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There’s a nice succinct summary here by Chairman of Blackstone Group, Stephen Schwarzman (although I think it actually started in the mid 90’s with Clinton encouraging lower lending stds):

“It’s a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.

Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.
When they started defaulting, out of bad luck or bad judgment, we implemented fair value accounting….You had wildly different marks for this kind of security, which led to massive write-offs by the commercial banking and investment-banking system.

In the face of those losses…you needed to raise new equity…which came from sovereign-wealth funds in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system….It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. We had a series of bankruptcies, whether Bear Stearns or Lehman, or forced sales like Merrill. Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.

So that’s the story of how we got there.”

http://blogs.wsj.com/deals/2008/09/24/wall-street-crisis-stephen-schwarzman-explains-it-all/

Thank you for the link. I read it. But he isn’t entirely correct. What really caused the problem wasn’t just the bad loans, but the derivatives based upon them. On those two links I gave above, Steven Eismann figured this whole scheme out and started shorting this crap. The other link tells you how the “dog crap” got transmuted into AAA dog crap. And why.

CRA loans were never more than 3% of originations. Check out the Republican Congressional report by Issa. If you need link I will provide it.

The above 3 links should give you plenty to think about, but if you are still unconvinced and I will send you more. Seems like a woman named Brooksley Born tried to stop this and was shut down by Greenspan, Rubin, Summers, and Clinton. It was the derivatives gambling that really nailed us.

The reason why I am pointing this out so much is that Obama is going to try to re-regulate the derivatives market and I suspect Wall Street and the GOP will go apesh*t.

parsy, who has been reading up on this stuff