http://www.alternet.org/story/153217/the_a...

The Absurd Zombie Lie About the Economy Right-Wingers Desperately Cling To -- And Why It's Totally Wrong

Home loans didn't bring on the recession; gimmicky financial instruments bloated to 100 times their value are what caused all this pain.

December 4, 2011  

- snip -

That rightly infuriated most Americans, but it has nonetheless become something of an article of faith among conservatives that Wall Street bears little blame for the Great Recession. The dominant narrative on the right today is that "big government" is ultimately responsible for the crash. In the words of one of Andrew Breitbart's bloggers, Democratic lawmakers like Barney Frank and Chris Dodd “brought down the banking industry by forcing banks to give loans to people who couldn’t afford them.”

- snip -

Short of that, notes Prins, if the crisis were really about people buying McMansions that they couldn't afford, “we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.”

What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivitaves that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth.

- snip -

One could argue that the meltdown began with a chance meeting in 1997 in a line for coffee at Bank of America's Chicago headquarters. According to the Financial Times' Gillian Tett, a chance encounter brought together people working in BofA's derivatives group with another team that was packaging mortgages into securities. From that meeting, as Tett wrote, “a new game was born: bankers began to use subprime loans to create these bundles of loan default risk, now called collateralized debt obligations (CDOs) on an explosively large scale.”

MORE