For the last time, this isn't just about Wall Street!

I'm going to puke if I hear the phrase "Wall Street bailout" uttered one more time. Ooops, just puked, I guess somebody, somewhere just said it again. Why? Because people around the US still seem to believe that this is a bailout that "helps Wall Street, even after Wall Street destroyed our economy."

There's two parts to this, and in this blog I'm going to cover Wall Street destroying our economy. Did Wall Street play a part in what is going on? Sure! But there's no way that any of this could have happened without the help of good ol' Main Street.

Oh no Average Joe, you're not going to say something bad about the good, hard working people on Main Street, are you?

You bet I am.

Look, I don't have anything against Main Street -- heck, I'm part of Main Street and I'm getting nothing but lumps from what's going on right now. But at the core of all of the problems -- which has already been pretty well hammered home -- is the demise of waves of mortgage loans, subprime and not.

What Wall Street did was complicated, but the problems that it created are relatively simple. They took mortgage loans, packaged them into securitized vehicles, and sold them off to third party investors. This allowed lending banks to lend more because the securitizations took loans off of their books, and it also made investors more inclined to dip their toes into riskier credit profiles because they believed that the securitization vehicles were priced and structured such that they would still deliver acceptable returns.

Unfortunately, Wall Street used faulty assumptions -- like that the real estate market doesn't go down -- and so when the supposedly unthinkable started to happen, the value of all these securitized securities (most of us know them as MBSs, CDOs, etc) tanked. This caused cascading problems because many of these securities were rated very highly and therefore treated as gold by many banks, insurance companies, etc. The end result, among other things, is the credit lock-up that everyone is so scared of right now.

That's a very very brief overview of Wall Street's hand in this mess, but I certainly didn't want to ignore their handiwork. Now on to Main Street.

This is even simpler. If the core of the problem here is defaulting mortgages then we've got a heck of a lot of people out there that took out loans (which, remember, are agreements to pay back a certain amount of money) and decided not to pay them back. Easy as that. Now this is where the staunch defenders of Main Street come in with vehement arguments, so let's take a look at a few of them:

1) "But there was predatory lending!" -- I fully accept that there were lenders out there that were out and out fraudulent and hid details of the loans from people. But let's think about the scope of this mess and consider whether we really believe that there was really that much fraud out there. Without solid proof I'm very skeptical of that many predatory loans being foisted on people. In fact, I'll go ahead and give you 5% of the defaulting loans over the past couple years as predatory and fraudulent -- I think that's a pretty high percentage, but that still leaves 95% that we have to explain.

2) "People didn't understand the terms of the loan!" -- This argument just makes me shake my head. I think about the amount of research the average Joe Sixpack will do when trying to figure out what TV to buy and I wonder why we don't expect a commensurate amount of proactive research out of Joe Sixpack when he's looking to take out a loan for, say, $200,000. If you don't fully understand what you're signing your name to, why in the world would you borrow that kind of money??

3) "The mortgage brokers misled the buyers!" -- Fraud notwithstanding (see above for fraud), the mortgage brokers are salespeople. I'm not saying that they should be holding back information, but at the end of the day their job is to sell a loan to the home buyer, not make sure that the home buyer is getting the best deal possible. Referring back to #2, how many of those Joe Sixpack TV buyers implicitly trust the Best Buy salesmen? Yet they seem to expect that mortgage brokers are the guardians of their best interests.

I could go on, but I think you get the point. The bottom line is that I think we're overlooking the whole concept of personal responsibility when it comes to people taking out these huge loans. And when we talk about buying up faltering mortgage loans and renegotiating them with the home owner -- I mean, come on, talk about moral hazard!

Forgive me if this seems one-sided -- I do fully believe that most of the people that are defaulting should never have been given the money in the first place, let alone at the terms they got it on. But I think that when we're talking about the ingredients for the current mess it's a big mistake to leave the borrowers out of the equation, and that's exactly what has happened. Give Joe Sixpack a free ride and you're basically telling him that it's OK to take out a loan and then blame the lender when you realize that you got yourself in over your head.

Will the rhetoric change? Not a chance. During an election year (and really, what isn't an election year?) there's no way your going to hear anyone from the government scold the normal, everyday, hard working Americans. When they're getting ready to hit the voting booth, they can do no wrong!

So I'll keep cringing at the characterization of the current economic mess, but at least I've logged my protest. Am I selling out my fellow average Joes? I don't think so, I think I'm just asking for the best out of them. I think we can be a country that lives to a higher standard, and that means owning up to mistakes all around.

-AvgJoe