I was refering to lenders fear of the borrower declaring bankruptcy, hence the incentive for only lending to credit worthy applicants.
The ability to declare bankruptcy goes way back in this country and is American as apple pie, the founding fathers were all in favor of it.
Bankruptcy laws keep everyone honest. Ideally, banks that want to stay in business maintain sound lending standards, people who cannot demonstrate ability and willingness to repay a loan are therefore denied. Thus, lenders avoid potential losses and borrowers don't get stuck with a loan they couldn't afford in the first place.
However, the trouble, as always, starts when the government gets involved. [/quote]
The gov has little to do with it. Greed has more to do with it. Lenders were handing over money to unqualified people not because of the gov, but because of the money it brought in. Then they sell the note to someone else to get stuck with the default. As far as the student loans you had people taking out loans for degrees that meant little and then act surprised that it was worthless. Heck their were lawyers that got their degrees that turned around and sued the schools because they weren't getting the jobs at the income level that they thought that they would.
