Maggie's Farm

Sadly it was the government polities of forcing lenders to make imprudent loans under the CRA that created the situation. The CRA forced lenders to make hundreds of billions of dollars worth of bad loans. They tried to protect themselves by packaging the bad loans in mortgage backed securities and credit default swaps. The rest is history. The government and those decision-makers responsible still have not been held to account for what they did to America. They are still blaming the problem on the lending industry, which only did what they were forced to do by government regulation.

Sorry, Zach, I was there, so I know how the CRA corrupted the system. We are a real estate law firm that a did a lot of documentation for loans during the pre-crash period. We shook our heads as we saw the kind of crappy loans all the banks started underwriting. We then saw the predatory lenders come in to capitalize on the lack of underwriting standards nationally (Gresham's Law: the bad chases out the good).

We had Bank of America's local headquarters as the prime tenant in the lobby of our building. We watched as the rent-a-mobs regularly showed up to picket Bank of America, claiming they were racists and "redlining" and failing to make enough CRA loans to "disadvantaged" customers. Bank of America actually shut down here before the crash, because they decided it wasn't worth the risk doing business in our city because of all the impositions they faced.

Remember, one way the CRA blackmailed national financial institutions is that federal government approval could be held up nationally on all your expansion and operation decisions for which you needed federal government approval, if you were deemed deficient in any community and didn't have a high enough CRA rating. There was a huge amount of extortion and corruption going on forcing the banks to write billions of dollars worth of bad loans in order to continue operating.

The financial collapse was entirely the result of corrupt government policies being forced on the lending community.

When you say the the situation was demand driven, it was only to the extent that people were being given more "free stuff" from the government. Especially in states with anti-deficiency protections (e.g., you weren't personally on the loan), you were basically being given free real estate, without having to qualify or make a down payment. You had immigrant gardeners buying $400,000 houses in new subdivisions in Southern California without any real vetting. And then when the market turned, hundreds of thousands of these folks who had nothing invested simply walked away and abandoned the properties, leaving the financial institutions and ultimately the citizens and taxpayers with the result.