This is: http://www.primeronmoney.com/lendingmeltdownisridicuous.html

This lending meltdown is ridiculous?

Normally a bank will make loans and those loans will be secure because they are covered by the value of the house. If the buyer defaults -- the bank gets the house and that house is worth more than the money owed. The bank comes out OK -- the borrower loses his down payment and whatever fees he paid

Is the following what happened in the current case?

1. Banks lent money on houses without having those loans properly secured.
2. The banks sold those loans -- in large batches to other financial companies. (were these loans guaranteed by the banks?)
3. Those other companies would not have been at risk if they did their homework and the loans had real value
4. The original buyers defaulted.
5. It seems to me -- in any event -- if the banks lost money - it is their fault for making bad loans
6. If the companies who wound up buying the loans lost money - it is their fault for buying bad loans.
7. If the original buyers lost money -- it is their fault for borrowing more than they could afford to pay.

How did the rest of the country get dragged into this? Why should it affect the economy? Shouldn't every dollar lost have been gained by someone else? Shouldn't it be a wash as far as everyone else is concerned?

I think the buyers lost and the banks gained. In other words -- the rich got richer. What else is new?

I guess the current fuss is because the government simply doesn't want to admit that this is how banks operate. Congress is more or less, responsible for the banking system and they do not want to admit that they, Congress, let so many poor buyers get ripped off.

Am I missing something?

If the loss was caused because the value of the homes dropped -- then the people who sold those homes to the borrowers were the ones who wound up profiting. It is still a wash.

Explain this to me if you can.

Marty