You must have missed the part about how the loans were insured by AIG. I was told at the time about several investments that had zero risk since they were insured by AIG.

These were investments in the oil businesses, something I know more than just a little about. It took me almost five seconds to understand that what was being pitched was unworkable, so the deal was only as good as the insurance that was backing the investment. Since I don't know that much about insurance companies I passed. As Warren Buffet says: If you don't understand a deal then stay out of it. I understood this one enough to know that if AIG went under the whole thing was going south.

When AIG could not cover the loans the lenders, like Fannie Mae and Freddie Mac, took a serious hit. FHA loans also suffered, but they are covered by an in house insurance program and did not suffer to the same degree since there really was some money left to pay claims.

I understand that it is easy to blame 'the government' since that requires no thinking. But if you really want to understand what took place, and how to prevent it in the future, you have to dig deep and when you are digging into something that is made to be complicated to prevent this digging it can start to make your head hurt.

Private ownership of housing has been a goal of the US government since the Eisenhower administration came up with it, and everything really was going well until lenders took advantage of the 'no risk to them' situation when it presented itself.

The S&L scandal of the mid 80's is a better example of a government policy gone wrong. Reagan led the charge to deregulate the S&L's and before the ink was dry people were making deals that scammed the FDIC. One of G. W. Bush's brothers, Neil, is said to have cleaned out Silverado Savings and Loan to the tune of $500,000,000 and he was one of the lesser players in that fiasco. The S&L deregulation set the taxpayers back $394,000,000,000 dollars and it is still being unwound to this day.

(I think it is funny to hear Conservatives whine about the $60,000,000,000 spent on GM, all of which the US will get back through payroll taxes, when Ronnie pulled $394,000,000,000 out of our pockets to clean up his deregulation mess and that is money that is gone forever.)

And the greedy guys DID loan out money with little or no chance of getting it back. It was all insured, so what could go wrong?