannot afford things like complete and honest information about what they are selling. Loan agents eventually stopped checking income, employment, the value of the property or the credit history of the borrower, because the mortgage companies stopped asking the loan agents to collect this information, because the investment banks buying up these loans stopped asking as well. The investors buying from the banks didn’t really care, as the bond agencies gave the blended investments the highest ratings. The rating agencies, increasingly deregulated, didn’t bother asking for this information either. Without it, it was impossible to predict how the loans would perform. They guessed. They were wrong.