Standard & Poor's made a tiny $2 trillion mistake when rating the US economy

[Final-Fan]

mrstickball said:

Final-Fan said:

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 

You could also blame the governments for:

1. Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
2. Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
3. Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
4. Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.

Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.

I didn't mean it was 100% due to securitization, just that you are overweighting the impact of the CRA loans.  (Highly, I'd say.)  I agree on the rest of it, although you say 50/50 but name three things ...