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How Bank "Overplays" Led to Default

In games of chance played with cards and dice, such as bridge, poker, and backgammon, there are "statistically correct" ways to play. Sometimes there are players, who either through ignorance, or because of a gambling spirit, will play in ways that are less than "statistically" optimal. These moves are called "overplays."

They're not supposed to work (in the long run), but often they do, in the short run, either because of chance, or because of inappropriate play by the opponent. In such an event, the original player may end up with a BETTER result than one obtained through proper play.

That is what banks did when they made shaky home loans (that were larger than the value of the security). If they were paid back in full, the banks were earn more money than if they limited the amount of loans to the true value of the security.

But to do so, they had to make loans that were fundamentally unsound, and then count on being bailed out in one of three ways: 1) home prices would go up, causing home values to "grow into" loans like an adolescent 2) home owners would pay more in mortgages than their homes and incomes could REASONABLY support or 3) the government and taxpayer would pick up the bill.

We all know what happened; the last occurred after a wave of defaults. Which is the source of the banks' humongous, and outsized profits.  Profits that they really didn't deserve, and were certainly not entitled to.