Banks did not have to make risky loans to stay accredited. Do you really believe Wall Street got rolled by a bunch of community organizers with the CRA? That was the crumbs they allowed to fall off the table to get national banking, eating up the little guys. And every analysis of the defaults finds that big problems were concentrated in areas not covered by any loan requirements at all - the suburbs, in places like Las Vegas and Florida and involved $300k homes, $400k homes and up.
And anyone alive during that era knows the banks spent $billions begging people to borrow, NINJA loans, negative amortization, 110% LTV loans, and they did it because every loan made them money, piles of money, record profits, record stock prices, record bonuses.
That's wrong on every level. CDS was essentially default insurance, what the buyers of bundled mortgages believed would make them whole in what they believed was the VERY, VERY, VERY unlikely event of a major problem with underlying mortgages. It's what fueled the bubble, that and $trillions and $trillions of other bets on bets on bets on bets. It was a casino, and everyone thought they had insurance to pay off their bad bets. Turned out they were wrong, but that had nothing to do with government, except they let the casino run wild and virtually without regulation.
Read any book about that era and learn something. The thinking was, essentially, that X is the worst case scenario we've ever seen with a nationwide housing downturn, and priced things with that worst case in mind, and then the ACTUAL crisis was far worse than their worst case scenario. It wasn't 10-20% of the book that went bad, and was priced into the risk models as the worst case, but sometimes 80%. Worse, the 'insurers' - the other side of that bet - went belly up because they'd horribly mispriced the risks they were assuming, so when they went to collect on that 10-20% downside, even that wasn't there. It was the equivalent of a homeowners insurance company pricing in one Cat 4 hurrricane and then 10 Cat 5's hit all up and down the coastlines.
In fact a big part of the AIG bailout was because they were the 'insurer' and so the Feds assumed the losses AIG took on and paid out $billions to the banks as if the U.S. was the insurer. That bailout isn't mentioned a whole lot for some reason.
