If there was no government backed Fannie May and Freddie Mac then they would have never done the predatory lending in the first place.
If government stayed out and didn't promise to bail them out, and didn't force regulations to meet racial quotas that started this whole thing in the first place, then none of this would have been possible. Banks were regulated and intervened by government. They weren't a total free market.
And I don't see how it's predatory for free market banks to lend money they will never get back. Thats not a smart business decision.
Watch out for those free market capitalist that lend money to people with bad credit that won't pay any money back to the banks. Ooooooo!
Halloween is coming up right
Your first paragraph is completely wrong; the second is interesting (I'll get to that).
Fannie May and Freddie Mac, along with a few others (Bear Sterns, IIRC) weren't initially backed, and were never intended to be either. But it was Lehman Brother's bankruptcy that showed the world that the financial sector was so interwoven that the downfall of one company was basically like one domino falling down: it brought down a lot of others. All over the world, governments were quickly forced in an enormous hold-up: either buy up their assets - even though they were openly known to be toxic - or watch the entire financial world go down.
The ugly truth is that before this came to light, banks were so badly regulated that it was a dead letter. Rating bureaus like standard & poor at best had a few well-meaning clerics doing the tasks banks allowed them to do. I remember one hearing where someone said that it was just him and a handful of colleagues overseeing the entirety of all wall street transactions, with no decisive power whatsoever. It's no coincidence that Adam McKay portrayed them as blind men in the movie The big short. Joris Luyendijk (a local writer) used the analogy of a flying airplane that no longer had a pilot.
The whole problem was that by the deregulation, there had been no difference between insurances and savings. While both are done in "banks", the merging of the two made as much sense as a normal household merging with its neighboring casino. For as long as the casino keeps winning, it's a nice idea: the next door house provide some extra cash and as long as the casino makes a profit, they both profit. Unfortunately, the analogy is flawed because banks told house owners that their investments were safe whereas they were in effect a complicated gamble. It's been ten years, but we still have a major lawsuit because a bank that had to be saved flat out lied to people that their savings were safe...until it went up in the 2008 chaos.
If you ask me, there's certainly something criminally wrong with banks lending money they "know they won't get back". I mean...it only creates problems where there were none before: pretty much everyone thinks that they will be the ones paying back the mortgage. It's especially problematic because they at the same time pretend to be the objective source to verify whether or not they can afford it in the first place.
However, that's not where the crux of the situation lies. Banks assumed they would always make a profit from a sold house. Either they profited because the owner payed everything back (plus interest, obviously). Or they profited because the owner
couldn't pay everything, and they got to sell the house. This, of course, hinged on the assumption that houses would never lose in value. Which they did.
and that's where the real crime really is: they used their assumption as certainty. Say they have 100'000 dollars. Some guy (A) comes along and loans it. The bank, at that time, realistically has zero dollars. However, they argued not unrealistically that because they would ALWAYS recover, they could just as well write out a loan for 100'000 dollars to guy B. That's the thing that should've been legal (heck...even counterfeiting), but they treated these 'I owe you''s, so to say, as a means to generate more money. Not in "just" lending the same sort of money to every Joe that wanted a loan, but in large investments where they bundled them together and traded them up to the point where nobody could find the actual money in it anymore.
I agree with you that these banks should've been punished for their actions. And hard, as well. I've got from media sources that I trust that in the first days, they were genuinely scared that this would be the case. But then their lobbyists convinced governments about the upcoming chaos that would ensue (and make no mistake: pretty much everyone's savings was on the line, so worldwide riots were far from an unrealistic scenario), and banks were saved instead. Banks didn't knew they were too big to fail before...but they do now.
And that's why I'm more scared of hedgefund managers, financial CEO's and the like than anything halloween-related. they're not evil per se. They're just too greedy and short-sighted to allow to be unregulated. Yet your line of "it's the government's faul" thinking is becoming more commonplace in, ironically enough, the US government.
