Jon Smirl

What REALLY Caused the Mortgage Crisis - And What to Do Now

Little to nothing down allows you to gamble with "other people's money" (think hedge fund operator). You couldn't lose in this gamble. You captured all of the upside and if a crash occurs foreclosure has little cost (ie hedge fund shuts down). Everyone will always gamble with other people's money if given the chance.

Home owners should not have been given this chance to risklessly play with other people's money. The system broke down when these loans were made available, in a rational system you should not have been able to get zero down loans. Once these loans were available the sudden change in demand caused a feedback loop price spike (aka bubble).

The fraud occurred when these risky loans were obfuscated into AAA paper. It took very smart people to do that. Without this step the bubble could not have happened since there wouldn't have been a large supply of loans.

Did these obfuscators knowingly game the system and count on the "Fed put" to save everything after they had extracted billions in profits and retired?