Bolling: A House of Cards on Solid Ground

I have watched, listened to and spoken to more senators and representatives in the last two weeks than I care to. The fact that they are all willing to get on TV and tell us why they think we desperately need a $700 billion bailout, or why we need it somewhat, or why the plan is ridiculous tells me that they know less than you or me.

The way I understand this is that the loose lending practices over the better part of the last 20 years or so is the foundation for a disastrous house of cards. Congress, the Fed and various administrations' acceptance of the "affordable housing" push was the first floor. There is plenty of blame to go around, but without this basic premise, the subprime lending boom-turned-explosion couldn't have taken place. Fannie (FNM Quote) and Freddie (FRE Quote) were encouraged to lend more and therefore generate more fees. Under the very populist "affordable housing" facade lurked shaky mortgages. Let's not forget the refinancing frenzy during the last few years of the real estate boom. Scrupulous (and some not-so-scrupulous) lenders got together with scrupulous (and some not-so-scrupulous) appraisers to help pump up the value of homes. This enabled homeowners to draw on the "equity" in their home like an ATM. And if times got tough, they were able to refinance the house and get money for other things ... all too often to buy another house they couldn't afford. After all, this house-turned-cash-machine thing was pretty enticing.

Then came the realization en masse that their homes were investments, and that investments go up and down, and that the ability to live off the pumped-up "appraised value" of their homes was running out. As the free equity dried up and was no longer available to draw on, foreclosures began -- first as a trickle and then as a levee break.