RichD wrote:
On Sep 24, "HeyBub" wrote:
They were, in reality, renting palaces that they should have
realized they could never afford. And we're supposed to bail these
people out? I don't think so.

That's not the problem. Assume each mortgage was $100,000.
A hundred of these were bundled into one instrument
worth $10 million. This was then sold, on credit, to Acme
Corp who put it up as collateral to build a new
factory. These mortgages are now worthless and the
people who loaned money to Acme call the loan. Acme
doesn't have $10 million in cash and no way to
get it. The close their business putting 100 people out of work.
The bank that loaned $10 million to Acme now has a
worthless loan and this, coupled with fifty other such loans,
causes the bank to close. And so on...

The $700 billion in bad mortgages ripples through the $12 trillion
credit market and causes most of the credit market to collapse.

Props on a nice synopsis. Too bad so few
people understand finance.

However.... let's look at the larger pictu
This crash has been a long time coming,
for various reasons. Something is rotten in
the state of Denmark, Hamlet...

So, now what? "save the system, restore
confidence"? Is the system worth saving?
Congress plans to restore FMae and FMac
to the status quo - bailout, then back to business!


There is NO plan to restore Mac or Mae to the status quo. But you're right.
This debacle has been building for a long time. Since 1977 to be exact when
the Carter administration supported the Community Reinvestment Act. This law
mandated that mortgage lenders meet government quotas for handing out bad
(i.e., subprime) loans. Failure to meet these quotas resulted in
"penalties," penalties sometimes so severe as to cause the lender to go out
of business.

In recent times, these loans under the threat of the CRA expanded
dramatically. In the past ten years or so, mortgages to less than
credit-worthy applicants increased from 20% of the market to 27% recently.

Since 1995, and as recently as 2005, legislation has been introduced to
"reform" this crazy law. In every case it was blocked by Democratic
opposition.