I agree with you on the no more intervention for homeowners and banks. However, the Government intervened in the mortgage and banking industry, forcing them to abandon sound credit requirements, for fear of being sued for discrimination. Yes, the banks should have fought back, but if the Government didn’t intervene in the housing/mortgage industry, we wouldn’t be anywhere near the mess that we are in. The concept of a “liar loan”, where there is minimal credit checks/due dilligence came out of FNMA/FHLMC underwriting standards, not the banking industry.
Does that mean that the banks had no reason, no overwhelming financial incentive, to do NINJA loans? That is amazing information, considering my first job out of college was in a bank specialising in mortgages. Hedging mortgage bonds. Amazing information considering what I saw, and how it was necessary to keep the stream of loans coming since they were the raw material that fed securitisation. Even more amazing was the fact that when there were not enough people with messed up credit being given loans (that is there were not enough people taking loans from January 2007 until the crash of the Market) some of the bigger banks actually started taking triple-B tranches of subprime mortgages (basically stinkers of the worst kind) and using them to create CDOs, of which the 'best' would be triple A. The government sure forced the banks to do that, right?
Anyways, I have seen all sorts of myths about that crisis (and yes, they are myths). The fact is the CDO engine was making a lot of money for all involved, and there was huge incentive to keep loaning money to any breathing human being that could sign their name on a document. So much so that when, come 2007 heading into the fireworks later that September (and into the grinder that was 2008) banks were literally synthesising stuff since those warm bodies had started to taper off. Yes, the government does have some blame in all this. However, saying The concept of a “liar loan”, where there is minimal credit checks/due dilligence came out of FNMA/FHLMC underwriting standards, not the banking industry' is simply not accurate. The banking industry made money like crazy, and the Securitization Machine needed a lot of bodies to take out loans to supply the raw material, and when there were not enough of them what we were doing is taking absolute cr@p, creating a tower of bonds of them, having a rating agency say the topmost 80% of that cr@p was triple A, and voila - new material to sell to pension funds. If the government is guilty (it was) then the banking industry was guiltier 9 times over (if I use the money multiplier) and once I start adding leverage and looking at the CDS taken out on that stuff, many thousands of times as guilty. At the very least.