The U.S. government takeover of Fannie and Freddy

Seems that way. He defines underwriting like this in the article...

The point he seems to be pushing though is that it's in this 'unregulated gap' of underwriters that things went wrong (in terms of risk-obscuring CDSs packaging etc, i assume). And that the private 'middleman' world seems to have taken on more and more of the loans, during the sub-prime boom etc. IE:

That does suggest a 'greed move' away from government underwriting (as it were ) via dumping stuff with F&F etc, and towards snaffling up what they thought were 'hot properties' etc (as i read it).

He also downplays the CRA-influence in helping create the sub-prime market in the first place, it seems. IE:

I don't think we can discount CRA-influence on the creation of the subprime market off the back of that alone, and certainly the point made in the first article about F&F's presence making middlemen feel there was 'federal backup' for their risk-taking etc is another negative influence of government influence. But the point about the 'unregulated' world seeming to be the one that really seized onto sub-primes is interesting, no?

My tired little head would appreciate any links you can throw me in that direction Sounds like a good barometer CRA's negative effects.

I believe that's been the lesson of the whole 'crash' hasn't it?

If you could point the finger at efforts like the CRA being the catalyst for the creation of CDS-style 'risk management' packaging, then that would be another blow against the 'regulationists', certainly.

Agreed that there's definitely been poor regulation etc that has pushed the financial world towards making some poor risk-based decisions. But the point, made by free-market-darling The Economist amongst others, that CDSs should have been regulated [via a 'transparency' clearing-house etc] does suggest a 'cowboy' element was at play that needed reigning in as well though. No?

I am, of course, completely at sea in all this. I can't see any way of deciphering the exact impact/causality of each link in the chain. I do get the impression that there were both regulatory & free market gaffs though.

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If that's what he's saying (and I'm not sure of that), I'm not sure I see the logic. He's blaming people who bought and sold these packages because the mere act "obscured" the risk? The risk is assessed when the actual loan is issued. What happens afterwards would not, as far as I can see, have any bearing on whether or not the initial risk assessment was accurate. The person who was granted the loan is either a good credit risk, or not, regardless of how much slicing and dicing and repackaging happens after it is granted.

Not sure I see the argument that's supposed to "debunk" these claims, exactly; why would "most" loans have to be "high-priced" for the CRA to have caused most of this? And what's considered "high-priced," I wonder? The Yellen quote is frustratingly vague.

I suppose it would depend on one's definition of "unregulated." Do you mean merely those institutions that weren't subject to the CRA?

Sure thing:

Credit Unions in Good Shape as Economy Slows, Credit Crunch Continues

Regulators: State's banks, credit unions in good shape

Prudent approach to consumer loans keeps credit unions from banking mess
Our family business out here has a credit union association as a sponsor, by the by, which is one of the reasons I was aware of this. The specific links are just the result of some rough searching; until you asked it was just one of those things that you know, but haven't yet been compelled to verify specifically.

Honestly, no, I don't think so. I think the beef analogy from before (which I've got to give my old man credit for, by the by) is a good one: I'm not being cavalier when I buy beef from the grocery store and leave the onus of testing it for contamination to the FDA. They have a track record of screening these things, so when they approve something, I assume it's okay. They exist for precisely that purpose.

And, because I just love analogies (): an assembly line. If one of us paints the pencils and the other boxes them, the guy who boxes them can't be faulted for assuming the paint isn't toxic. That's not his link in the chain, and he'd have no reason to suddenly start screening the paint for toxicity out of the blue when everything had been fine for decades.

Similarly, I don't consider it to be reckless or cowboy-ish for people to package up mortgages under the assumption that the banks issuing them have a degree of competency in risk assessment. They have before, after all, and grasping the far-reaching ripple effects of government intervention is hard enough in one's own sphere, nevermind further upriver.

EDITED: I think I'm making some assumptions on the securitization stuff, so I'll try and separate what those articles seem to be claiming (a), and what I'm then reading further into it (b):

(a) F&F weren't handling the majority of the sub-prime loans during the 'boom' in taking them on, & the CRA initiative doesn't seem to have spawned primarily sub-prime loans. (As such, these federal factors don't seem to be the key driving force behind the 'explosion' in the sub-prime market, although F&F's implicit underwriting role could indeed be seen as a 'stimulus' for some of this behaviour).

(b) So surely market players must have made some sizeable independent errors in taking on as much as they did. Securitizing processes like CDSs (& perhaps CDOs) seem like good candidates for explaining some of the poor risk-assessment that seems to have gone on. CDSs certainly obscured risk once they were 'bundled up' (amongst other things, like introducing the anonymous 3rd-party defaulting problem etc). This we could also see as a market failure of sorts in that they were embraced so readily (& a regulatory one, in terms of Greenspan etc blocking 'transparency' regulation attempts).

(On the last point, this ballistic article suggests Greenspan et al were kowtowing to the financial institutions too much, and that similar behaviour has pervaded the stimulus etc. IE he suggests government has become too interdependent with an 'influential oligarchy' [the finance industry], a situation often seen in the troubled nations bailed out by the IMF. Would be interested to hear your thoughts on it, although it's a big read )

Agreed on Yellen (and the editorial phrasing), but the Gramlich quote suggests the CRA wasn't necessarily flooding the market with 'toxicity'.

I'm talking about those who weren't compelled to directly, but did anyway (with the caveat that the loans seem to have been 'clearly packaged' prior to entry into the 'broader'/non-federal market place)

Fair play, and cheers for the links From what I can see tho credit unions operate like building societies over here - 'non profit', no real leverage. As such, they're never going to bet the farm on high-risk loans. (I use a comparable 'co-op' bank which is now ridiculously smug about it's financial footing . And that seems to be down to its 'zero leverage' approach). Do you have any stats on how many sub-prime loans they were taking on? It seems to me they just wouldn't have got involved. An internal-regulation of sorts.

EDITED: Ok, so some 'toxic' meat has poisoned us, and we want to know why the FDA has failed to screen it properly. There are lots of points at which they might have messed up. You seem to be suggesting it's solely at the 'point of production' [due to government quotas for 'low quality' produce], whereas I'm saying that it isn't only 'government meat' that's gone bad (that doesn't get to the bones of it, but I'm stretching the metaphor as it is ), plus there may also have been problems in 'transportation' [the packaging and that ]

On the 'middleman' failings thing, was just browsing this (pdf) hearing statement by the CEO of Fitch 'AAA' Ratings. Found this little summary tallies neatly with many overviews of reasons for the 'slowdown':

He then goes on to blame any misleading information concerning rated securities to be the province and fault of issuers and underwriters. But then he would wouldn't he

This meat metaphor was too tasty not to quote

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On mid-80s mortgage securitisation:


On the move into subordinate bonds:

From this article by the programmer who made CMOs industry standard, and oversaw the transition into the sub-prime market (but not their mutation into CDOs)

NOTE: the next seven posts, including this one, were moved from Julian Assange, Swedish Law and the unholy alliance of the left and right!.

Actually, it's more that not everyone believes this. We have discussions on it in other threads which you're welcome to dive into, and I don't want to hijack this one, but I think the above claim is not only wrong, but doesn't even pass the basic "sniff test."

Back to the actual topic: I find it incredibly disconcerting that you basically acknowledge that this stuff isn't legal, or even morally right, but is still "necessary." That's pretty dangerous thinking.

I haven't weighed in on this mainly because, like lines, I was/am kind of confused by the initial post and the questions its posing. So I'll simply say that I agree with Gol, provided I understand him correctly: this is not some valiant whistleblower exposing terrible government lies. He is releasing information indiscriminately, without regard for consequence. That's not whistleblowing, that's just chaos, and though his motivations do not directly speak to the justifications for what he's doing, they look pretty shady and self-serving to me. For crying out loud, Wikileaks releases more documents to specifically penalize people for trying to stop them. It's vindictive and arbitrary, not a burdened informant just trying to clear his conscience.

When people approve of these things, they're saying they want these organizations (be they governments or banks) taken down a peg without regards for the cost. They're putting results above whatever terrible process brings them about.

Link me to this thread. I'd love to participate...

Spot on, basically what I was trying to bring across in a less articulate way.

I'll add that this information that was passed on has nothing to do with the bank as a financial institution. These are the private bank records of some very wealthy people. Just because they are very wealthy, doesn't mean that we have the right to see their bank records. Those are those people's private affairs, much like my bank records are my private affairs.

That's a good point. As annoyed as I am with people trying to blame the banks for the financial crisis, I'm probably more annoyed with the complaints about salaries and the like, because they make absolutely no pretense about being substantive. It's completely shameless class resentment. "Hey, times are tough, and these people have a lot! Get 'em!"

I'll get back to you on that link. I think we have a few. Gol would know, because as always it probably took a break after he posted a thoughtful, nuanced reply, and I was too lazy to keep engaging it, then got distracted by another argument.

In my opinion the banks and investment banks were definitely the main cause, not the government except by inaction.

I think the conservative explanation blaming the fed lending banks for all of it makes little sense.

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I'll keep it brief, but I'll also see if I can find a better thread to move all this into.

Why would it be hard to believe that a spate of defaulted loans would stem from interference with the lending process? The alternative is that there was a sudden system-wide failure to assess risk by people whose livelihood is completely based on assessing risk. I've heard people lazily blame "greed," which is ridiculous, because it posits that a) banks just recently started trying to make as much money as possible and b) it's in a bank's interest (no pun intended) to hand out risky loans. Neither is true.

It's also worth pointing out that the "conservative explanation" (in so far as there's a unifying conservative explanation at all) is not merely to blame the Fed, but to blame regulators in general for encouraging loans for low-income housing applicants. It's not exactly rocket science to say that when you incentivize loans that banks originally thought were too risky, you create more risky behavior. That an untenably large number of these loans defaulted should not be surprising in the least.

Ditto for the Fed part; why would a government agency that implicitly backs failing mortgages not effect the level of risk tolerance for the loans banks give out? It's the opposite -- the idea that it had no effect -- that is completely implausible. Protect people against risk, and risky behavior increases. It's Moral Hazard 101.

This article provides a balanced overview what happened and puts some blame on the government, but the government lending institutions and encouragement of lending money for home mortgages existed long before the crisis. The real spur for the crisis was the investment banks who tried to minimize risk in a deeply flawed way with faulty mathematics and an assumption the housing market would go up forever, which never happens.

http://business.timesonline.co.uk/to...cle3579171.ece

Well governments have acquired private Swiss banking details via basically illegal means previously (I don't have the article I'm thinking of to hand for this but can find if you'd like). Granted it was to tackle offshore tax evasion, and for their own 'private' use, but it's still an intriguing double standard. That's just a side note tho...

Just to clarify my stance, I actually liked what Wikileaks was doing previously, for the most part. I agree with Pidz's Wikileaks-as-p2p analogy. It looked like an interesting new function for the net, which perhaps wasn't doing things quite the right way but was breaking new ground.

On it's current behaviour tho I think the company (or Assange, or whoever made the decision) has bitten off more than they can chew and so made their demise almost inevitable. The releases since they got involved in a sh*t-slinging match with the big boys have been about self preservation as you say, and they started the fight needlessly. They were inevitably going to make big enemies by being a whistleblower, so why they thought they could survive taking on the world's only superpower (and landing some 'collateral damage' blows on most of the rest), and then the banks to boot, is beyond me. Foolish.

Oh now you know I so disagree with you on this

The main hanging thread we've got on this is here: Fanny & Freddie. There was also some vague off topic discussion of deregulation here. But we could certainly start a fresh one if people are willing

But just coz I can't resist...

Yep. That's a key claim. Plenty bankers now concur with it. And there are several relatively clear mechanisms via which it seems to have happened:

Opaque CDS risk-repackagings meaning the banks themselves didn't always know what their risk exposure was; The novelty of sub prime lending meaning there was no historical data with which to make accurate risk predictions - yet the banks chose to act as if their risk assessments would be as reliable as normal; Risk assessment techniques used by the banks didn't account for 'doomsday' '1pc' bubble-bursts (weird as that seems); These same risk-assessments were adopted by 'CDS regulators' at the SEC as accurate, and as a corrolary allowed banks to deleverage (risk more) because the data claimed their risk exposure was low (turns out it wasn't ).

Etc etc etc. Yadda yadda yadda. (I really could go on )

Why do you find the idea that banks got their risk assessments wrong so untenable?

The claim by some that government was ultimately responsible for the crisis because they interfered with the free market always struck me as flawed. Government regulation exists because we had a masive bank failure, and a worst one than the current mess, during the Great Depression. The problem began during the Reagan era when deregualtion of banks began, but federal insurance of bank deposits remained.

Well, I've read it, and I don't think it supports the claim that banks were the "primary" cause. It cites almost nothing, and when it does it's just a quote from someone who thinks either one or the other was responsible.

The encouragement of lending money for unqualified home mortgage applicants definitely existed before the crisis, but we didn't have Sarbanes-Oxley then, and I'll bet (without checking) that Freddie and Fannie probably weren't as big a part of the market, either. And in both cases, the collapse was never going to be instantaneous. Even after all the bent pieces are in place, it takes awhile.

Sorry to move that Wikileaks stuff into this other thread, Gol. Thanks for clarifying; I think we're about 90% on the same page with that stuff. I'm not sure how I feel about the idea in general, but it has a lot of promise, even if only as a threat to encourage transparency. But I know I don't like the way it's being used now. Anyway, onto the financial stuff.

Yep!

Done! Moved it into that first one, as you can now see.

Right off the bat, I find this difficult to swallow. I can absolutely believe that the securities were opaque and complicated, because these things are, but a) why would they buy things they didn't understand? and b) why couldn't they understand it? I realize this is complicated stuff, but so is everything in this industry.

In other words, I feel like something is missing from this explanation. If someone tells me that a bank is suddenly abandoning all the sorts of discretion and study that allows a bank to survive as a bank in the first place, it makes my eyebrow go in all sorts of crazy directions. Like up, and sideways. I guess that's only two. Two's pretty crazy for an eyebrow, though.

Same complaints. Why would they make such a massive assumption? Also, isn't the reason there's not much historical data on sub prime lending because banks usually don't do that sort of lending?

This I have no trouble believing. There's definitely a good argument to be made that not only do most industries not plan for catastrophic collapse, but that they probably can't/shouldn't.

Because we're talking about a system-wide failure to do the very thing that entire system is built on doing, and which it has done extremely well in the past, as most industries do when their livelihood depends on it.

If 100,000 people all simultaneously bought the same really crappy, really expensive product, we'd all ask ourselves "well, did the advertisements lie? Was there a shortage? What happened?" But nobody would ever seriously suggest "all 100,000 people made an incredibly poor decision with their own money simultaneously for no particular reason," particularly if those people did not have a history of doing such things. In individual cases you can say "well, he's never been good with money." But that's not exactly something you can say about a banker, let alone most of them.

If one person dies, you don't immediately become suspicious. If 100 people die in the same area on the same night, you start looking for suspects, and you'd usually rule out the sort of mass-suicide we seem to be discussing here.

And the argument there is that we those failures were either caused or exacerbated by government regulation, too. That's why this stuff is so hard to get right: because the system is inherently biased against inaction, even if that's the thing that's called for. And if something happens because of regulation, it's incredibly easy to conclude that it happened because there wasn't enough of that regulation.

There's no easy answer. The nearest I can get to a neat answer is: The risk-assessments were wrong when it came to sub-prime, where they'd been right previously on vanilla mortgage default predictions. They thought they could trust them.

The middling-to-easy answer would be: read the majority of Tett's Fool's Gold, which has a lot of insider chatter with the guys who developed CDSs, and goes step-by-step through their introduction and abandonment (in terms of sub-prime usage).

My own convoluted 'hard answer' take goes something like this...

---

*edit* Caveat: I'm no expert, so some of the technical info here is pretty rough around the edges (& even potentially wrong ). What I think I've got a slightly stronger handle on is the psychology of the different groups involved, though, and why they slipped into over-using CDS 'subprimes'. */edit*

--

'Why buy things they didn't understand?'

They thought they did. Plus everyone else was doing it, and doing well from it. 'Subprime' CDSs were making certain players big big bucks, in part because they allowed them to shift huge amounts of risk off their books (allowing them to risk/'bank' more ). They were basically selling their risk on. This became a key attraction - the idea of selling product while simultaneously making your company more 'risk free' on paper. (You could argue it was regulation that was insisting they limit the amount of risk they 'held', but I'd argue any sensible business would do the same). They were also seen as a gold mine in their own right though, so banks were simultaneously creating these things and betting on them themselves (often using shell companies to hide the risk they were buying into, stopping it coming back onto the books etc - all be it in this new 'risk lite' CDS form).

Plenty of what was involved was pretty familiar to them (CDOs had been 'tranching' and selling on risk for years; classic shell company techniques were central to 'moving the risk around'; the egg-head risk algos had been around a while and proved robust in vanilla mortgage contexts etc). This facilitated the rush into these new-er products.

It was all given a heavy veneer of reliability by the ratings agencies too. But those guys weren't really doing their job. None of them wanted to be the first to suggest to their titanic clients that their risk assessments could be in any way off, and hence concurred with them (& the internal 'risk tranches' contained within CDSs etc).


'Why couldn't they understand' this thing they had bought/sold?

*edited*

On (b), the trail is fairly muddy, but as I understand it...

The initial 'bet' was wrong. The egg-head risk assessments were off when it came to sub-prime default risk. They had misunderstood the core product on whose future behaviour they were betting. And the system was all set up on them being right about that.

Once everyone realised there might be a problem here (and it took them a long time to admit it to themselves) they also realised that these now high risk products had been sold on and remixed to such an extent that they no longer knew exactly where the 'toxic' aspects were. This seems to be due to the combination of shell company 'opaqueness', untrustworthy 3rd-party 'sellers' (merrily selling on stuff classed by the big banks as not-too-risky etc), and initial uncertainties on how to define the riskiness of the products in the first place. The initial flawed risk assessment had been compounded by various 'risky' aspects of CDSs ('toxic tranches', multiparty betting on the same tranche, deliberate attempts to hide these products 'off the books' etc). No one had foreseen this happening to what they thought was, by definition, a risk-assessed and stable product.

*breathes*

Anyway, that's my amateur attempt at a summary of how these venerable institutions could have got sucked into risking more than they realised. And seem to have done so.

The answer seems to simply be that they wanted sub-primes to operate as 'vanilla' mortgages, and were assured by most of their departments that they would. (It's worth noting that there had been a big draw down in 'risk compliance' departments in many banks, according to Tett, especially as the fancy-dan algorithmic risk assessments had gained favour. So the guys who should have been double checking the figures, and decisions made by people in departments who didn't necessarily understand the algos, weren't there, or didn't have the internal clout to intervene in big money making departments who 'outranked' them).

Certainly sub-prime is a new phenomenon, and we can agree that the US govn has played a role in promulgating them. But as has been touched on previously in this thread, no one forced them to deal in them as much as they did. They did so of their own free will.

Yeah fair play, it's the old 'black swan' conundrum. Instinctively it seems like they could account for it in some ways tho. IE holding a back a little extra for disasters (many of us try to do the same in our daily lives). Certainly not accounting for these 'known unknowns' anywhere in the numbers feels somehow perverse (if still kinda understandable ).

Ah but many of the players haven't done it very well. Much of the cash for these CDS deals came from overly-bullish big-return betters, and short-termist hedge funds sprung up to take their money. These fly-by-night guys spring up and fail with fevered alacrity - but it's only when the market is strong that we don't notice or care. They are still part of the system tho. Failure was part of the system.

(I'm not actually sure what point I want to make here. I think I may have written myself into some form of gnosticism now )

Yep, ultimately, they weren't as advertised. There y'go, analogy solved

Just multiply that by the US population and you've got the basic explanation for the financial chit we're not in. Banks may mail you credit cards, Fannie and Freddy may offer you sweetheart loans for a house you know you can't afford. But it doesn't mean you have to take it!

But like you say, people get used to a very comfortable standard of living, even though they are maxing out their credit and end up owing more than they could ever hope to pay. Primarily because everyone wants instant gratification and are not willing to wait or work and save for the things they want.

My second ex-wife could be the poster girl for credit abuse. I've seen her mail payment checks that she knew we didn't have money in the bank to cover, so of course the check bounces and we have to pay another $50 to the store and the bank on top of the payment we still owe plus additional interest. This woman would go to an ATM machine to get cash on one credit card so she could deposit it in the bank to cover the payment she had written to another credit card! Now there's nothing the government can do to protect against such ignorance as that, and they shouldn't even try.

Thay's always the conservative argument, whenever there is an ecconomic crisis (and the government had no responsibility for creating through regulation the Stock Market Crash of 1929), any government regulation is blamed for being the cuplrit for causing it or making it worse in response to it. The reality is business is quite capable of harming the ecconomy when they are completely unregulated and regulation came in becasue of their excesses. That doesn't mean government can't also harm the ecconomy through their decisions, but allowing completely free markets didn't work in the nineteenth century and won't work now. The difficulty is getting it right and it isn't a balancing act easy to do.

Just to avoid confusion: I'm actually replying to this post in another thread. Just seems to make more sense that way.

To be fair, I think Will sort of denies this. He thinks they were "not compelled to take up more risk," despite their obvious mission to do so and the quotes urging them to do so I posted earlier. So part of my response is directed at that notion.

But for purposes of this branch of the discussion we can both agree that they played a significant role and go from there.

Them's arguin' words!

I think the difference is that we think of market "failure" (that's the key word) from very different perspectives. More in a bit.

I think this really hits on the difference between us. I will attempt to summarize what I think you're suggesting here. Correct me if I am mistaken.

You are first acknowleding that Fannie and Freddie did indeed provide "insulation" or "cover" for banks issuing bad loans because they were willing to buy them up and assume that risk. But you are also suggesting that the reason they had to assume such risk is that banks were already issuing the loans. You suggest this is partially because of the widespread availability of credit, which relaxed borrowing standards. And you make a reference to other "market missteps," which I assume is a reference to complicated package derivatives and other things.

I have a few thoughts in response:

First, that we define "market failure" in very different ways. You seem to feel that (again, correct me if I'm wrong), a business which exploits an easily exploitable government program indicates some kind of problem with the market. I feel it indicates a problem with the government program. That a healthy market is one in which exploits and inefficiencies are constantly exploited and inevitably exposed. This exploitation is why competition works to reduce prices and increase wealth, and we could hardly expect it to take the day off when government gets involved.

In other words, if the government says it's going to buy up risky debt, and a business simply takes advantage of the notion, I don't blame them for it. They are responding to incentives in exactly the way rational beings generally do. I don't feel this is a "market failure" any more than it's a "dog failure" when you dangle a steak in front of him and he takes a bite out of it.

Second, that the market is forward looking, and that even implicit government backing or the chance of it changes the standards of risk which are acceptable. We see this in all other sorts of places: the mere possibility of inflation changes the level of interest people charge for loans, for example. Similarly, if we have a government-backed institution with even a mandate to buy up mortgages, it is inevitable that this fact will alter the way people lend. And creditors are just as capable as anyone else to try to discern whether or not this mandate will be expanded, and a good deal more affected by it, too. And in this case it didn't require much in the way of guessing, given the rhetoric surrounding "redlining," politicians openly calling for more relaxed standards, and the fact that two reform attempts died a quick death.

Third, even if we posit that the availability of credit dramatically enhanced the problem, it can't have done so for very long. The availability of credit is really just another phrase for inflation, and its effect on new borrowing is ultimately temporary. It will inevitably be accounted for by higher interest rates (which politicians love to call "predatory lending"). It takes some time for this effect to diffuse throughout the economy, but it happens, and it probably happens a heck of a lot sooner with banks and the other institutions who are most directly effected by it.

There is also the point that, even if this is all ignored or explained, the inflation is not the doing of private business, but of the central bank. Which means the blame would not really be shared between government and private lenders, but between one aspect of government and another.

I find it difficult to believe for a couple of reasons.

The first reason is that it's easier to believe a handful of people would make the same mistake than that many, many people would make the same mistake. "You can't fool all of the people all of the time." That sort of thing. If someone tripped in front of me, I wouldn't think twice. If 50 people tripped in front of me simultaneously, I'd start looking for external explanations. By sheer numbers, it is harder to swallow that many people (most private lenders) made the same error than that just a few of them did (a few regulators and politicians).

The second reason is that it's not merely that one group of people is larger than another, but that those people are often experts in their field. Their livelihood is based in not making exactly the kind of error they are accused of making. It is the core of their entire business. The smaller group, however, is not only smaller, but has no such incentive and no inherent expertise. They respond to political incentives, not business ones. They are penalized for seeming this way or that, not for the actual, hard results of their decisions.

Those are the more abstract, universal reasons. They'd be pretty compelling to me even if we had no other information about whatm ight have caused it. But throw in the government's insistence that private lenders relax their standards and the presence of a massive entity that is willing to assume so much risk on their behalf, and it becomes difficult for me to find a more compelling alternative theory (or distribution of blame). Basically, I find it far more likely that private lenders exploited a flaw in the government's plan than that they somehow created their own downfall.

What are your thoughts?