the most sophisticated banks and investment companies, including Merrill Lynch, Citibank, and Morgan Stanley, have written down their housing investments by billions of dollars. No one can reasonably claim that these banks lacked the skills and knowledge to evaluate all the terms of, or the likelihood of repayment, on the subprime and other mortgages that they originated or held as assets.
...it is ironic that only a few years ago, banks were being investigated for "redlining"; that is, for avoiding lending to blacks and other residents of poor neighborhoods. The Fair Housing Act of 1968 prohibits discrimination in lending, and The Community Reinvestment Act of 1977 requires banks to use the same lending criteria in all communities, regardless of the living standards of residents. As a result of the present crisis, however, banks and other lenders are being criticized for equal opportunity lenient lending to all, including black residents of depressed neighborhoods.
The subprime mortgage "crisis" follows a classic pattern that should help us to understand the inevitability of intelligence failures (Pearl Harbor, the Tet Offensive, the Egyptian-Syrian surprise attack on Israel in October 1973, 9/11, and so on ad nauseam). These failures typically are not due to lack of essential information or absence of warning signs or signals, but to lack of precise information concerning time and place, without which effective response is impossible except at prohibitive cost. Alarms over risky mortgage practices had been sounded for years, and ignored for years. Someone, whether a home buyer or an investment bank buying home mortgages, who had heeded the warnings when they were first made, or indeed until years later, would have left a good deal of money on the table.
That is a point I have made before--if you were warning about risky mortgages back in 2001 or 2002, by the time 2005 rolled around you did not have much credibility.
Both Becker and Posner are worth reading in their entirety.