Are you confused about mortgages? Good. At least you know you are confused. The global economic system has been collapsed by people who were confused about mortgages and didn’t know it. Whose fault was it? It was the fault of the sub-prime home buyer. It was the fault of the sub-prime mortgage broker. It was the fault of lazy financial advisors who put their client’s money in asset backed paper that turned out to be worth whatever recycled paper goes for and no more. But the Federal Reserve Bank should carry most of the blame.
The Federal Reserve increased the amount a bank could loan relative to the amount the bank holds in deposits. It is hard to argue that the increase to a 30-1 ratio was simple idiocy. When Jon Stewart repeatedly asked Jim Cramer, “Who thought a 30-1 leverage was a good idea?” he was referring to the Federal Reserve upping the deposit-to-loan ratio to 30-1 for American banks. The answer to who did it, Jon, is: The Federal Reserve Bank. Congress must replace the FRB.
Mortgage contracts were made with such low standards that mortgage brokers tried selling a subprime mortgage to every living, breathing person they spotted.. They dit it in a way that would make the most hardened magazine subscription telephone sales person squirm.
When the FRB raised the ratio it flooded the market with more money, which went out in loans to unqualified buyers which were then bundled as the infamous ‘asset backed paper.’. Toxic assets don’t exist in the real world. In the real world they have a different name: liabilities. The American government is using taxpayer money to buy liabilities.
And lastly are the people who bought homes they couldn’t afford, and then started whining that they didn’t know they had an adjustable rate mortgage. I cannot conceive of people so clueless that they make the largest financial commitment of their lifetimes without reading the document they are signing - or at least paying a lawyer or advisor to do so. These people should never have been allowed to purchase a home, and they certainly shouldn’t be rescued from foreclosure.
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