Sunday, September 07, 2014

Liars' Loans And Econ Collapse

Finally, Wall Street gets put on trial: We can still hold the 0.1 percent responsible for tanking the economy -

... This is a difficult thing to understand—indeed, not understanding it is the stated reason Obama Administration officials have made no effort to send financiers to jail—so let us take this slowly. Executives at the mortgage origination companies got huge bonuses in those days for writing lots of loans. OK? They wanted to write more of them, and the only way to really crank out mortgages on a vast scale was by giving one to anyone who wanted one, regardless of their ability to pay, a feat that is only possible by means of the “liar’s loan.” So: Liar’s loans = rich bankers.

Now, it just so happens that liar’s loans are a lousy product, something that is virtually guaranteed to fail when prices stop rising, something that everyone knew at the time would fail when the bubble burst. That’s why you don’t see liar’s loans when banks are honest and regulators are on the job. Because the bank that makes liar’s loans—and the investor who buys a security based on liar’s loans—will eventually lose their money. That’s why they are banned today. So: Liar’s loans = dead banks. Liar’s loans = slow-acting arsenic. But on the other hand, the immediate bonuses that mortgage execs were collecting for making these poisonous loans were so sweet that they didn’t really care about the long-term effects. So while those awful loans they wrote eventually sank all the big subprime houses—and wrecked the global economy to boot, with Europe still in ruins, etc.—the bankers themselves lived to sail away into the sunset, their yachts laden with bullion...
 So if you understand how this works, you're smarter than Obama.

1 comment:

peppylady (Dora) said...

This is nothing new...during Teddy Roosevelt term as president. He broke up the big business, during the golden age (he who has the gold rules) But did nothing to the big banks. The only president did any thing to the bank was his cousin Franklin Roosevelt.

Coffee is on