Sen. John Sununu's excellent analysis

In this piece published last Friday, former Senator John E. Sununu recounts his meeting with FNMA executives Dan Mudd and Richard Syron.  Five years ago Sen. Sununu confronted them about lending standards and other issues with FNMA.  “They didn’t want to hear it.” and “they had clearly embraced a business model that socialized potential losses while providing private returns.”

And this is exactly why we are all hurting right now:  the “socialized losses.”  The “Readers Digest” version goes something like this:  Political pressure to reduce lending standards leads to excess lending.  Regulators that recognized the problem were marginalized.  Lenders continued to lend to those that could never repay and investors in those loans believed their investments were sound.  Housing prices soared on the increased demand.   Sub-prime borrowers (as they often do) defaulted.  Private investors (who carried all the risk) lose their investment.  Housing prices plummet on excess supply AND the unavailability of funds because of increased fear on the part of lenders.

At least prosecuting Mudd and Syron may begin to place some punishment on those that were responsible.  And at the same time heal the market.