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 Originally Posted by wufwugy
It isn't clear how this can be the case in theory. Market valuations are based on expectations that the evaluated components are causing that valuation. If it were the case that the banks were behaving in any ways that were harmful that others could identify, that would have been reflected in how others assessed them, which would have impacted the banks' abilities to continue their behavior. This also applies to any regulators. They don't have a magic crystal ball that allows them to see things the markets don't. If it is the case that the markets didn't evaluate the bank behavior as bad, then it is necessarily the case that regulators couldn't do so reliably either
I think the banks knew the loans were bad. That's why prior to this...poor people could not get mortgages. You don't need a crystal ball to predict that broke people can't pay bills.
But like you said, the government guaranteed a lot of these programs, so why wouldn't the banks gamble? There's no risk!
these mortgage practices were encouraged by the government through de-regulation, and risk mitigation. their goal was to address income inequality by declaring that home ownership was a "right", and thus should be accessible to everyone. Any policy that excludes the poor (the way a sensible loan approval process would) is perceived as racist. The government believed it could correct systemic racism that prevented black people from achieving the American dream.
and it typical congressional fashion.....lawmakers didn't really give a shit what would happen 10 years later.
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