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I did write, "The problem with this is that I don't think it scales." before the quoted line. It was a stretch. Lenders weren't detached from the consequences
by yequalsx 15y ago
I did write, "The problem with this is that I don't think it scales." before the quoted line. It was a stretch.
Lenders weren't detached from the consequences of their decisions by the government. They were detached from the consequences of their decisions by selling securities based on the loans they made to dupes. That it was done at a massive scale without the dupes properly pricing in the risk caused a meltdown.
- jerf 15y agoThe fundamental underlying reason they could sell those securities was that they were exploiting the arbitrage from being able to dump the mortgages off on the FMs, at which point everybody knew they were unrealistically guaranteed by the Federal Government. I would point out that here in 2011, that's no longer a theory or mere rhetoric; it is now historical fact that the mortgages are in fact being covered by the Feds, as manifested by all the bailouts. Check out the FM's current financial situation if you need more proof. Without that risk sink in the system, they would never have been able to fly as far off the handle as they did. The securities were just ways of slicing up the stuff that was broken by the government-created risk sink.
- scott_s 15y agoI think you're ignoring the big investment banks, which also had many (most?) of these loans. I don't see how Fannie and Freddie factor into for, say, Lehman Brothers, which collapsed because they backed so many MBSs that were becoming losses.