Errors in the Crisis

I have discussed in previous blogs the problems and causes of the financial crisis. I keep finding more to learn about. The article below talks about errors with the crisis:

http://www.nytimes.com/2009/01/25/business/economy/25view.html?ref=business

People are wondering how the crisis happened and why we didn't learn from mistakes in the past. Risk management is supposed to prevent past problems from occurring again. I think as I stated before, however, that people don't think bad things will happen to them. We think of the Great Depression as a mistake of the past that could not possibly happen again. Risk management needs to investigate the causes of the crisis to implement preventative measures.

One of the problems mentioned involves mortgages and foreclosures. The government has not helped prevent foreclosures. More money keeps being lost, jobs have been lost, and people cannot pay for their homes. As discussed in class, most people have all their value and investments in their home. This was a point brought up to refute the CAPM assumption that people have well diversified portfolios. Most people's most expensive asset is their home. But what people don't realize is that when they keep taking out mortgage loans on their house, the house is decreasing in value. Then they are increasing their risk of loss. This article below shares personal experiences of many people who are losing their homes. I don't understand how having a lot of empty houses that just sit there unkempt and rotting helps the financial situation. Kicking people out of their homes and having nothing better to do with the houses does not help. At least when the people live in the houses the house receives some upkeep and the bank receives some money.

http://www.nytimes.com/2007/09/02/business/yourmoney/02village.html?scp=3&sq=mortgage%20crisis&st=Search

Another problem talks about governmental aid, which I think was used improperly and perhaps carelessly and thoughtlessly. The former treasurer used the money to bail out companies who asked not having an agenda to help the companies that could help the overall economy by improving themselves. For instance, the porn industry asked for money from the TARP. What good would helping the porn industry do for the overall economy? Do people really need porn? I don't think helping them would encourage enough commerce to improve purchasing and buying powers. The money was spent so quickly that now with the new Obama administration not much money is left to be spent to help. Here is an article about the Troubled Asset Relief Program so we know how the money has been spent:

http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/bailout_plan/index.html