"Charles Momsen" wrote in message
...
During the Depression (the one started in 1929) my grandfather went down
to the bank and bought the mortgage on his farm for about 7 cents on the
dollar.

So why 700 Billion $ and all these laws?

Wouldn't it be better (and simpler) to give people with mortgages the
opportunity to buy their mortgage for pennies on the dollar?

It may not fix every problem, but it would certainly be of great benefit
and reduce the cost of housing.

An over simplification:
First of all, the world plus dog needs to understand that the word "banks"
is being used incorrectly. If the institution originating the loan(s)
does/did not have the word "bank" in their name, they are/were not a bank.
One example, Countrywide, the biggest mortgage originator which has gone
broke, was not a bank. Another example, Washington Mutual, is not a bank.
The former was a mortgage company and representative of those firms most
responsible for originating subprime loans (known among bankers as "liar
loans"). The latter was a savings and loan association, representative of
another non-bank group who made substantial subprime loans.

Regulations and capital requirements kept most national and state chartered
banks out of the subprime business, though politicians and the FED
encouraged all financial institutions to make loans to LOW INCOME people.
And some banks did make subprime loans, but immediately sold them in the
secondary market to investors like FreddieMac, FannieMae, hedge funds, and
private investors. These secondary firms sliced and diced and packaged the
loans and used them as collateral to issue MBO's (i.e., mortgage backed
securities). They then used the cash to buy even more mortgages, and
repeated the cycle, and all the participants were getting rich. (Towards
the end, the MBO's were so hashed up, that no one can figure out what they
are worth, if anything. Thus the MBO's became unmarketable. Since they
became ill-liquid (couldn't be readily sold), the house of cards came
tumbling down. I.e., a liquidity crisis.

Honest originators made the loans based on criteria set by the purchasers.
I.E., "formula" loans. They counseled customers to avoid adjustable rates
("gambler" loans). There were thousands of dishonest brokers who encouraged
borrowers to roll the dice, and there were millions of dishonest borrowers
who lied on their applications (you know who you are). But, the more
serious problem were honest, but perhaps greedy, people who bought more
house than they could afford by taking out low rate, adjustable loans. When
their rate went up, they could no longer make the payments.

They defaulted and now we have a world wide problem.

Those to blame:
borrowers
brokers
lenders
investors
regulators
politicians