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Two problems there -- it was the collapse of banks that made the Great Depression so bad, and so prolonged. When the banks go, credit collapses, and that's the life blood of the economy.
The banks made bad loans for two reasons -- it was Government policy to introduce "diversity" into the credit market -- if a borrower was a minority, that was good -- regardless of his ability to pay. And the Government BOUGHT the bad loans, through Fannie Mae and Freddie Mac. So why should a bank refuse a loan? They got brownie points for loaning to minorities AND the Government BOUGHT the loans -- no risk at all!
The Congressman over watching those two institutions was sleeping with a vice president of one of them. The two institutions became over-extended (and Barny Franks knew it and did nothing about it). Other institutions entered that market -- buying loans and holding them until their turn came to sell to the government.
And the whole pack of cards collapsed.
But the real culprit was the US Government, which thought they could repeal the laws of economics.
The banks made bad loans for two reasons -- it was Government policy to introduce "diversity" into the credit market -- if a borrower was a minority, that was good -- regardless of his ability to pay. And the Government BOUGHT the bad loans, through Fannie Mae and Freddie Mac. So why should a bank refuse a loan? They got brownie points for loaning to minorities AND the Government BOUGHT the loans -- no risk at all!
The Congressman over watching those two institutions was sleeping with a vice president of one of them. The two institutions became over-extended (and Barny Franks knew it and did nothing about it). Other institutions entered that market -- buying loans and holding them until their turn came to sell to the government.
And the whole pack of cards collapsed.
But the real culprit was the US Government, which thought they could repeal the laws of economics.
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