“The crux of the problem is an overestimation by “Wall Street” of “Main Street’s” ability to service real estate backed debt. “
So, you’re saying this mess is primarily the fault of the lenders, being incredibly greedy, and assuming that whatever consequences they might suffer would be easily corrected by the taxpayers?
No, I'm saying that, with respect to Wall Street, default risk, particularly correlation, was poorly modeled. Everyone involved just failed the comprehend the potential for the level of defaults on recent vintage loans. The crisis occurred because leveraged positions in packages of these loans. "Wall Street" was quite rational, given the default risk modeling. The issue is that the models were profoundly wrong. The press and the "folks," as BOR likes to call them, are just too disinterested about this stuff to think about it very much. "Wall Street greed" is an easy answer to all financial problems. Unfortunately, all explanations must fit the prefered morality play.