So this crisis was caused because the government forced banks to give home loans to poor people?

Subprime mortgages took off after 2004. Subprime mortgages had been around for a long time. But their popularity took off in late 2004. Most subprime mortgages were issued after 2004, according to a survey by the New York Federal Reserve.

Subprime mortgages were not used primarily for new home purchases.
One of the familiar media narratives is that subprime loans were used as part of a government policy to make home ownership affordable to low-income people. But in fact most subprime loans were used to refinance existing mortgages, and not for new home purchases. And most of those refinancings were also used by home owners to take out more cash from their home equity.

Many people who would have qualified for a traditional prime mortgage took out a subprime mortgage instead, based on the recommendation of mortgage brokers, who earned bigger upfront fees from the subprime product.

A big percentage of subprime mortgages had inadequate documentation. It's easy to engage in mortgage fraud if you don't need to prove your income or your net worth. And the proliferation of "no income, no asset" mortgage loans did just that. It was an invitation to fraud. This product was most popular in California and Florida.

Most subprime mortgages had adjustable rates. Most subprime mortgages had low introductory interest rates that reset after a few years. Often, when the rates were reset, homeowners discovered they were no longer able to afford the monthly payments.

Subprime Mortgages With
Adjustable Interest Rates
Arizona 73%
California 69%
Florida 65%
Nevada 68%
Wash., D.C. 68%
U.S. 61%

For an incredibly detailed analysis of all the math involved in the mortgage crisis, go here.

The Daily Dish, Andrew Sullivan

28 Feb 2009 01:38 pm

Dissent Of The Day II

A reader writes:

I came to this country and worked hard also.. and, like you, have been lucky enough to be successful. This country is wonderful that way - if you work hard you have a good chance of being successful. But many people work very, very hard and are not successful - and not because they are stupid, or lazy. The difference between Obama and his predecessors is that he realizes that the people who work hard and don't make a lot of money, or work hard and don't have health insurance, or who worked hard all their lives and now - in their golden years- have little to show for it also deserve some minimum level of dignity.

And yes, someone has to pay for it, and I'm happy for it to be me and people like me, because there for but for the grace of God. It's not punishing the successful, it's realizing that hard work is only part of the equation and we as a society need to recognize our obligations to those people who have held up their part of the bargain but didn't end up on the winning side (and children get an automatic pass).