the problem isn't risky loans. the problem was banks OVERLEVERAGED on their lending and were lending to each other on leveraged. borrorwed money to lend. and when the music is over the money supply shrank a lot. there wasn't any money to lend. these banks have collateral when they lend to mortgages and cars and in even business with assets as backed up.
The question is how conservative the banks have become...I can tell you from personal experience and from several people working in this line of business that the standards have tightened dramatically. Even those with stellar credit are being asked for boatloads of documentation. The banks are also verifying all information written on the loan applications by actually taking the time and calling phone numbers listed. Something that they should have done a long time ago. But by all means several mortgage brokers have told me that the banks are at the moment beyond ridiculous even for their stellar customers. Next thing we know the banks might ask for a blood and stool samples.
these banks want a free lunch for interest payments on money that not even theirs. the banks money is the depositors or FED. these banks don't have any money to lend. banks can't print money don't you get it.
The loans to business owners who spur the economy should be given more consideration. The chinese market got loans and their markets soared. Many people think the subprime is the problem alone. Its only the tip of the iceberg. When Prime loans become subprime and commercial loans become subprime then we have problems. The banks will need to have those deposits from the feds when the time comes. Think of this like a financial 9-11-2001. Its a simple program if you think about it. Take people out of the projects that get govt subsidies and place them in these foreclosed homes then have them go to school to get educated and then allow them to take over the loans. These mortgages should be like student loans where they will take the interest and principal from you for the rest of your life from your income tax until its paid. If these mortgage scammers realize that they cannot walk away they will pay it off some way some how. Let them stay in the homes and give them govt jobs. Pass amnesty for the immigrants and let the new social security card holders who have cash but no credit buy these homes...
Of course banks lend other people money. Banks CAN actually "print" money, it's called fractional lending.