[aaronklein]

That's just not accurate.

Go look at government-backed Fannie and Freddie and what they did in partnership with their cronies like Angelo Mozilo at Countrywide Home Loans.

Big Business and Big Government have formed a cartel to make money off each other. And that is exactly what led to the Great Recession.

[mdda]

Your article had a lot more credibility before you came up with this comment : The vast majority of RMBS and CDO-of-RMBS losses have nothing to do with the government.

Your story would have been even better if you included the necessary element of how the repayment characteristics of selling beer to unemployed people on credit were better than the interest rate they would pay. Because, as a foundation to these securities, the banks (based on flawed rating agency analysis) believed that the subprime mortgages would pay back.

If the banks had had a better understanding of how past performance (subprime mortgage payers in the 1990s) was no indicator of the future (people in 2005 buying investment properties to flip, based on the theory that property prices would increase at 4% p.a. forever), then they would have lost so much money that they required bailing out.

The major post-crash failure of government (IMHO) is that they didn't take large equity stakes in the banks, and prevent them from making obnoxious bonus announcements.

[fanboy123]

freddie and fannie started issuing "subprime" loans in the 90s, to lower income and minority borrowers with reasonable default rates. by the time the boom came around their marketshare in this market plummeted because everybody else dropped their standards (the garbage was to be somebody elses problem anyways) and their marketshare dropped. the growth in subprime during the bubble period had little to do with them.

they are currently the garbage bilge where junk loans are deposited, but that is by design to protect housing prices.

they were not a huge area of growth when housing overheated, subprime or otherwise.

[yummyfajitas]

the garbage was to be somebody elses problem

Simply false. The garbage was usually your own problem, the AAA tranch was sold to someone else. This is what took down Lehman, for example. BNC Mortgage (owned by Lehman) made bad loans, Lehman sold off the AAA tranches while holding the riskier tranches for themselves.

[fanboy123]

Originators underwrote the mortgages who usually sold them to banks who packaged them into bonds. Later on to streamline this process the banks bought mortgage originators (lehman bought bnc) because their appetite for product was huge.

But originally the loans were passed onto somebody else (and most private label issuance by notional balance was in fact not held by either originator nor the underwriter/ibank). It was a method of breaking out credit risk (the borrower risk was separated from originator risk) and seen as a feature. Really it was the whole point of securitization -- to get bankruptcy remoteness for credit products.

Originate to securatize is now seen as a problem because it does not give the originator an incentive to make good, proper loans (which is already tough to do). We dont know if credit standards and checking would have become so lax without the securtization machine during 1998-2007 but it seems unlikely.

[enjo]

Just to be clear. I think you're arguing that it was failures in both policies (government backed loan programs that made money cheap) and oversight (no one was properly overseeing the whole mess).

If that's what your saying.. I would completely agree. There were so many moving parts in this and we needed ALL of them to fail for catastrophe.

All of them did.