and allow open sale of the security, that has been going on for some time. It is just another type of derivative where the value of the security is tied to the default rate of the underlying mortgages.
DOES ANYONE think its right to put mortgages on the open stock market?
and allow open sale of the security, that has been going on for some time. It is just another type of derivative where the value of the security is tied to the default rate of the underlying mortgages.
The practice was a torpedo to the economy, at once undermining consumer spending and finance.
5 card draw, jacks or better to open. I like to try to calculate my risk and bluff my adversaries.
I don't lie either. lol
Seriously speaking though. Mortage backed securities didn't bring the market down. Loaning countless billions of dollars to people without the means to repay brought down the market. Everything else was just a smokescreen.
Loaning countless billions of dollars to people without the means to repay brought down the market. Everything else was just a smokescreen.
If only they had asked for the old school 20% down for good credit and 50% down for people without the means to repay..
ADJUSTABLE INTEREST(A.R.M.) LOANS IS WHAT BROUGHT the whole thing crashing down
most people with FIXED INTEREST RATE LOANS would not of had the problem that we see now
-- Modified on 12/9/2008 1:26:17 PM
Ivan Boesky was right about junk bonds: they were higher return relative to the rest of the bond market. Unfortunately, as soon as he discovered that, the demand for junk bonds meant it was no longer true. In the bubble that followed, junk bonds were then seldom issued by people who were in any way serious about paying on them.
The dotcoms: you had a few internet companies that showed incredible returns. Investors discovered it and wanted to get into the market. Unfortunately, the companies that followed were made to take advantage of the bubble: with nothing but a name, an internet site, and a one-line business plan scribbled in long-hand.
This housing bubble follows the same pattern. Again, what caused the rush of bad mortgages was the money from the sales of mortgage-backed securities, which were both high-return, and insured against failure. Who could pass up that deal?
In every case, there was no control or care taken upstream in the process to make sure minimal standards were met. Nobody looked. A little regulation there would have gone a long way.
The reason why I blame mortgage-backed derivatives is that they created a high demand for more mortgages. Like a disease, they also increased and spread the blight of mortgage failures uncontrollably through out the whole economy. It created an over-supply of houses, and as home owners were allowed to borrow against their equity, when the prices fell, it dried up consumer spending as well.
They hardly reduced risk as they were supposed to, no, just the opposite; they were over-issued, and over-investment in them diluted the buffer against risk. They were unregulated, and there were no accounting standards for them, meaning that even now its hard to tell how bad this crisis is. The companies that issued them often insured them, too and then (I guess?) spread that risk out by selling insurance based derivatives.
The lesson: the market alone can't correct its own inherent problems, and risk and collapses are its inherent problems.
-- Modified on 12/9/2008 4:51:59 PM