Until then, we’ll hit bottom and skiff along indefinitely.

The reasoning: they were swindled.

No similar write offs for the small fry homeowners, I believe, who were similarly swindled out of their houses, 401K retirement funds, and credit card debts via Wall Street, AIG and friends.

Maybe we should be taking about a tiered approach to cram downs with the obvious fraud being open to restructuring by the courts, as opposed to people who got in over their heads due to greed.

Credit is money lent against the borrower’s future earnings (if the borrower had the money already, he’d hardly need to borrow). It is called “credit” (from the Latin “credere”, to believe) because the creditor believes that the borrower will, in fact, earn the money and a little more, which becomes the creditor’s interest. The creditor is essentially betting on the debtor’s abilities and future good luck.

If, due to unforeseen circumstances, the debtor does not earn what was expected, the debtor goes bankrupt and the creditor loses his bet. For him, it’s just a cost of doing business, if he’s generally good at picking his bets. If he isn’t, then HE goes bankrupt and goes into another line of work.

So, even if it were true that small borrowers were leaving banks holding the bag, I can’t see how you the Right can be so fast to blame the borrower for the creditor’s lack of core competence as a businessman.

Then there is the fraud angle that this article illuminates. The kind of fraud described happens when the creditor does not really “credit” (believe) that the borrower can ever earn the amount of money being loaned. Yet he pretends that he does and makes the loan anyway. He may even doctor up the borrower’s application to make it more believable to anyone else that looks and may add money to the original request. Why? Because he does not care whether the principle is returned and is not planning to live on interest paid. He is lending someone else’s money and getting a fat commission and fees for doing so.

So when I hear someone vilifying poor borrowers who can’t make payments in a looming Depression, I say, be careful what you believe/credit and, please, don’t sign anything when you talk to your banker. You’ll be walking in just when he is starting to fear that people are getting too smart.

That would set the scene for a very large class action lawsuit, with much evidence already in the court records, and really cut the amount of discovery and Bank obfuscation.