You and I agree 100% that many in the mortgage industry behaved irresponsibly, unethically, immorally, and illegally. I mentioned that earlier along with all the other people in the mortgage chain that acted similarly.
In 2000-2005 demand for housing increased. And the housing market reacted as it should in a free market. Supply is rather fixed and demand increased. That is why prices accelerated at a rate of 12 - 20 percent a year. Probably at least 50% of the demand was fueled by low interest rates, and that was an artificial market event.
As demand for loans increased then interest rates should have gone up too, but instead they went DOWN. Interest rates should have probably been at 12%, not 3 or 5 percent. But alas, at 12% low and moderate income families would not be able to own a house. The government and other advocates feel that low and moderate income people have a right to purchase a house, and whether they can afford it is immaterial. That is why they manipulated the interest rate. And why they manipulated the money supply. And of course some in the mortgage industry manipulated the government, which is what happens in a mixed economy. In a free market economy there is no one to bribe or influence, because the government is "hands off" when it comes to the economy. Prior to Freddie MAC, the amount of money available to lend was limited to a percent of assets on hand at banks. The government and FDR felt this was totally unacceptable, because people who could not afford a house could not buy one. That makes sense to me that people who cannot afford a house cannot buy one. So they (the government) created the secondary mortgage market in the 1930s with the creation of Freddie Mac. And it got worse when the government created the other "MAEs" in later decades. Because they took us off the gold standard, the money supply was no longer finite. If the government felt we need more money, they just printed it. Almost anyone can become a mortgage broker. No assets needed. They originate the loan and the government buys it. It is a sweet corporate welfare system for the incompetent, the unethical, and the immoral. So now that you have eliminated a free market, which naturally weeds out the incompetent, you have created a system that invites the incompetent and dishonest people to make money they have not earned. Now if government gets out of the economy completely, there is no one to lobby, no reason to gain political favors, no special franchises to be bought.
My parents and my grand parents generation learned their lesson from the depression and they behaved responsibly. They had little or no consumer debt. They only borrowed to buy a house or a car, and they paid off the house in 20 or fewer years, and the car in 3 or less years. They typically made a down payment of 20% or more. And many did not borrow money at all. They just saved their money and paid cash. The subsequent generations bought, bought and bought with money they did not have. During the past few years we should have just let the poorly run financial institutions, car companies, and others simply go bankrupt. In a free market that is what happens. Incompetent companies go broke. That would have hurt all of us, but we would have learned our lesson once again. When these companies know the government will bail them out, they behave poorly. And you cannot blame capitalism, because it does not exist. You can blame incompetent, dishonest people who manipulated a mixed economy, and who could not make a dime in a free economy.