The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.
Oh, and they withheld this information from the people and organizations they sold these products to.
I guess we’d better get together a blue ribbon commission. What, you think anyone will face trial over this? You think anyone will go to jail over this? You think any bank that sold these products will even have to pony up their own money to cover losses they created?
If you answered “yes” to any of those questions, you need to reassess just what country it is you live in and just who is in charge. Because it isn’t who you think.
Lemkin 