"Their defense will rely on the volatility of the markets and that nobody, not even highly paid experts, knew with any certainty what was going on with subprime mortgages."

I find this argument very hard to believe. Now I am in no way shape or form a financial expert, but when I saw people in my neighborhood being sold a 1500- 2000 sq ft home for 400k when they have a combined income of less than 80k a year, I said to myself "they are not going to be able to afford that." When houses in the "ghetto" were being sold for over 250k to the residents of that area, I said to myself "there is no way they are going to be able to make those payments." My point is that if I'm not a financial expert and yet I knew that people were being sold overpriced homes they could not afford which would eventually lead to foreclosures, than how in the hell could all of these financial experts be so oblivious? Can someone explain to me how giving millions of people adjustable rate mortgages for homes which were way out of their price range would not have inevitably lead to a subprime mortgage crisis?

Two years ago we were driving around houston and asked each other "how can their be so many people in houston that can afford houses this big?"

But keep in mind that they have an extra layer of "there was no way to know" in the sense that they weren't originating the mortgages, not did they rate the investment grade tranches. The bankers are likely to say that they simply relied on the Countrywides and such to give good loans and then they relied on Moody's and S&P to rate the SIVs and CDOs appropriately.

I was a mortgage loan processor from 1996 to early 2006, primarily in the prime loan market, though I did occasionally process sub-prime loans. I was fortunate enough to mainly work for ethical mortgage brokers who policed their employees. Every intelligent loan processor I knew back then could see this coming several years ago. During much of the time I was in the business, interest rates kept on falling. I'd process a purchase loan for someone and then 4 months later the rates had dropped and the client would refinance. 95% of those people had higher debt the 2nd time around due to all the things they'd buy for their new home. Some of the products were just ridiculous. Stated income loans for salaried employees. It's my understanding that those loans were originally intended for the self-employed who had fluctuating income, but significant assets which would allow them to make their payments when their business was off. Towards the end of the time I was in the business, I worked for a broker who was a little more willing to let things that seemed "off" slide. I was processing a stated income loan for a 20 year old kid who claimed that he was a bank vice president. The income he stated was in line with that type of job, and the payment was a reasonable payment for that income. I thought it was extremely unlikely that a 20 year old was a bank VP unless he was an honors grad from an Ivy or was the beneficiary of nepotism. I took the loan to the head loan processor who agreed with me that the loan was fishy. Together we took it to the owner of the company. He said to submit it to the lender which I did under protest. Fortunately the lender wouldn't sign off on the appraisal. I thought the property was overvalued as well. It had been recently rehabbed and I suspect there was something going on with the loan officer, realtor and appraiser. I was so thrilled the loan didn't go through, and I was able to get the owner to agree that I wouldn't have to process for that loan officer again. Also towards the end of the time I was in the business new products came out that gave you a choice of several payments, including payments that would lead to negative amortization. Those loans had incredibly low teaser rates but would adjust after a couple of months. This whole crisis is due to greed and all of those CEOs and high-level executives who were involved in creating this mess should pay massive fines and do jail time.

I agree with you lindas - but, really, is it the fault of investment bank fund managers or managers like your boss who submitted sketchy loans to lenders in the first place? The lenders then sold off these loans in SIVs and likewise securities, which were then given a rating by companies like S&P and Moodys that made them attractive to institutional investors.

Now if these two fund managers lied to their investors - that's a crime. But to blame the subprime mess on Bear Stearns is as foolish as blaming it on a joe shmoe investor who purchased a share in the fund Bear Stearns was managing. If anyone is going to go to jail it should be the folks who got mortgages they couldn't afford by lying to loan processors.

Big Morgan, I think there is plenty of blame to go around. Yes, definitely mortgage brokers and loan officers who either encouraged their borrowers to lie about their financial situation, or at the very least turned a blind eye to fishy loans. Definitely the banks and mortgage companies who created the products that encouraged this behavior. The no income, no asset verification loans were commonly called "liars loans". My guess is the guys at the top at the banks who were approving these types of programs knew full well what the end results would be, they were just concentrating on the short term. In 2003, I personally processed and closed nearly $100,000,000 in loans. That's a huge amount. Multiply that by thousands to get an idea of the kind of money that was involved.I think the CEOs and CFOs at Countrywide and the like were just blinded by their paychecks and too greedy to concern themselves with the future. Countrywide and Washington Mutual and the rest have laid off thousands of employees, but I don't think the big guys are suffering.

I forgot to say that I don't think it should be the dumb guy who just wanted a nicer house than he could really afford that should be the one going to jail. I think the average consumer who got over-extended believed the people who were telling them they could afford more. A lot of this goes back several years when rates had been continually dropping. I think a lot of people just didn't realize what they were getting themselves into, that the rates were historic lows and when the rates adjusted, they wouldn't be able to make the payments. Many people are overly optimistic about their future financial state. I really believe that the fault lies at the top. Those are the people that should have known better.

I think the average consumer who got over-extended believed the people who were telling them they could afford more.

"Average"? So on 'average' we're so dumb we can't count our money, don't know how much we make a year, and aren't able to do the basic math that would tell us this is a bad idea?

There's an easier answer. The 'average' person either had a set back and wasn't willing to face the music (i.e. lost their job and was living above their means)... OR.... (more likely) they knew exactly what was going on but didn't think it was a bad idea.

I took a five year fixed (teaser) loan with a variable interest rate after that because I knew darn well that I'd be moving in 5 years.

IMHO most of these people took the loans because they *also* weren't planning on staying in the house. They were planning for the market to go up and then they'd sell it or refinance.

But their "sure thing" turned out to be not so sure. IMHO they knew the risks, and if that risk was bankruptcy then that's what should happen. But if they got the loan through fraud then they could, and IMHO should, face other legal action as well.

But keep in mind that they have an extra layer of "there was no way to know" in the sense that they weren't originating the mortgages, not did they rate the investment grade tranches. The bankers are likely to say that they simply relied on the Countrywides and such to give good loans and then they relied on Moody's and S&P to rate the SIVs and CDOs appropriately.

Maybe that is the issue--transparency. I mean, what kind of moron would just buy a bunch of mortgages from Countrywide without having some documentation to prove that the people who took out these mortgages are able to pay them back? It's like buying a company's stock without bothering to look at the annual report or doing any kind of research on the company.