To add to your very fine article we have to ask why were the paragons of finance on wall street so easily fooled? The only thing they seemed to have suffered so far is a good case of embarassment. Some have lost their jobs, but have a pretty hefty pile of cash from bonuses to console themselves. Meanwhile, as usual, all of us who played by the rules (the old rules I should say) get screwed.

Now Congress wants to bail out the loan recipiants who, in my mind, are just as complicit in this as the already identified villains. As you pointed out in your article, when someone offers you a mortgage with a payment approaching your monthly salary, and throws in $50k in cash at settlement, you have to know your part of some scheme.

Congress doesn't care one little bit about the people who took out loans they shouldn't have. They care about the banks that issued loans they shouldn't have! The homeowner assistance packages proposed to date have really been bank and mortgage holder assistance packages, designed to let the banks keep getting money in on the currently non-performing loans.

The paragons of finance on wall street were not fooled at all. They knew exactly what they were doing - credit laundering. Take a mortgage backed security rated very high because the risky tranches are offset by the safe tranches - that's fine. Now wall street went and took the risky tranches out to make CDOs with the high rating of mortgage backed security. This way they got a higher rate of return while being able to show a safe investment.

The only thing wall street was mistaken about was when the giant circle-jerk of buying CDOs and mortgage backed securities from one another would come to an end. Just like the junk bonds in the 80s.

Of course it was obvious here in the Bay Area where a real 30-year fixed-rate mortgage was no longer affordable to even those with sparkling credit and people with $50k/yr gross incomes were buying $600k homes.

People bought homes on margin with the home as the collateral hoping to get a huge return in a rising market. When their mortgages reset, they couldn't make the margin call and lost their collateral. That's no big deal unless you add an emontial attachment to the collateral.

Trouble is, so much of this went on either in "blue" states or in "blue" parts of swing states. Now the Dems can't afford to upset their own apple cart by shining light on evidence that greed and fraud aren't the sole domain of the GOP and corporations, and they have to play nice with the lenders to get any help with attempts to re-fi their way out of letting the local housing markets unwind to more supportable pricing levels, since this would anger their constituents who are left watching all their inflated equity vanish.

The players on Wall Street who are coming out of this OK are the ones like Goldman Sachs who kept their CDO exposure very small and shorted the lenders last summer, the ones like Bear Stearns who dove whole hog into these vehicles aren't faring nearly so well (to put it mildly).