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by fueling the beginning of the increase in mortgages. Those same officials are often ex-Goldman Sachs employees, or people who spend so much time with that it made the newspapers. The Federal Reserve Chairman and the Secretary of the Treasury were former Bush administration officials who worked or were proteges of the people that pushed for the removal of regulatory protections (established in the aftermath of the Great Depression).
What many people don't understand is that the investment banks created a huge casino where, as you go up the chain, the problems jumped in severity. The mortgages on homes were a tiny portion of what happened. There was a whole chain of illegal, reckless, and criminal behavior. Predatory lenders pushed bad mortgages (flat out fraud in some cases) on many unwitting people, added to many legitimate mortgagees that refinanced their homes to pay for college for the kids, vacations - whatever.
A package of a thousand loans would be rolled into a huge bond to be sold to big investors. That bond was sold in pieces that offered hi-risk pieces with high interest rate returns, medium, and low-risk pieces with low-risk returns. Then the hi-risk pieces that didn't sell were re-mixed to create whole new bonds with BETTER credit ratings - that was the first big jump.
Then they sold "insurance" (credit default swaps) to insure these bonds against loss. But that wasn't enough, so the resold the insurance - over, and over- and over. Imagine someone selling 50 insurance policies on the total value of your home to complete strangers. You have an insurable interest, your bank does as well - everyone else is just placing a bet, much like at the horse track. And this was the big jump. The idea was to spread risk, but all it really did was wring it together and multiply it across a lot of investors - many of them cities, states, public pension funds. And none of them had anywhere near the assets needed to pay off what they would owe if the housing market slumped.
And when it did, because of the way companies like AIG had done business, it put thousands and thousands of individual annuities, retirement funds, and insurance policies at risk (Among a lot of other things - but that's what started the problem in 2008). The Clinton administration removed the regulation, the Bush administration fueled the expansion and interfered with attempts to regulate (i.e. Brooksley Born stopped by Alan Greenspan), and when it all blew up they began the process of transferring trillions of dollars to the investment banks. The Obama administration, instead of taking on this massive fraud and corruption hired the Bernank and Tim Geithner and increased the amount of money being loaned and paid to the investment banks. (Ostensibly because of large campaign contributions to the Democratic campaigns - we know of the donations, but it is speculation as to whether that was the reason).
The really sad part is that the total of subprime loans was only about $1.1 trillion, and of those there was only about 300 billion that were really problem loans at one time. So if it were just the housing market, without the huge Ponzi scheme the investment banks and government officials laid on top of it, we could have simply purchased all the subprime loans for about a trillion dollars and it would have been fixed.
Instead it led to a tremendous bailout of the investment banks, 30 million people unemployed or underemployed (increasing), now a record 40 million + people on foodstamps, more personal bankruptcies than we have had in the history of this country, and we are in the process of perhaps 12 to 14 million foreclosures - and there may well be a second wave of home devaluation on the horizon. We had guarantees of perhaps $23 trillion out at one time (because part of this is behind the Federal Reserve's opaque shield, and even with their recent revelation a lot of data is still hidden) and at least $2 trillion of that is simply gone - into the investment banks.
So here we are. As far as your question, perhaps you have an idea how to answer it now. I don't.
There are some pretty good books detailing all of this, with good references. If you live anywhere near a good library read "It Takes A Pillage", "13 Bankers", "Econned", "Griftopia", and "The Looting of America".
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