Blame game

An Investor's Business Daily editorial from Monday, September 15 lays the blame for the financial and housing sector meltdown at the Clinton Administration's doorstep. However, they stop short of laying out exactly how the market was motivated to offer high-risk products.

But it was the Clinton administration, obsessed with multiculturalism, that
dictated where mortgage lenders could lend, and originally helped create the
market for the high-risk subprime loans now infecting like a retrovirus the
balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they
had no choice but to lower lending standards to make the loans that sound
business practices had previously guarded against making. It was either that or
face stiff government penalties.

Unfortunately, the site has no comments at the bottom, so the normal user-content Q&A activity is absent.

Questions:

1) What rules made banks have no choice?
2) If they knew it was a bad decision, why did they still do it?
3) Since businesses operate on self-preservation, wouldn't it be up to the business to identify a losing prospect and not enter into that line of business, knowing how risky it could be?

To me, with no details or research, the IBD is saying that the Clinton Administration created a noose, and the market put their collective necks in it. Mixing metaphors, if we're to understand profit motive, there must have been some huge carrot on the other side of the noose.

The IBD is saying that it's the government's fault for even allowing the option in the first place, which cannot be reconciled with smart business decisions.

**UPDATE**

I didn't address the "stiff government penalties".

1) Did the banks and lenders do an assessment to decide whether high-risk loans carried a higher risk for loss than the goverment fines?

2) Did they think about not offering the products, and taking the hit from the goverment, while they were wallowing in the derivative benefits from the high-risk products?

3) Which was the harsher result: being fined by the government, or not being in existence 10 years later?