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Thursday, January 10, 2008

Sub-Prime Mortgage "Crisis"

Some time ago, a couple of years I think, someone changed the rules on who could qualify for a mortgage. That's where sub-prime mortgages got their start. One rumor I heard blamed Bear-Stearns. I can understand if one company wants to change the rules for who they lend money to, but what I cannot understand is how these sub-prime loans got resold without anybody apparently being aware that they were not prime loans. It sounds just like Andrew "Fraud" Wiederhorn of "Fog Cutter" who was "repackaging bad loans into securities". How in heavens name can you do something like that? He did a bunch of it and eventually got sent to jail. His board of directors voted him a multi-million dollar bonus shortly after he was convicted. The judge quashed it.

Anyway, back to the housing problem. Okay, so now you have a number of previously unqualified buyers now wanting to buy houses. Not too bright these folks, signing up to buy houses they really can't afford. But they want them, and someone is willing to lend them the money to buy them, which pushes the demand up, which pushes up prices, and builders start building more houses. And then a couple of years later reality hits and all these people who really couldn't afford to buy a house find out that they really can't afford to buy a house and this house of cards collapses.

Meanwhile a bunch of people have pocketed a bunch of money and slipped off to the Riviera to spend their ill gotten gains.

So my question is: who was supposed to be watching the store?

1 comment:

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