Join the Fool as we assess blame for this financial meltdown -- March Madness bracket style! Below is one of eight first matchups you can vote on … enjoy!   

The case for Congress, by Rich Smith
Who's to blame for this mess?


Since the financial crisis hit, U.S. taxpayers have been handed a $700 billion TARP bill and told to bail out banks "too big to fail." Well, guess who let the banks become too big?


You can read the whole sordid saga here in CAPS All-Star milpo's blog. What it boils down to is this: Decades of lobbying by Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and Deutsche Bank (NYSE:DB) culminated in the repeal of the Glass-Steagall Act in 1999, and the creation of the megabanks. Who repealed the law, and unleashed the lions?


Now that the damage is done, our housing and financial markets wrecked, what's Congress doing to fix the mess? It's serving up pork, raising taxes, and regulating the interstate sale of monkeys..

I blame Congress. So should you.

Who's not to blame? Ratings agencies. The ratings agencies did their best.

But my fellow Fool David Lee Smith tells us that the ratings agencies -- Moody's (NYSE:MCO), McGraw-Hill's (NYSE:MHP) Standard & Poor's, and Fitch -- are to blame for the mess we're in today.

According to David, they're the ones who failed to provide "in-depth and accurate analyses of the contents of mortgage-stuffed securities." Instead, they tried to apply their own time-tested models for rating corporate debt to the newfangled financial products that were coming out of Wall Street. But can you blame them?

I mean, these were totally novel products, with which the raters had no prior experience. So maybe they cut corners trying to fit polygonal pegs into round holes -- but until you try that, and fail, how do you know the polygon won't fit? The raters made their best guesses at the likelihood of MBS defaults. They guessed wrong. They'll do better next time.

The case for the ratings agencies, by David Lee Smith
In the past, I've written several articles for The Motley Fool attempting to place the blame for our housing apocalypse and the credit crunch that stemmed from it. I've named everyone from the lenders to Congress to borrowers, and even thrown in an avaricious realtor or two.

But beyond these groups, and perhaps some overzealous homebuilders -- I'm thinking of the likes of Toll Brothers and Beazer -- I'm convinced that there are other participants in this chain of events who have received minimal attention, and without whose clear incompetence housing's metastasis to the general credit arena likely wouldn't have occurred. I'm speaking here in particular of the ratings agencies, folks such as the Standard & Poor's unit of McGraw-Hill, Moody's, and Fitch Ratings.

These firms were hired by the likes of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) to bless their mortgage-backed packages, and they apparently did so with indiscriminate rubber stamps. With more diligence and professionalism on the part of the raters, what we now call "toxic" loans might have been filtered from investors' portfolios, and our current financial world would have been less afflicted than it is.

You'll recall that during his term in office, President Harry Truman adorned his office with a famous sign reading "The Buck Stops Here." So we just might want to climb high on the Washington ladder to find those most culpable for our worsening financial catastrophe.

Indeed, there are those who would hold Congress culpable for our current set of housing difficulties, and by extension our financial mess. But Congress consists of more than 500 individuals, and it's rare to get them to agree on anything. I continue to believe that the team most identifiable for not averting our current contagion can be limited to the ratings agencies, a small group who clearly didn't dig deeply enough into, or properly evaluate, the products they were examining.  

Vote now!
Now it's your turn. What do you think is more responsible for the mortgage mess: the incompetence of Congress or the incompetence of the ratings agencies? Make your pick below.

Check out the Fool’s entire 2009 March Madness bracket here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.