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About a year ago I did some freelance work for a mortgage broker; he was writing an article for the real estate section of a newspaper and he needed someone to dumb it down, and, well, I was his man.

In the process of said "dumbing-down," I got him to explain to me just what caused the sub-mortgage crisis in '07 that culminated in the recession of '08-present, which was useful for a non-economics major like myself.

According to him, since home-owners spend upwards of 30 years paying off their mortgage, the mortgage brokers themselves make their actual money by taking all the mortgages they sell, bundling them up into a Bond, and then selling them on the stock market. People buy these bonds because they have guaranteed interest rates; and as home-owners pay off their mortgage over the years, part of that payment goes into the interest rates.

Mortgage bonds aren't as lucrative as stocks, but nor are they as volatile--people invest, say, their retirement in mortgage bonds instead of stocks because bonds always have a guaranteed return (at least that was the theory).

The mortgages themselves are pro-rated; that is, a mortgage given to someone with excellent credit is AAAA rated, while someone with worst credit is considered "sub-prime" and isn't supposed to be approved for mortgage--or if they still are, they aren't put into a mortgage bond, because mortgage bonds are supposed to composed strictly of AAAA rated bonds.

But some unscrupulous brokers decided to sneak some of these sub-prime mortgages into the AAAA rated bonds, in hopes of increasing the number of bonds they sell, figuring that one little sup-prime, or just a few, won't make a difference (you see where this is going).

Now, the govt. is supposed to regulate that sort of thing,but in a culture of de-regulation, no one was paying very close attention. Besides, the money was too good--major brokers like Lehman Brothers and Bear Stearns bought up the supposedly AAAA rate mortgage bonds, in part to enable mortgage brokers to continue giving housing loans out at an accelerated rate.

This was during the housing bubble, and we could only keep building houses indefinitely as long people were buying houses; so to keep people buying houses, we were all willing to let some sub-primes sneak in there, figuring the market could easily handle them.

Of course it's impossible to keep building houses indefinitely, just as it's impossible for the market to rally upward indefinitely, and there was dip--a very minor one at first. Some people got laid off, couldn't make their mortgage payments, and suddenly those supposedly AAAA bonds weren't able to give their interest payments.

There turned out to be quite a few more of those sub-prime mortgages than brokers had gauged, and so suddenly all these bonds were toxic, that is, incapable of giving steady interest rates and therefore worthless and unsellable. Before a full year had passed, Lehman Brothers and Bear Stearns had collapsed, and the govt. was bailing out banks just to ensure that brokers could still sell houses; otherwise (according to him) the entire housing market would have collapsed completely.

This broker also informed me that during the housing bubble, the U.S. was creating 250,000 jobs a month, the most in America's history; now, these were mostly low-level construction jobs (even I had a construction job then), but they were still jobs nonetheless, and unemployment hovered around 4%.

But as of year ago, he said the U.S. economy had in fact been creating 100,000 jobs a month. However, by then millions of jobs had already been lost, and an average of 120,000 people were entering the work force a month--college grads, immigrants, housewives re-entering the workforce when their husbands got laid off, retired people re-entering after losing their retirement, etc. He said that even if we were magically able to get back to 2006 housing bubble rates of job creation--and somehow sustain that job creation indefinitely--it would still take us roughly 7 years (I suppose it's 6 now) to get back to 4% unemployment.

All this is just a round-about way of explaining my impatience for those who blame the economy on the present administration, who believe that unemployment benefits, welfare, and health care reform are part of the problem (and not a response to the problem), and who believe the market should be further deregulated and allowed "to work itself out."