OK, since you're being good about it, let me try to play "fair and
balanced" about this, and I ain't talking about Fox News. I'm not
interested in making some ideological point about it. I'm only
interested in the facts as best we can figure them out.

I'm not an expert but the mortgage part, at least, is something I'm
fairly familiar with. My understanding is this:

The Community Reinvestment Act, dating from 1977 and stiffened in the
'90s, does bear some culpability in this. But not very much. The act was
intended to stop "redlining" by mortgage lenders. They were refusing to
write mortgages for certain communities -- mostly black ones -- and it
didn't matter how well qualified the borrower was.

It worked fairly well. It did slightly increase mortgage lenders' risk,
but they had it pretty well covered by somewhat higher rates. The market
was pressing to minimize these loans, and the government was pushing
back, so we had an equilibrium that was working Ok.

Sometime in the '90s, the shadow banking world came up with
"securitization." Now they had a way to bundle these mortgages and morph
them into new instruments, where they could bury their subprime
mortgages. This is where the *real* culpability lies, from what I can
determine. The rating agencies for some bizarre reason allowed these
bundles to get rated as investment-grade securities, and the market
pressures reversed. Now, the lenders were going after those formerly
redline-district buyers and low-income buyers, pushing them into
mortgages because the original lender could discount that junk and flip
it into the shadow banking system, making a big profit.

Now, instead of a working equilibrium, it was Katie Bar the Doors. The
lenders (or brokers, really, because they weren't holding any paper)
were chasing these potential buyers with advertising, "introductory
rate" terms, and every other scam they could come up with. They drove
the whole thing. The CRA could have disappeared at this point and it
probably wouldn't have mattered a bit. The money guys had created a new
gravy train, and it was running on its own.

The article you pointed to (when I see bold type on a brown textured
background, I assume it's an amateur or a crank, and that's seldom wrong
d8-)), in true LewRockell/RobertMises/Hayak fashion, misrepresents the
facts. It implies that the mortgage failures are really slightly higher
from the fixed-rate borrowers, neglecting to point out the 10:1 ratio I
mentioned and also failing to point out that 40% of the subprime loans
are, in fact, fixed-rate. It also doesn't mention that something like
85% of the subprime loans are *not* going to first-time buyers (I'd have
to check this -- there's an industry report that gives us these
numbers, updated every year or six months, but I haven't looked at it
since December), but actually represent re-financing by people who are
cashing out of homes they've had for a while -- sometimes a very long while.

So the whole thing is a lot more complicated and nuanced than either
side is admitting. There is no real, useful explanation that fits on a
single page.

--
Ed Huntress