The Glass-Steagall Partial-Repeal Did Not Cause the Financial Crisis

[louis-t]

16. Riiiight, the banks didn't run credit checks...

Very ignorant statement. To get a no doc, you had to have a very high credit score. No docs were not the majority of default loans. Neither were adjustable mortgages. You have to remember who made all the money from selling the loans. Lenders were allowed to lower the minimum credit scores down to 580 and increase the ratios of debt to income. No one (including Barney Frank) forced them to do that. They made a ton of money. So, borrowers that could make the payments based on their income were ok as long as that income didn't go down. Yeah, they were on shaky ground. When employers started saying "Hey, you're not worth $25 an hour, we're going to pay you $15 an hour" they took peoples' house and car payment away. When millions of people had their jobs taken away, that further fueled the meltdown.

Investment houses like Goldman Sachs were bundling the bad mortgages and selling them as investments. Then they got AIG to sell them insurance policies (credit default swaps) on the investments because they knew there was a good chance they would fail. They would win either way. They were telling their investors "Moody's gave us a 100% rating on these."

Reader's Digest version, but a lot more complicated than "the banks didn't run credit checks."