The fact is that many parties are to blame for the current financial crisis, and it is not due solely to the failures of either major political party. In fact, some of the causes are not even related to acts by politicians at all. The major culprits of the financial crisis are presented below.

(1) The Community Reinvestment Act was initially signed into law in 1977 under Jimmy Carter. This law required banks to stop discriminatory lending practices based on the relative wealth or poverty of a particular neighborhood. Prior to this law, banks frequently denied mortgages for homes that were located in neighborhoods that were determined low income or middle class. While various revisions to the law were made by Republican presidents (Ronald Reagan and George H.W. Bush), the most significant changes came under the Clinton administration and the Republican controlled Congress in 1999. These changes enhanced regulatory oversight while also ensuring that lending practices were made based on ability to pay rather than the location of a neighborhood. While this law, including the various revisions thereto, has helped to revitalize many previously deterioration neighborhoods, it has also forced banks to increase the amount of risk they are willing to accept by offering mortgages to the low and middle class. This push to make mortgages available to the lower class was further supported by the George W. Bush administration. For example, he pushed for a plan that would create vouchers that would permit the use of section 8 funding to be used for down payments on the purchase of a home, and he worked with lenders to initiate this plan.

(2) The Gramm-Leach-Bliley Act, which was passed and enacted in 1999, is the law that created what is commonly referred to as banking deregulation. This law was initiated in the Senate, sponsored by Sen. Phil Gramm [R-TX]. It passed the Senate largely on party lines, with Republicans voting for it and Democrats voting against it. After being revised to ensure continued compliance with the Community Reinvestment Act, it passed the House of Representatives with bipartisan support from Republicans and Democrats, with the majority of the opposition coming from the Democrats. Both the Senate and the House of Representatives were controlled by Republicans at this time. It was signed into law by President Bill Clinton, a Democrat. The law repealed significant portions of the Glass-Steagall Act and the Bank Holding Company Act. The Glass-Steagall Act prevented banks from owning other types of financial companies, such as investment banks and securities firms. The Bank Holding Company Act primarily prevented banks from acquiring other banks that were headquartered in another state, and it further prevented banks from acquiring other types of financial companies. When the Gramm-Leach-Bliley Act repealed portions of the Glass-Steagall Act and the Bank Holding Company Act, it permitted banks to acquire various types of financial companies. This took banks' priorities away from focusing on primarily holding customer deposits and making relatively small loans to focusing on managing risky investments. In essence, before the Gramm-Leach-Bliley Act, banks in which you deposited your money were focusing on protecting your deposit and using a portion of those deposits to make loans. After the Gramm-Leach-Bliley Act, banks began to shift their focus to riskier investments and various other financial businesses, which in turn made banks more susceptible to failure.

(3) Failure to regulate Fannie Mae and Freddie Mac has clearly resulted in a deepening of the financial crisis. A bill was introduced in January 2005, sponsored by Senator Charles Hagel, a Republican. The bill was defeated in committee in July of 2005, primarily due to opposition by Democratic senators Chuck Schumer and Chris Dodd, who claimed that the two entities were structurally sound. It was later uncovered that these senators, along with various other parties including Barak Obama and various lobbyists, were receiving funds from the Fannie and Freddie PAC. Other parties receiving these funds included a lobbying firm by the name of Davis Manafort. Rick Davis, a partner with that firm, was a lobbyist for Fannie Mae and Freddie Mac, although it has been widely reported that he has not received any such funds since becoming John McCain's campaign manager in 2007. John McCain, however, became a sponsor for this bill in May 2006. Regardless, even if this bill had been passed in 2005 or 2006, it likely would not have changed a whole lot due to the fact that Fannie Mae and Freddie Mac had already purchased a very large amount of sub prime mortgages.

(4) Unregulated derivatives markets, specifically credit default swaps, have encouraged banks to excessively rely on derivative financial instruments in order to hedge risk created by loans. In effect, banks have been enabled to issue loans with a high degree of risk and pass that risk on to other financial institutions, primarily in the form of credit default swaps. A credit default swap is a contractual arrangement in which one entity makes a series of payments to another entity in exchange for the right to receive payment in the event that a loan defaults. Essentially, a credit default swap is insurance to the bank that protects them in the event of a customer defaulting on a loan. In the current financial crisis, excessive reliance on credit default swaps has negated the risk aversion offered by these instruments, and in fact, has added tremendous amounts of additional risk to financial institutions. For instance, the current exposure to outstanding credit default swaps is approximately $55 trillion. AIG, the mega-sized insurance company that failed recently, was the counterparty to a significant amount of credit default swaps in the amount of approximately $44 billion. As borrowers began defaulting on their mortgages and businesses began defaulting on their loans, AIG was forced to meet obligations under credit default swaps to reimburse banks for their losses. In effect, the banks had eliminated their exposure to credit risk and put it on the insurance companies. In theory, this is a relatively sound approach to risk aversion, however, in the event of a simultaneous instance of massive loan defaults, credit default swaps place an excessive burden on parties other than those that created the risk in the first place.

Credit default swaps can also have a very strong impact on a company's stock price. For instance, banks generally use credit default swaps to insure debt issued to companies. If a company's credit rating moves, the value of their credit default swaps move in an inverse direction. As investors see the value of a company's credit default swaps move, they see this as a negative sign and begin to sell that company's stock. In turn, this drives the company's stock price down even further. Furthermore, stock prices of financial institutions participating in credit default swap agreements suffer from additional stock price volatility. This is due to the fact that certain complexities of credit default swaps prevent them from effectively hedging the risk of the underlying debt, and the result is that their profits become extremely volatile as the values of the swaps fluctuate. Various other derivative financial instruments also created tremendous volatility in stock prices, including put options, short sells of stock, and a host of other varieties of derivative contracts.

The Commodity Futures Modernization Act of 2000 was sponsored by Rep. Thomas Ewing [R-IL], Rep. Bill Barrett [R-NE], Rep. Saxby Chambliss [R-GA] and Rep. Gilbert Gutknecht [R-MN]. This bill was finally passed by reference in the Consolidated Appropriations Act of 2001, which was sponsored by Rep. John Porter [R-IL]. This law was passed in a Republican controlled Congress, largely on party lines with Republicans primarily voting for it and Democrats primarily voting against both in the House of Representatives and in the Senate. The bill was signed into law by President Clinton, a Democrat. This law explicitly prohibited Congress from regulating many types of derivative financial instruments, including credit default swaps. Proper regulation of these financial instruments very likely would have prevented banks for relying on them to the level that they did, which in turn would have discouraged banks from making so many high risk loans to homebuyers and businesses.

(5) Mortgage backed securities are created when one bank purchases outstanding mortgage loans from another bank, assembles them into pools, and then sells securities that allow the purchaser of that security to receive a portion of the principal and interest payments made on the loans that comprise the underlying pool of mortgages. Mortgage backed securities have been used for quite some time, although usage became much more common over the last several years. This results in two things. First, mortgage backed securities enable banks to make more risky loans because that risk will be passed off to various other entities when the loan is packaged into a mortgage backed security. Second, mortgage backed securities spread the risk from one entity to a vast array of other entities, which means that if a loan defaults, it does not only affect the bank that issued the loan. A default on a single loan now affects a vast array of other banks, making the credit default risk quite systemic. One major problem with mortgage backed securities is that when they are first issued, credit ratings agencies rate these securities with a triple-A rating, a rating given to the most secure investments. However, in reality, these securities frequently are not deserving of a triple-A rating because they are often comprised of loans that are already in default. There has been no legislation introduced to change the practice of rating these securities, and until such regulation is passed, there is no guaranteed method for purchasers to determine their fair value.

(6) Overdevelopment has led to an excessive surplus of newly constructed homes. For instance, nationwide the current inventory of homes for sale exceeds 5 million, while Edward Glaeser, a Harvard economist, estimates that there is an actual surplus of homes for sale in excess of 1 million. This surplus of homes for sale, primarily caused by overdevelopment in certain regions of the country have caused home sales to decline to a point where it has prevented many homeowners from either selling their homes or refinancing their mortgages.

(7) Increased mortgage interest rates between 2002 and 2007 contributed to the crisis in several ways. First, as interest rates rose, potential homebuyers became less likely to buy homes, which helped contribute to the surplus of homes for sale. Additionally, many homeowners purchased homes over the last decade using adjustable rate mortgages (ARM's). As the initial fixed rate period expired and the ARM's began to adjust to prevailing market interest rates, many homeowners began to default on their mortages because declines in the value of their homes prevented them from selling or refinancing their mortgages. In turn, this led to a rapid increase in the rate of foreclosures, which ultimately began the current financial crisis.

(8) The increase in gas prices over the last four years, and primarily during the past year, tightened consumer spending which in turn amplified many of the recessionary factors that were beginning to develop.

(9) From greed on the part of executives, investors, lenders and everyone in between, to panic by many players, to simple mistakes, to unrealistic expectations, to bad decisions on the part of homebuyers, the human factor has played a major part in everything that is going on today. Of particular note is the lack of judgement by many players of the various financial institutions that decided to participate in the over-extension of credit to high risk individuals and businesses and pass that risk off to third parties through the use of various financial instruments. This is prima facie evidence that pure forms of free enterprise will rarely succeed in a robust market.

While other factors can be blamed for the current financial crisis, these are the primary causes. There is not one single root cause, but rather, a compilation of various issues that have amplified each other to cause the financial crisis that we are experiencing today. As you can see, there are many groups to blame, some politicians, some not. As far as politicians go, the responsibility is shared between both Republicans and Democrats.