Quote:No those banks made the bad investments BECAUSE they new they where insured by the feds. Had the feds not guaranteed those loans through Fannie Mae and Freddie Mack most of those loans would have NEVER been granted. The banks knew people where going to default but didn't care because the government guaranteed they didn't take the loss. 

 

Here's the real messed up part, the Feds created a risk free situation for mortgage companies to create sub prime loans. The banks of course jumped at the chance for essentially risk free money, they even created predatory loans to take advantage of tax payers that had no knowledge of the mortgage lending process. Then when the bubble popped, the Feds bailed out all those bad loans and the banks kept possession of all the properties. 

 

Who got screwed? The tax payers, we funded the banking take over of countless properties and then essentially paid for it twice, that's what happens when you insert the power of the government with the greed of banks. 

 

I'm sure that's part of the story, but that's not exactly the way I see it.  

 

Banks were encouraged to make subprime mortgages by the fact that they could sell the mortgages to 3rd parties who then bundled them and then cut the bundles up into mortgage backed securities which were sold on the open market to investors, who mistakenly thought that since these mortgage backed securities contained many mortgages, that they were sufficiently diversified, and that that would mitigate their risk.   Which of course, in hindsight, was total nonsense.   Nobody thought about the fact that all the mortgages could go bad at once.   All people saw was real estate prices rising steadily.   As long as real estate prices kept going up, everything was fine. 

 

I'm sure the government had a role in this whole fiasco, but a lot of the blame, if you want to assign blame, should go to the free market, in which people saw that other people were making a whole lot of money, and they didn't want to get left out.  Large institutions got involved in investments they didn't really understand.  

 

You can cherry pick aspects of the whole affair in order to support your thesis that government is too big,  but the fact is, it was basically driven by simple greed and the delusions and ignorance of people who were scared of missing out on getting richer. 

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