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Its up to debate where the problem started, but most academic economists agree it appears the root of our current economic crisis is the post 9/11 reduction in the Federal Funds Rate. The reduction in interest rates made these subprime mortgage backed securities a lucrative investment when the risk-free treasury bills dropped below 1% return.
Most academic economists are wrong. At best, a subprime mortgage-backed security is a highly risky investment. It simply could not be a reasonable substitute for T-bills. We're talking about fundamentally risk profiles. In fact, a subprime mortgage should not be a possible investment for most institutional investors. The problem is that systemic fraud in the financial services industry intentionally misled institutional investors to believe that a subprime mortgage-backed security was a low-risk investment, somehow comparable to a T-bill.
So, in that general sense, yes, "blame the banks." But the fraud involved, among other participants, originators knowingly taking (and encouraging) fraudulent loan applications, lenders loaning money on the basis of known fraudulent applications, repackagers creating complex securities in an effort to hide the ball, lenders and brokers selling securities without disclosing known risks, payments to ratings agencies to look the other way, and payments to trustees/administrators to prevent investors from using contractual safeguards. Everything else is highly politicized, but it's all ancillary. But for fraudulently-created institutional investor demand, the housing bubble/crisis doesn't happen.
Today, most significant institutional investors are involved in litigation against multiple financial services companies involved in the fraud. Read some of the complaints. The part that I find most depressing is that no significant criminal charges have been initiated despite two political parties sitting through this -- I guess they have some donors in common... Anyway, hopefully the proposed BYNM/BOA/CW rule 77 settlement in NY drives the NYAG to do something.
But for fraudulently-created institutional investor demand, the housing bubble/crisis doesn't happen.
Really? Are you trying to tell us that greedy fools wouldn't have been spending their life savings on deposits for 10 speculative condo units had the investment banks not been securitizing mortgages?
What is your excuse for greedy fools in 2000 who were spending their life savings on dot-coms with no revenues? Was that the fault of the evil, evil banks, too?
Sure, I could have done what some of these (now bankrupt) idiots did, but I didn't. At what point does personal responsibility come into play, or does that term not exist in your world?
Really? Are you trying to tell us that greedy fools wouldn't have been spending their life savings on deposits for 10 speculative condo units had the investment banks not been securitizing mortgages?
What is your excuse for greedy fools in 2000 who were spending their life savings on dot-coms with no revenues? Was that the fault of the evil, evil banks, too?
Sure, I could have done what some of these (now bankrupt) idiots did, but I didn't. At what point does personal responsibility come into play, or does that term not exist in your world?
Maybe my post wasn't clear. I'm talking about fraud leading to institutional investor demand for mortgage-backed securities, not individuals' real estate investment decisions.
Maybe my post wasn't clear. I'm talking about fraud leading to institutional investor demand for mortgage-backed securities, not individuals' real estate investment decisions.
If people had paid their mortgages like they were contractually obligated to do, MBS securities would not have failed.
The structure of the securities was well-known. What wasn't known was how fast the market was going to deteriorate after individual investors began to default.
Institutional investors are knowledgeable enough to do their own due diligence. If they bought something that they didn't understand they should accept the consequences.
If people had paid their mortgages like they were contractually obligated to do, MBS securities would not have failed.
The structure of the securities was well-known. What wasn't known was how fast the market was going to deteriorate after individual investors began to default.
Instututional investors are knowledgable enough to do their own due diligence. If they bought something that they didn't understand they should accept the consequences.
You're missing the point: institutional investors were defrauded, else they wouldn't have invested in high risk securities. Yes, if the deadbeats had paid, the high risk securities would have performed despite the risk. But the issue here is that we've got a bunch of low risk investors (insurance companies, pension funds, other financial institutions) who would not have purchased high risk securities but for fraud. This isn't a matter of security structure or due diligence. It's simple fraud. When Countrywide/BOA/BYNM presents you with conservative underwriting standards, dynamite loan applicant information, and a debt instrument which states that a trustee will swap any non-performing mortgage for a perfoming mortgage and is triple-A (or equivalent) rated by national rating agencies, you've got one thing. In reality, the underwriting standards were intentionally not followed, the applicant information was intentionally false, the swap provisions in the debt instruments were intentionally not enforced, and the rating agencies intentionally overrated.
I don't disagree with you as to real estate investors' personal responsibility. But that did not cause the crisis. What caused the crisis was a market for debt securities that was created entirely out of fraud. Without a market for those securities, no one would have written the underlying loans, so our dumb investor making $20k per year would not have been offered any loan, let alone a $500k loan. In that light, the fact that the collapse happened so quickly is not surprising -- once the securities stopped performing, institutional investors were required (by inflexible internal guidelines and/or regulation/law) to sell all they had and stop buying more, and the originators/lenders actually got stuck with the stuff in the pipeline. The inevitable result is "credit freeze" plus bailout.
There's a lot of hot air going back and forth here, but here are some cold hard facts.
My brother has not paid his mortgage in 3 years. He decided to stop paying b/c "everyone else was doing it," why not him? In the 3 years he has done this, he has saved well over 52,000 dollars and taken multiple trips to Disney World, Paris, paid for private school tuitions, bought a new car, paid for dinners out with the family 4-5 times a week, bought luxury items at International Plaza like iPads and IPhones, and so on and so on. Of course he brags about how everyone who is underwater should do this and "they are idiots if they do not."
Meanwhile we are paying our mortgage, struggling every month, with no idea when on god's green earth we would EVER have the chance to save $52,000. The fact is: NEVER.
And what will happen to my brother? He will get evicted from his house, one day, and then he will rent a place and, well, that's about it. And he will have amassed THOUSANDS of dollars in the process.
I don't know whether to blame the banks for this, or my brother, or the media. But what I can tell you is that my brother's scenario, which is being played out in MILLIONS of families in this country, is a knife through the heart of every American who thought that working hard and being responsible was the right thing to do.
Clearly, it is not.
I haven't paid a mortgage payment in well over a year. I even made a thread about it, back before I began this journey.
I did a lot of research, got a good attorney and went the strategic foreclosure route.
It's been a good deal for me. I've paid off every single bill I have(besides the mortgage), I have saved literally thousands of dollars(not $52K yet though). Took a few vacations, bought some toys i've always wanted. Good times.
There are tons of owner finance properties available on craigslist if you have 10% down and the buying prices are much lower than what you would think. Certainly a lot lower than what I owe on my current underwater home.
When I finally have to leave my current residence, I will most likely buy an owner finance home with a chunk down. If I get to stay here long enough, I'll just pay cash outright for one.
I did a lot of research, got a good attorney and went the strategic foreclosure route.
It's been a good deal for me. I've paid off every single bill I have(besides the mortgage), I have saved literally thousands of dollars(not $52K yet though). Took a few vacations, bought some toys i've always wanted. Good times.
There are tons of owner finance properties available on craigslist if you have 10% down and the buying prices are much lower than what you would think. Certainly a lot lower than what I owe on my current underwater home.
When I finally have to leave my current residence, I will most likely buy an owner finance home with a chunk down. If I get to stay here long enough, I'll just pay cash outright for one.
You must really think you are smarter than all of us who are paying....Karma is a B.... And btw owner finance...uhm uhm great tool for people with BAD CREDIT who are willing to pay high interest rates...?..and your next step will be BK?...
Good luck in the next 13 yrs!!! I hope you enjoyed your toys, so will the judge when he looks at your assets.
You must really think you are smarter than all of us who are paying....Karma is a B.... And btw owner finance...uhm uhm great tool for people with BAD CREDIT who are willing to pay high interest rates...?..and your next step will be BK?...
Good luck in the next 13 yrs!!! I hope you enjoyed your toys, so will the judge when he looks at your assets.
When I read all the pettiness and hate in replies like yours, i'm reminded of something I once read. I'll copy and paste it for you. Maybe you can learn a little something.
THE TALE OF TWO WOLVES
One evening an old Cherokee told his grandson about a battle that goes on inside all people. He said, “My son, the battle is between two 'wolves' inside us all.
“One is Evil. It is anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego.
“The other is Good. It is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion and faith.”
The grandson thought about it for a minute and then asked his grandfather: “Which wolf wins?”
The old Cherokee simply replied, “The one you feed.”
You're missing the point: institutional investors were defrauded, else they wouldn't have invested in high risk securities. Yes, if the deadbeats had paid, the high risk securities would have performed despite the risk. But the issue here is that we've got a bunch of low risk investors (insurance companies, pension funds, other financial institutions) who would not have purchased high risk securities but for fraud. This isn't a matter of security structure or due diligence. It's simple fraud.
By your same reasoning, there were institutional firms buying "safe" bonds from European countries that blew up in their face. Who do they contact for a refund on those?
Many securities are "safe" until the day that they no longer are. There is no such thing as a completely risk-free asset.
When I read all the pettiness and hate in replies like yours, i'm reminded of something I once read. I'll copy and paste it for you. Maybe you can learn a little something.
THE TALE OF TWO WOLVES
One evening an old Cherokee told his grandson about a battle that goes on inside all people. He said, “My son, the battle is between two 'wolves' inside us all.
“One is Evil. It is anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego.
“The other is Good. It is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion and faith.”
The grandson thought about it for a minute and then asked his grandfather: “Which wolf wins?”
The old Cherokee simply replied, “The one you feed.”
—Author unknown
You post in these threads because you love to get people worked up. You mention vacations and buying toys looking to get people to respond. I'm sure you had that quote ready before your first post.
I hope you do as you say an buy a place cash and this is the last time you are a drain on the economy.
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