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Discussion Starter · #1 ·

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I blame two parties for this:

1: The people getting the loans. Know what you can afford and get an attorney before signing.

2: The banks. Giving out loans with people with poor/no credit is there own fault, and they should not get bailed out.
 

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I blame two parties for this:

1: The people getting the loans. Know what you can afford and get an attorney before signing.

2: The banks. Giving out loans with people with poor/no credit is there own fault, and they should not get bailed out.

What are you saying!?

Self accountability? Pfft.

Not in this country.
 

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100% loans. 110% loans. No money down. Ultra-low APR teaser rates. ARMs.

What did they (the bankers and the buyers) expect? Unbelievable.

Any accountability for anything? Not!
 

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Discussion Starter · #6 ·

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The big banks thought they were scrubbing themselves of the risk by passing the mortgages to investors(insurance companies for example) as SIVs. In the end, the banks who were financing the sub prime lenders ended up bailing them out, and now need some bailing out themselves. This will touch everyone unfortunately.

Greed is a bigger threat to our economy than most think. This issue is touching local governments as well as big business. Some have said a "National Run on the Bank" has begun.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a6Ne4_lh1TS4&refer=home

http://www.bloomsberg.com/apps/news?pid=20601087&sid=ajtjS6F6wS0M&refer=home
 

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Listen up folks, B&V' will lay out the situation for ya in easy terms.....

The "old" method of home mortgages was that borrowers went to the bank. The bank checked their credit, income, debt and then made the decision to lend the bank's money. This limited the bank's profit since they can't loan more than the gov't allows them based on their depositor's money.

The "new" method that started a while ago was conjured up to help the banks make more money than they otherwise could. Ever notice how most banks dropped the "bank" part of their name? By getting into the business of packaging up the mortgages and sell them off as bonds to institutional investors they became less like banks and more like "financial services". The banks could not only make more loans than before because they were no longer limited by deposits but they also saved money by allowing 3rd parties to value the homes, check the lender's credit, rate the bonds, etc. Since they were now selling bonds to institutional investors, 3rd party credit rating agencies got involved. The net of this "new" situation is that banks become more aggregators of mortgages by buying them from other origination sources and selling them. Without their own money on the line, they allowed others into the mix. Their profit went through the roof and their own losses were limited (baring any fraud on their behalf, they succeeded in passing the buck on to others)

Both methods have shown their flaws recently. Under the "old model" some Banks will be troubled as they lowered their standards in order to increase their profits (alternatively, the area's they serviced had their mortgaged property decrease in value -- same effect). The system worked for a while, but was not sustainable. Normally, this would allow a couple banks to fail, but wouldn't collapse the entire system. The Gov't could step in, install some new governance and prop the banks up. The worst of it would also be localized to certain markets that were understood.

The real trouble is in the "new model" as the bonds that got sold are now widely held by everyone from other banks to foreign governments to corporations and institutions (probably YOUR retirement). Also the new model suffered from having more 3rd parties involved that got paid on the number and size of bonds (e.g. mortgages). Thus there was incentive for them to exaggerate in order to get paid more. The net of it all is that the "cancer" has spread and no one knows exactly how far it goes, what the magnitude is, and how long it will last as it is everywhere in the financial system and no longer limited to just banks.

Bank runs are relatively simple and the regulators know how to handle them. It is all the other players involved and how they interact with each other from the new model that is such a mystery to even the brightest and most experienced. When there is uncertainty there is doubt and fear. We see this now in the marketplace.

Still, I highly doubt there are THAT many people that can't make their mortgage obligations. Historically this number is really low (~1%). This has increased a bit lately, but is still less than a few percent. It takes a certain kind of idiot to overextend themselves like this and while I personally am against a bail out because it helps idiots, I don't want to suffer along with them if the rug gets pulled from the whole system. That is the rub we all face right now. The speculators, flippers, and other retard followers of the aggressive "buy lots of rental properties" school should get their ass handed to them. But there are some reasonable people out there that bought their mortgage with sub-prime terms expecting to refinance when they needed to. They probably can't right now as either this home has dropped in value and they can't cover with their equity or the environment is such that traditional lenders can't lend because their are no buyers for the bonds. They are stuck right now.

Believe it or not, but there are still other shoes to fall. Home price increases have been less in the US than in most of Western Europe and some other markets. Thus, if the contagion spreads, there could be global problems. ......this is why gold is ~$800/oz.
 
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