| theprof00 said: @vertigo it wasn't that people couldn't afford their mortgages. It was a 1-5.25% leap on interest rates coupled with predatory lending that in some cases had 10-15% interest for a property. The idea was to have a home and instead of paying it off, pay the interest each month sort of like rent, but for a nice home rather than an apartment. However, then you couldn't get out of the agreement like an apartment, and people divorce each other and for whatever reason, defaults skyrocketed. This was not because of sub-prime mortgages, but because of predatory using sub-prime lending as the vehicle, an avenue allowed to them by deregulation. BTW: at first, everyone backed sub-prime mortgages. It was the banks who abused the situation and were given the power to do so by the republicans. |
You could get out of your sub-prime interest only loan by selling the house. This worked fine as long as real estate prices continued to rise as you could cover the closing costs and potentially even make money on the sale just because the price rose. This of course failed as soon as the real estate market slowed as prices stopped rising and started falling.
Predatory lending? The lenders were trying to make loans that they could then sell. To get those high risk loans to be sold they had to meet other standards -- as in making them high yield. It is always more pricey to get a loan when your high risk. This had in this area nothing to do with deregulation but regulation. Even with the high interest rate they could have never sold these loans if Fannie Mae did not start buying them, creating a market for them. Fannie Mae did this as Congress told them that they had to get 50% of their portfolio in minority owned assets.
The bad mortgages were then repackaged with other regular high quality mortgages and were sold as bonds. The bonds where then repackaged and sold as other larger financial assests, CMOs. The mixed nature of them taints them all and they are all throughout the world economy as the GSE claimed them to be AAA quality products which it is now obvious they are not. This meant no one would buy them and because of regulations after Enron disaster they had to be valued at market value in the US but as the market vanished the value went to 0. This left them under capitalized and lead a lot of them to crash and have the government step in and take over. In this atmosphere no one has a clue who is stable and who is on the verge of failure ending overnight lending by banks to banks.
So in that what lack of regulation is your complaint? Predatory lending, no way that is required as the classification of a loan has to be reveal to an investor in it and high risk ones are all high yield -- high interest risky mortgages. Banks trading debt, that is facilitated by the federal government by creating the mortgage supporting GSEs. Low asset capitilization, perhaps your right on that but that was aggrevated by government regulations about how those assets be valued and also you want to see the worst of that look at the GSEs and how little capital backed their investments.
You want to talk about bad deregulation look to Credit Default Swaps. If those start to go everything could fall apart and the current situation seems to make that seem possible. They are totally unregulated and scare me to death.
Proud member of the Sonic Support Squad
