A very simple explanation why this happened...
 

It was a departure from customs and habits and traditions and I dare say even from laws that had served America well. The core of this change had to do with a program that allowed, even encouraged banks to strip many of their loans off their balance sheets, bundle them up as if they were a new kind of bond, and then sell them off into the marketplace - no matter where that took them. Because the general attitude was that once these loans were sold off the banks and mortgage brokers who had written them were free of any obligation toward them, it quickly developed that massive fraud entered the system with some (but not all) of those writing and selling off such debts. In addition, with the prospect of generous fees and commissions, standards were lowered to near zero.

This produced so much profit that soon the whole idea was expanded to embrace loans far, far beyond the home mortgage field. Loans to allow companies to buy up competitors were quickly added to the pile of those being "securitized," as the field was known. Then came an endless list of other debts, all packaged and sold here and around the world... even to the government of communist-run China.

To make this program even more attractive and desirable, the sellers soon broke these quasi "bonds" into "tranches," perhaps involving one-tenth of each "bond." And to attract buyers, these were often leveraged when sold, with down payments as low as 10% being required. This took place even though original debts may have included down payments of 10% or less. This double-leverage meant that as little as 1% of the total "value" of such "bonds" were being put up as cash. No one seemed to remember that this was exactly the kind of leveraged investments that led to the stock market bubble of 1928-'29... nor the financial damage done when that bubble collapsed. But, alas, history has a way of repeating itself. And sure enough, when this credit securitization mania fell apart, at least $100 billion dollars worth of so-called investments went up in a puff of smoke. There has been a deliberate effort to make the general public believe that all this debt was related to mortgages, but that is not the case. The official version is that two million American home-owners will suffer foreclosure and eviction. The actual number will be much smaller, involving perhaps a half of one percent of all homeowners... and many of them never should have been allowed to buy a home in the first place. They had no savings for a down deposit, no income, no experience with credit and often no intention of making all the payments. They had been promised by greedy salesmen that within six months the price of their home would float so high they could sell it, pay off their mortgage and walk away rich.

They will quickly take up plans worked out between Congressional leaders, the Administration and the Federal Reserve. (If you want to know more details, call 1-800-219-1333 and ask about our affiliated Real Estate and Bank Letter.) But when this Grand Alliance completes its work in a few months, it will be revealed that the major credit problems concern the securitization of commercial credit, including loans to finance corporate takeovers. This is a field that has produced too-generous fees and profits for big Wall Street banks and affiliated companies, and they will lobby fiercely to be bailed out. I don't see that as likely. Nor do I think securitization will be allowed to continue in anything like its recent form and size... It is simply too dangerous to America...