“By pooling thousands of mortgages together and breaking up pools into different risk trenches, the Wall Street has lowered the cost of house ownership dramatically to millions of Americans.”

No, I think it is the opposite. The easier you make it to finance a house, the more buyers who would otherwise not be able to buy will be able to buy, thus driving prices higher than it would be if it were not for the securitization of mortgages. An expensive good that is hard to finance will have a lower price than one that is easier to finance because there will be less eligible buyers.

Most subprime mortagages are refinances, not new loans. Often, they’re done by people who need to pull out equity to pay car/home repairs or hospital bills, etc. Many of the mortgage originators engaged in predatory practices to make these loans that, if not illegal, were at least unethical. (See responsiblelending.org for details.)

The whole idea of ARMs, which was pushed by Alan Greenspan and aided by the Fed, is a classic example of people familiar with finance taking advantage of people who aren’t, in the pursuit of ever higher profits.

If the idea is that the mortgage buyer should have known what he was getting into, then isn’t it only fair that the mortgage investor do the same? Had any investor actually looked into the situation, he would have realized that he was buying into what was little better than a scam. (Some of these mortgages had zero income documentation. Something like 50% had income figures that brokers encouraged exaggeration on, in order that the loan be made and the broker get his money.)

So, who should be left holding the bag? Every foreclosure reduces home values in the neighborhood. The more foreclusures, the harder it’ll be for home prices to recover.

Personally, I think if the gov goes after anyone for this mess, it should be the people who made money out of it.