Subprime Mortgage Meltdown, how we got ourselves into this mess

so, i have been watching with disgust the latest debacle to scare the global money markets. the complete meltdown of the so called “sub-prime” mortgage marketĀ  is the inevitable result of the over-extension of credit that happens when the market does really well for a long time.

what happens is this: the market is booming. almost everyone who wants one has a job (never mind the fact that real wages are down, inflation sucks for poor folks and that a significant number of the employed are under-employed). interest rates remain low however and banks and creditors start to salivate over new potential customers. where did these new customers come from? simple, they were always there; they were just never considered good credit risks.

so, what changed? almost nothing in any real sense. did millions of people suddenly become better credit risks? no. did the credit industry have a change of heart? no. the only thing that happened was the ease with which they could borrow money themselves, not to mention all the huge profits being made by some companies–you have to find somewhere to put that money. so, creditors began loosening their loan criteria.

the only result of this is a whole bunch of people either being duped into horrible adjustable-rate mortgages and/or balloon payment loans (i.e. low payments for a short time, then boom, not so low payments anymore). any numb nut can see this is a recipe for disaster, especially when this becomes industry practice. one company doing it, okay. half a million policies, no problem. when dangerous lending practices become standard operating procedure–not a good idea.

the inevitable result is what you now see happening–millions of people defaulting on loans they never should have gotten in the first place, real estate speculators having to bear the brunt of a collapsing market, and homebuilders just scared shitless (great articles from CNN here, here and here).

what is going to happen now? well, Wall street will fire a few people from its bloated staff levels, the dollar will slide ( here and here) and the fed will begin finding out some way of helping those fuckers who got us here in the first place.

my boss just walked in and asked about how the market was doing. i told him that it had opened with a 300+ point gain, but had since receded a bit, but still up. he knows me of course, so he asked if I was happy about the slow bleed that has crept into the market (which is down almost 10% from its highs).

i do love to see the elite class get what is coming to them here or there, but that is not the case here. it is not the wealthy (or just well off) that are gonna take the brunt of an economic slowdown, it will be the average jane and joe who lose their home and their job.

2 Responses to “Subprime Mortgage Meltdown, how we got ourselves into this mess”

  1. nix Says:

    Some of yr best writing, I think. Keep up the good work hon.

  2. drunken cynic Says:

    So you are against giving mortgages to poor people? Just kidding.

    One thing about mortgages though – the reason the banks started handing out mortgages like they were fucking checking accounts is because “buying debt” (what they call “asset-backed commercial paper”) has taken off in the last ten years or so, so banks basically:

    (1) Give out a mortgage, pocketing the closing costs
    (2) Sell ownership of the mortgage to another bank/investor, who will pay a premium but collect the interest on the loan
    (3) Hedge funds buy equity and debt in the investors buying the debt, which is considered low-risk because there is property to foreclose on (collateral) backing all the bonds
    (4) Investors look to buy more debt, so banks look to give out more and more mortgages, since there is a steady market for them and they make easy $$ pocketing the closing costs but not saddling any risk of default.

    Its like a pack of piranhas with blood in the water, and when the sh!t hits the fan the government bails them out. Which is why you no longer see rich folks throwing themselves out of windows when the market tanks.

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