The failure to understand the financial system is mostly due to a huge set of regulations, laws and governmental mandates that make the system only understandable by people who have studied it for their entire lives. If the government didn’t meddle, it would be a black and white system that even a third grader could understand. Heaping on more government decrees and strings will only harm everyone.
The trouble is that investment banks have shareholders who get hurt when those banks shoot craps with other people's money, and obviously those banks should not have absolute freedom to be irresponsible.
Yes, I blame the government for pressuring lenders to make unsound mortgage loans based on race, etc., and both parties are guilty. But how much did the Community Reinvestment Act contribute to the mortgage mess? There seem to be significant delenquencies among higher and lower icome mortgages too.
Rates by Relative Income Zip Code1 [footnote 1. Source LoanPerformance. End footnote.]
Delinquency Rate as of August, 20082 [Footnote 2. For mortgages originated between January, 2006 and April, 2008. End footnote.]
Lower-Income Zip Code Subprime: 25.0. Alt-A: 16.1. Total: 21.5.
Middle-Income Zip Code Subprime: 21.3. Alt-A: 12.9. Total: 17.7.
Higher-Income Zip Code Subprime: 19.5. Alt-A: 10.9. Total: 14.5.
Here is a claim by FED governor Duke that the Community Reinvestment Act did not contribute significantly to the mortgage crisis:
Why do lenders have to report race, gender, census tract, amount of loan and income, but not credit score data?