Lots of blame to go around for crisis

WASHINGTON - Who's to blame for the financial and housing crisis?

The government should have done more - or did it do too much? Alan Greenspan encouraged a housing boom that was destined to collapse. The White House and Congress were lax in overseeing the captains of finance.

People bought homes they couldn't afford. Investors eagerly bought mortgage-backed securities they didn't understand. Human nature was a guiding force in markets that were first driven by greed and then shaken by fear.

It turns out there's lots of blame to go around for the spreading financial crisis that yesterday claimed Merrill Lynch & Co. Inc. and Lehman Bros. Holdings Inc. and has American International Group Inc., the world's largest insurance company, grasping for cash.

Some seeds of the current crisis were planted in the late 1990s, when Congress and President Bill Clinton reshaped the financial landscape. They removed Depression-era barriers between commercial banks and investment firms and allowed the creation of financial behemoths where, years later, the risks of underwriting risky subprime mortgages were somewhat hidden.

Jim Leach, an Iowan who was chairman of the House Banking Committee when Congress enacted the overhaul, said he believed the current problems stemmed mostly from lawmakers' unwillingness to more closely regulate either the mortgage giants Fannie Mae and Freddie Mac or investment banks.

That has led to a proliferation of "new Wall Street instruments that came to be sliced and diced to the advantage of short-term profit-taking, but long-term liabilities," Leach said in an interview. "Wall Street became better at sales than at financial judgment."

The problem will end up in the laps of the new president and the next Congress. Proposals are afoot in both parties to clamp down with new regulations.