Relaxing lending standards to 'make' people afford houses, violates the same economic principles that a 'universal health care' program would.
Ed McMahon... Could be he "borrowed to the hilt" and then walked away... shamefully gaming the system. Apparently California is a "non-recourse" state for 1st mortgages. THAT alone is a HUGE (and socialistic) mistake. If a mortgage loan is "non-recourse", the buyer should be putting down 30% or more. 5% down or zero down on a non-recourse note is STUPID, STUPID, STUPID... probably legislation passed by socialistic DemoCraps, you know.
I tend to agree. I think a lot gets swept up in the term "subprime." The worst aspect of it was the no down payment type loans. Do enough of those and you are guaranteed a blowup at some point. Every trader understands that. Then you have people who are themselves heavily leveraged buying securitized paper that was too heavily leveraged to begin with. I think if a borrower can put down a decent-sized down payment, say 20% which used to be standard, you can cut them some slack on the income, etc. They are not likely to walk on the mortgage. Plus, you won't get the kind of cascading defaults and foreclosures that are devastating some markets now. There is also the issue of the rampant fraud that took place. Fraudulent mortgage brokers, fraudulent buyers (liars' loans ring a bell?), fraudulent appraisals, fraudulent securitizations and fraudulent ratings. We need to get some teeth into the enforcement end, because all these intermediaries pass on the financial risk and have no skin in the game. At the end of the day, we exchanged one kind of risk, the kind that produced the S&L crisis 18 years ago, for another. We didn't eliminate it.
I was on this board telling people years ago that the reason while prices were so high in CA is that people could walk away from purchase money loans on their principle residence and most likely walk away if they only had one mortgage on any of their properties. There used to be a 20% cushion for institutional lenders. In the past private money charged 3-4 percent higher interests rates for 2nd trust deeds. Wall street knew that they were doing stupid stuff when they came in and started virtually giving away seconds to anyone. The builder recognize the free money and started building beautiful developments in shit locations. You should see the kind of money people were paying for new homes in formerly bad neighborhoods. Many people knew borrowers could just walk away. The builders, the lender sand wall street - absolutely ripped off their share holders. It was all a set up to pull billions out in bonuses. Pabst pointed out that Wall Street investment banks started doing stupid stuff when they went public. Prior to that is was Partnership capital on the line. I did a little business with Wall Street 10 years ago.. I generally dealt with some young partners. They were sharp greedy sons a bitches who would lie to you faster than bill clinton. But they were not stupid. They were looking to become even bigger participating partners just as the deals they were putting together should be paying out. Think about how smart these bastards were. They found a way to take out billions by finding game that could hide trillions and then rigging it for a few years. These guys were very smart criminals. These guys were Neiderhofer and LTCM on steroids. They were selling premium at below market prices to every homeowner in America. Getting a mortgage in CA is like getting a free 5% out of the money put and a free call. Plus you get to live in your option as long as you keep buying it every month. Wall street was selling premium and collecting the premium as a bonuses.
The last few posters, except for Jem who has it right, missed my point entirely. No one in there right mind would think lending money to unqualified borrowers is a good idea. My point was that originally, in the seventies, subprime borrowers had to qualify with reasonable requirements, and those loans worked as intended. The additional risk was properly reflected in the rates. It was not until the connection between borrower and lender was lost in the nineties that the problems arose -- and that was not because of subprime loans, it was for the reasons i stated. The current crisis has its genesis in unbridled greed and outrageous leveraging, not in subprime lending. Again, although subprime and the current problems are strongly correlated, subprime is not causative.
We agree again. I'd add a few harsh points to your outline, but I like what you said so far and where you're going.
When interest rates were cut last time there were more banks that hadn't written down so many billions and even then the new rates were not passed on to the customer. Now with banks merging and some disappearing altogether there is less competition.Any rate cut would not be passed on and therefore would not make any difference to anyone wanting to buy a house.Not that anyone does want to buy a house.
Google "Bobolink Foundation". This is Paulson's baby. He has 100 million of Goldman Sachs stock in this thing. And, Goldman had 20 billion in AIG. Conflict here? What do you think?
No, a rate cut won't be passed on, at least not 100%. That's the whole point of it, give the banks a backdoor subsidy with a big interest rate spread. They can then rebuild capital.