Originally Posted by dalakhani

I hear you Phil. But letting Wall St. take their lumps will only further exasperate an already skittish market. Lack of available lending products and higher rates are now the leading detriments to housing recovery. Ratios of price/income and mortgage payment/rent have come back to sane ,sustainable levels.

So say you let the GSE's fail which appeared fait accompli. What would that do? It would cause the housing market to completey tank as the ONLY source of money would be FHA (which will see huge troubles ahead...another subject) or private banks (which are charging crazy rates for non agency paper).

If the government was going to inject the massive amounts of capital necessary to prop up the GSE's, doesnt it only make sense that they can truly run and regulate them? And for the record, the government is going to make a nice profit when this all shakes out.

lastly, the bolded part needs a little clarification. Do you really think the banks and brokers that originated the loans even CARED about whether the homes would appreciate? Do you think the investment banks did? Or do you think that they thought they could continue to pass the paper off to some other poor sucker?