2) Lenders would not have made the loans if they could not resell them so securitization of bad loans was indeed a BIG problem although not the root cause of this entire mess.

The root cause is bankers having an air of infallibility knowing that no matter how badly they screw up Uncle Sam will bail them out at the expense of everyone else. Hopefully this is the thesis of your book otherwise you should have picked a different title.

Amazing how often these little “box-diagram leaders” at the top forget the most important step for turning their fancy diagrams into something that works; a top-to-buttom incentive analysis.

grumpyoldvet; kstills:

The institutions subject to CRA did much less of the stupid loans than those mortgage institutions that where not “forced” to make loans to poor people (and that is a documented fact). You can make responsible loans to poor people and irresponsible loans to middle class and rich people. The issue is not how much money the borrower has, it is whether you let people borrow more than they can be expected to pay back.

kstills; By the way you are completey wrong; the only effective counter to the motivator of greed is fear. So you need very upleasant consequences for those who’s greed drive them to do things that have bad consequences for other people or society as a whole. So society needs to make laws (also called regulations) that prohibit such bad behaviour and severly punish those who violate those laws/regulations. Anything over a billon should automatically give you 30 years with a cell-mate called Brian (or Bruce) who is > 6 feet and >250 lb. and although not bright very “sexual”. Funny how those who are not poor think that government “regulation” of “armed self service” at businesses is great and should be kept, but the “regulations” that may prevent them and their middle/upper class friends from robbing others blind “will never work”.

The idea that somehow if there is no backstop of the consequences of taking risk then people will not take risk is absurd and counter to everything we have observed in the last decade. People took huge risks and lost huge sums of money, the fact that a few of them had some of their loss limited by government intervention did not play a role in them taking the risk, because at the time they did, they could not have predicted who the government would come and save from completely loosing everything.

The biggie was the GI Bill of 1944, which provided guaranteed zero down mortgages for WW II veterans.

Garn-St Germain Act (1982) permitted ARMs.

Notable for not passing: Zero Downpayment Act of 2004, provided FHA guaranties for zero-down mortgages. Oddly enough, was supported by NAR and home builders across the land.

Wouldn’t mind that a bit. I have to walk 2 miles for a decent cup of coffee in my neighborhood but can’t spit without hitting a bank (which I don’t do, since I am a lady).

I can’t wait for the hedgehogs to come out with the “…but banks holding onto these products were the cause of their collapse…”

This blog is simply “too GOOD to fail”

When greed gets out of control in any asset class someone is going to take the fall. The real sin is the rest of us being forced into bailing out the financial industry. My trust in the banks has been completely destroyed, and I will never ever deal with one again, at least by choice.