Also, I thought one key cause was that the lenders had a greatly reduced incentive to make wise loans, because of the ease of selling the bundled loans. There was much more money to be made in making lots of loans, even with little chance of being repaid, and in fact the loan-makers had incentive to polish the turds (pardon my language) to make them more sellable. Lack of regulation and enforcement fostered a lax atmosphere.
Maybe I have it wrong about where in the selling cycle this was a new change, but have I got that partly right? Because it seems the politicians are to blame insofar as they permitted or encouraged lax oversight, and deregulated, as in the example by Gramm:
Gramm's piece de resistance came on Dec. 15, 2000, when he slipped into an omnibus spending bill a provision called the Commodity Futures Modernization Act (CFMA), which prohibited any governmental regulation of credit default swaps, those insurance policies covering losses on securities in the event they went belly up. As the housing bubble ballooned, the face value of those swaps rose to a tidy $62 trillion. And as the housing bubble burst, those swaps became a massive pile of worthless paper, because no government agency had required the banks to set aside money to back them up.
That's playing an ACTIVE role in the current disaster!
