Philip Penton implies that the mortgage debacle occurred because of people lying on their loan applications (7 July, p 31). He appears to overlook the fact that nobody was holding a gun to the bankers' heads to force them to make loans.
Once upon a time, banks made mortgage loans and held the paper, so if the loan went sour, the bank lost money. With the advent of collateralised mortgage obligations, the bank no longer held the loan but bundled it and sold it to investors. If the loan went sour, the bank no longer lost money. Bankers were making so much money packaging and selling the loans that they encouraged brokers to generate an increasing number of loans without worrying about quality.
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