Oh and then there is a total new LAYER of fuckery after that.  Banks then sell the loans divesting themselves of the burden and do it all again.  And to meet the requirements they just arbitrage debt by borrowing from the government and lending it back to said same government with a 1-1.5% spread for doing absolutely nothing of value.

That all works until interest rates go up unbalancing the game of lend and flip.  Then lending dries up because borrowers can't afford the new debt.  Then existing debtors start to default.   And then we "destroy the free market to save the free market" and history starts to rhyme, AGAIN, oh wait have I said too much?