"The Crooked Deal"
This then is the general background: the objective of the whole Crooked Deal, was to turn ultra-low and safe interest rates [home mortgages], into highly speculative instruments [the toxic waste], which could be traded with the belief that while they paid as if they were high risk, the risk would only come true of everything came crashing down, and at that point there would be a bail out. This is "lack of moral hazard" as Kenneth Arrow called it. But what turned the Crooked Deal into a house of cards on fire, was a series of triggers and missteps.
What set the stage, then, was an economy that did not have a really high powered sector of growth, but, instead, was suspended waiting for the flood of cheap oil promised in Iraq.
Yes, children, the war was for oil, as Henry Kissinger admitted in a moment of honesty. So, I'm not sure who won the Iraq War, but we, and Bush, definitely lost it, because we didn't achieve our strategic objectives. And we're still there why? And the "real war" is in Afghanistan why?
The great financial houses shuffed a deck of crooked cards, and used the very low interest rates to fund building them high up into the stratosphere. Even such laws as were on the books, were ignored. Instead of cutting this off when it had peaked in 2005, a deliberate decision was made to let the economy run hot. Into this dangerous situation came Ben Bernanke as Fed Chairman, and Hank Paulson as Treasury Secretary, and a new Congressional majority that had little memory of how to deal with a lame duck opposition President effectively.
And here we are.
Though I think it's overly generous to credit the 2006 Democrats with a lack of institutional memory. They do what they do because that is their vision of the country. Exhibit 1: The FISA reform Clusterfuck.