I *think* you are saying, and if so, I will agree in advance, that the 2007-2008 crisis was caused in two phases. Phase I is the CRA encouraging subprime and subdirt loans, coupled with the loosening of underwriting standards at FNM/FRE.
For many years, there was this term “conforming” as applied to loans. That term meant that the loan met strict (VERY strict) underwriting standards and had known, proven (very very low) historical default rates and was therefore a tasty investment item for institutions, domestic and international. EVEN THOUGH on the very front page of Fan and Fed prospectuses was in LARGE LETTERS “this is not an instrument of US Govt debt and is not US Govt guaranteed” that debt was UNIVERSALLY taken as govt guar’ed.
The second phase of the collapse was engendered by the originating banks and mortgage wholesalers, who saw they could write morts of worse and worse and worse quality, patch them together with mort insurance policies of higher and higher prices covering more and more hinkyness. And no matter how bad the stench from these items, they could be passed on to FNM/FRE. Either by welding a mort ins policy to them which the originator forced the borrower to buy, OR, by burying the most fetid items in bundles of less fetid items.
The lending environment became what Bill Black calls “criminogenic”, eg; encouraging criminal activity, in this case fraud. Because banking and mortgage co execs were paid based upon performance, if they wrote worse and worse morts, then they could boast their performance was booming, capture the pay for performance, and nobody was the wiser after these turd-loans were thrown into vast pools. Or, in many cases, their stock responded to massive growth trajectories [”doubling every quarter”] and they were paid in options or stock which further incented them to goose their performance by writing crapola loans. If you’ll remember, these companies were posting internet-stock-grade growth rates....and they were certainly retaining nothing for FNM/FRE put-backs. (eg; FNM/FRE forces the originator to take back crap loans if they go bad w/in 18 months) The idea was to write as many loans in 18 months as you had ink and borrowers of any kind at all.
>>And no matter how bad the stench from these items, they could be passed on to FNM/FRE.
But the products manufactured by [one time Subprime LEADER] Ameriquest/Argent Mortgage never qualified for FNM/FRE.
From what I was able to observe, they “revolutionized” the market by securitizing 100% of their A$$paper and flushing it into the global economic sewer system before anybody figured out the fraudulent flaws in “the model”.
Though it’s sort of an understatement to blame 2008 on “flaws in the model” — when the “flaws” were the result of the FAILURE to review little things like the FICO scores that were manufactured out of thin air for thousands of the originations...
The SEC could tell you about that — well, if they could find their own arse with both hands and a SQL statement telling them exactly where to find it (and those originations in Argent’s production Empower DB ), that is.
Got Systemic Corruption?