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Analysis: Lenders, Investors, Buyers Fed Loan Crisis

Co-host Robert Smith talks to NPR's Adam Davidson about how lenders, investors and buyers all contributed to the subprime mortgage crisis.

Davidson says everyone at every step of the chain acted irresponsibly, "taking on way more risk than was appropriate." He says he has interviewed dozens of homeowners, subprime home buyers who bought way more house than they could afford, who said they knew they were taking on more risk than was reasonable. And the mortgage brokers and mortgage banks knew, too.

Brokers didn't mind the extreme risk because they were passing on loans quickly to the banks; banks didn't mind because they were passing on the loans to Wall Street. Wall Street knew about the extreme risk but was passing it on to global investors, many of whom said they weren't paying enough attention because they trusted the credit rating agencies — but now those agencies admit that their models were flawed and faulty, Davidson says.

Many thought the reward would outweigh the risk, he says. Everyone "was making massive amounts of money — you're talking about 25-year-old kids who don't have a college degree making over a million a year."

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Robert Smith is a host for NPR's Planet Money where he tells stories about how the global economy is affecting our lives.
Adam Davidson is a contributor to Planet Money, a co-production of NPR and This American Life. He also writes the weekly "It's the Economy" column for the New York Times Magazine.