Posted by Jesse Hasty
on 10/6/2008, 9:03 am, in reply to "Re: In addition..."
66.173.166.242
I find the term predatory lender absurd. What happened was that mortgage service companies made loans to people. The government put tremendous pressure on the service companies to lend to certain special minorities. Of course the service companies tried to lend as much as possible to each customer, but especially to special minority customers since it made them look better to the government oversight people like senators Dodd and Frank and to the federal regulators. These less that stellar loans were supposed to be grouped together with a lot of more solid loans and sold to fannie may or freddy mac who would sell them on the open market with an implied federal guarantee. As long as property vales were in the ascendant there was no problem. People could keep refinancing or sell out at a profit and pay the loan off. But with the burst in the residential real estate bubble all property values sank and the mortgage backed securities lost value.
Few of the underlying mortgages are in default, but since the underlying real estate is worth less the securities are worth less. Any institution stuck with a bunch of these securities cannot sell them even though they are paying off at the rate they were supposed to when they were created. The only real problem is that good properties are tied to the bad, and that 70% or more of all mortgages are owned in the form of freddy mac or fannie may bonds.
Whoever thought creating such a behemoth was a good idea (think congress) was a fool.
This present "crisis", the bailout, is a scam siamesed on the back of the mortgage problem. It all is the result of government meddling in the baking system.
Deregulation worked. The only banks who have survived these times unscathed are the ones who took advantage of deregulation to diversify. While their commercial sections are hurting, their other businesses are prospering enough to carry them through. Only the banks like Lehman Brothers who failed to diversify are failing.
To oversimplify, there are 2 types of investors. Weak hand who are in a hurry to abandon an investment at the first sign of trouble and invest for the short run even if they think they are investing in the long run, and strong hands, who truly invest in the long run and only abandon an investment when it is clear their conclusions from early on are in error or there has been a fundamental change in the market. When too many weak hands are in the market, and not just the stock market, the time is ripe for a big sell off. If I knew what the magic ratio between weak hand and strong hands investment was I'd be an extraordinarily wealthy man.
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