Quote:
Originally Posted by spence
The problem was that the risk was so obfuscated nobody really understood what was a good loan and what was a bad loan. I don't think for a second the market bet on this scheme because they thought the Government would back them up, quite simply, they never thought the housing market would fail and the money was too good to be true.
Had there been less government regulation the problem would likely be even worse. We don't have a barter and trade system...our markets rely on paper and credit. i.e. you can't have it both ways...
-spence
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It just seems that the obfuscated system, didn't appear full blown. Otherwise, the massive failure would have happened long ago. The buying and selling of mortgages to secondary and tertiary sources, the bundling, the lowering of standards, ESPECIALLY the lowering of standards that wooed major lending institutions from time tested lending practices, surely, didn't JUST HAPPEN. Every disease begins with a germ. A massive, complex system has to be developed. It has to evolve from something simpler. I don't know the history of these phenomena, but I recall a time when it was much more difficult to get a mortgage loan. Then I recall government programs that made it easier. It seemed to be a good thing. But the culture of home buying was radically changed, and, as in every evolutionary process, no one could predict what new paths would be taken. Is it possible that if the more solid lending practices, which banks used to regulate themselves, were not tampered with, the housing market would have found more natural ways to provide affordable housing? Where there is money to be made, enterprising entrepeneurs will find a way to earn it. And if, say, a government makes it easier by changing banking standards, why struggle, just follow the new path.
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