PrairieSeasons Loc: Red River of the North

She did, and she also established quotas for banks on these loans.

The two direct problems causing the housing crisis of the past five years were overvaluation and inability to pay.

The overvaluation occurred because so many people wanted a piece of the "American dream" that they bid up the prices believing that those prices would continue to go up and they could sell at a profit later. The people could only bid up the prices because of free (or at least cheap) money.

The Community Reinvestment Act as it was applied forced banks to issue mortgages to people who couldn't prove their ability to pay it back. I have to believe most of the people applying for these mortgages realized that themselves, but thought they could sell the house for more so it was not a problem.

The banks certainly realized that the mortgages couldn't be repaid, so they bundled them together and sold them as investments to individuals and retirement funds.

The banks did this out of self preservation, not intent to deceive (at least initially).

When the house of cards started to topple over the Democrats were quick to place the blame on those evil banks for selling these "toxic assets", and the press was quick to repeat that message.

Neither the politicians nor the press were willing to talk about why the banks did it.

BW326 Loc: Boynton Beach, Florida

Not to put too fine a point on it, but if the banks realized they couldn't be repaid and that is the reason they bundled them as investment instrument in the first place.... it appears there was an 'a priori' intent to deceive.

PrairieSeasons Loc: Red River of the North

It certainly was. Barney Frank and Janet Reno et al said in no uncertain terms "grant these mortgages". The banks complied and then did whatever necessary to protect themselves.

BW326 Loc: Boynton Beach, Florida

So it was all just merely self defense on the part of the banks. Now understand. They were the victims. Fortunately for them they found a way to make billions on the deal so that should ease their pain a little bit. We need to pass some type of 'Stand-Your-Ground' legislation so that in the future the giant banks (aka 'Masters of the Universe') won't be so intimidated by the Barney Franks and Janet Renos of this world.

PrairieSeasons Loc: Red River of the North

I didn't say they were victims, nor do I believe that they were victims. They were run by rational people who realized that if they complied with the requirements set forth by Washington they would lose money. Probably enough money that they would go broke. So they found a way out of their dilemma that passed the risk on to others (investors initially and finally the taxpayers at large).

The root cause was politicians pandering to the public without contemplating the eventual consequences.

Easy money led to inflated prices. Inflated prices led to easy money (second mortgages) and the belief that prices would continue to inflate. The warning signs were there for anyone to see, we just chose not to see until it was too late.

Would you like to watch a very similar thing happening again right in front of our eyes? Student loans will be the next crisis and fundamentally it won't look much different than the mortgage loan crisis looked. And it will have had the same underlying causes - large quantities of cheap money leading to increasing college costs leading to unaffordable and unsupportable debt leading to the goobermint needing to bail out Sallie Mae.

BW326 Loc: Boynton Beach, Florida

You actually make a very good case. There is definitely enough blame to go around but in the end, I have to agree with your conclusion. It was a short sighted, political solution to a problem. And just to show that I'm a good sport, I'll call it what it was, "a liberal, knee jerk reaction".

PrairieSeasons Loc: Red River of the North

Rats!! You're spoiling my fun - I wanted to keep arguing. Where's Croce when we really need him?

BW326 Loc: Boynton Beach, Florida

He's got to be around here somewhere.

Croce! Croce. What's your 20?