Someday they'll make a movie about how the "housing bubble" and the "mortgage mess" came to be. If I were a Hollywood screenwriter, I would imagine it as a dialogue between Benny the Banker and Lenny the Liberal.
Lenny: You know, Barney, the American dream is about owning your own home. Wouldn't it be great if more people could do that?
Benny: Sure would Lenny. But, frankly, there's a limit as to how many people qualify for mortgages.
Lenny: But that's only because your lending standards are too strict. You'll only lend to people with good credit, and a sizable down-payment.
Benny: Of course. You think we're in the business of making loans people can't pay back? We'd have to charge them unaffordably high rates to compensate for the risk.
Lenny: But what if we get the government -- through Fannie Mae and Freddie Mac -- to guarantee those loans so that you'll be sure to get paid back? Then we've reduced your risk.
Benny: Not really. Even if you guarantee them so that we can make the interest rate lower, people who buy homes with little equity might just walk away from the loan if they can't pay, and then we'll be stuck with a lot of foreclosures.
Lenny: But if you assume home prices go up every year, that's not going to happen. They almost always have.
Benny: But what if they didn't?
Lenny: I have a personal assurance from Barney Frank that they won't. After all, who would know better than he?
Benny: Okay. With Barney Frank and Fannie Mae behind it, what could possibly go wrong? Let's roll.
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