ROBERT SMITH, host:
We've reached NPR's economics correspondent Adam Davidson to help put this all into context. So Adam, we've both been listening to Chris's story. Have we finally found the person and thing to blame for this housing crisis?
ADAM DAVIDSON: Well, we seemed to have found one of the groups to blame. Chris cast a really nice light on this one dark corner of the subprime crisis. But that could not have happened in a vacuum. You had everybody at every step of this chain acting irresponsibly, taking on way more risk than was appropriate. I've interviewed dozens of homeowners, subprime homebuyers who would bought more house than they could afford, and I'd say almost every single one I've talked to, they knew that they were taking on more risk than was reasonable.
SMITH: Did the mortgage brokers know? Did the mortgage banks know?
DAVIDSON: Everybody knew. The mortgage brokers, many of them, clearly knew that they were extending loans to people who couldn't afford it, but they didn't mind because they were passing those loans very quickly onto the mortgage banks. The mortgage banks were taking on extreme risk, but they were passing on those loans to Wall Street.
Wall Street was taking on extreme risk and many knew it, but they were passing it on to global investors, now many of whom say they weren't paying enough attention because they were just trusting the credit rating agencies, but the credit rating agencies now admit that their models were flawed and faulty. So everyone at every step of this chain was clearly not doing the best job of assessing these risks and being financially responsible.
SMITH: Well, fairly quickly, did they think that the reward would outweigh the risk?
DAVIDSON: These people were making a lot of money. I mean, homebuyers by - I mean by definition what we're talking about are people getting much more home than they really could afford, so that's a big benefit. The broker's making huge - everyone at every step of the chain was making massive amounts of money. I mean you're talking about 25-year-old kids who don't have a college degree making over a million a year. I've met these people. They were making a lot of money. And as the financial guru John Bogle says, it's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it.
SMITH: Thank you very much, Adam.
DAVIDSON: Thank you, Robert.
SMITH: NPR's international business and economics correspondent, Adam Davidson.
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