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Smart bankers, who have their money on the line, do not loan to gullible borrowers. But, bankers who are backed by government programs will take advantage of what the government provides them. If the GSE's were not accepting bad loans, brokers would not have made them. This is where one improper element distorts the whole market. The free market response to a bubble is to deflate, once the deflation is corrected, the market will restart. The government mimics this with artificial gimics like cash for clunkers, but once the program ends, so does the recovery. It is better to allow the free market to deflate properly to have a real recovery.
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