*SIGH* Comments inline.

>>>suddenly bad loan practices were not merely legal but mandated and backed by the full weight of the Federal government.
>>>
>>>That's a stretch. Government set targets, they didn't tell bankers to sell shonky mortgages and disguise them using CDS.
>>
>>Perhaps you're not aware of the whole history.
>>The "shonky" mortgages were brought about by shakedowns of local banks by activist groups under the guise of "housing discrimination". Armed with manipulated data acquired through lending disclosure provisions of the Financial Institutions Reform Recovery and Enforcement Act, these groups engaged in disruptive behavior towards lending institutions from sit-ins to lawsuits. So aggressive were the tactics that they gained national media attention and drew many banks to settle either through cash payments of relaxation of lending standards. At this point the sub-prime lending was limited primarily to local lending institutions. That all changed in 1998 when HUD Secretary Cuomo changed the mandate of Freddie/Fannie to take on more subprime loans. They then packaged them and sold them as mortgage-backed securities. This decision along with the removal of the barrier between investment and lending institutions allowed sub-prime and other creative loans to explode. Of course even at this point the damage could've been contained as the holders of the loans still had to retain the capital to back them. Enter CDS to mitigate those risks and attach a triple-A credit rating to them. Resulting in even more bad loans.
>>
>>Sub-Prime history - http://www.ibdeditorials.com/IBDArticles.aspx?id=310173877357981
>>Glass-Steagall history - http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
>>Fannie Mae Eases requirements - http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1
>>
>>>If the targets weren't achievable without chicanery then the bankers should have said so. Instead they commenced deceptive behavior far beyond any reasonable response to targets that seem more of an excuse than a reason for the exaggerated use of instruments to sell mortgages to people who couldn't possibly service them. Why would any government want that?
>>
>>Why? Power! The government is made up of politicians. Politicians crave power and achieve it by getting eleced which requires money. Check out the political donations over the years from AIG, Fannie, Freddie, Countrywide, Lehman, etc. The corruption cuts through both parties and is not limited to the US.
>>
>>>As always, you have to ask "who has the motive." Obviously it was a bad deal for mortgagees who could not service their mortgage and so lost everything. Since they are the very voters who the targets were supposed to assist, that's a bad deal for Government too. Meanwhile bankers made lots of profit and mega-bonuses for doing it. So who has the motive?
>>
>>The "voters" are being led by their herders towards blaming everyone involved except the politicians and activists who started it all. In addition, many of the politicians involved are still in power and still collecting from the very entities which started the process. Some are even showing brazen hypocrisy by demanding hearings to get to the bottom of the crisis. They've got motive up the wazoo! Power!
>
>And some counterpoints...
>http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html

The changes to F/F's mandate did not require banks to make bad loans but they heavily rewarded them by removing the risk. This entry ignores that by rhetorically asking a laundry list of disingenuous questions.

>and
>http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/

The CRA in and of itself is not to blame for the current problems, after all it had no teeth. I do blame what it led to which is the shakedown of banks and changes to time-honored lending practices which were rewarded by the federally imposed mandate upon a pseudo-private entity, backed by the full power of the federal government.

>http://www.slate.com/id/2201641

I do not share the opinion that minority homeowners are to blame.

>http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

see above.

>I generally agree with Mark Thoma's interpretation here:
>http://economistsview.typepad.com/economistsview/2009/03/whos-the-villain-in-the-crisis.html

"Was it greedy CEOs, Greenspan and the Fed, lying homeowners, real estate agents with bad incentives, Chinese savers, the ratings agencies, the quants, the economists who didn't see it coming, the regulators who failed to regulate, is there a single, predominate cause?"

Where the hell are politicians in this list? Not even mentioned? Sheesh!

>In addition to the incentive problems he discusses, I think every link in that chain, except the sucker who finally bought the MBSs,
>thought they had passed the risk on to the next link in the chain.
>
>Update: this guy argues against the 'greater fool' theory, But I still think it was part of the equation, especially at the lower end of the chain.
>http://www.voxeu.org/index.php?q=node/3287

Maybe I should try a different approach.
Someone please explain to me how if Glass-Steagall remains in place and F/F do not increase their purchasing of sub-prime loans, how the housing buildup happens.