America Was Screwed!!!!
July 26, 2009
– Comments (5)
Using public records and Internet searches, the Herald-Tribune identified hundreds of deals that exhibited classic red flags for fraud. They include sales between family members and business partners in which prices increased $100,000 or more overnight. In other cases, flippers repeatedly traded properties from their company to their own name, each time increasing the price and the amount they borrowed.
Lenders knew they were writing bad loans, but did it anyway because they were making so much money on underwriting fees, said Jack McCabe, a Deerfield Beach-based real estate consultant ...
http://www.calculatedriskblog.com/2009/07/herald-tribune-lenders-ignored-mortgage.html
Banks didn't give a damn what they infected with debt.....the more the better. It didn't matter whether the loan would ever get paid back or how many families were destroyed in the process....the money flowing in was incredible.
Mortgages were granted to homeless people, migrant workers, and many without any documentation.
But the real money wasn't in underwriting the debt as the article suggests. The big dollars came from securitzing the loans into packages and selling those packages around the world to any fool that would buy them. But it didn't stop there, in order to really cash in, the banks started selling insurance on the loans......often selling much more insurance than there was debt outstanding.
The real money was in the insurance, credit default swaps.... weapons of financial mass destruction was Warren Buffett's characterization. The game for the banks was to lend to anyone they could, and as much as they could.....the more they lent, the more inventory for securitiztion and then the cash register could really start ringing by selling the swaps.
The problem with over insuraning an item is that can distort the purpose behind the item being insured. For example, let's say you allow insurance on your house to be sold to your entire neighborhood. And each neighbor buys enough insurance to replace the value of your home. If enough neighbors get to cash in if your home gets destroyed, guess what might happen when you and your family are on vacation?
With credit default swaps, banks were incentivized to lend without regard to ability to pay or collateral safety. As a result, homes that should have sold for $100K sold for $200K.....commercial property was not too much different, and same with private equity deals. Often, the banks threw more money at the borrower than the borrower actually wanted at the outset.
And it spread to credit cards....remember all those solicitations in the mail? ...and auto loans, and trillions worth of home equity loans. The credit was flowing and the debt was accumulating...until the banks lent out more money than existed in the entire nation.
For some, it was a ripe environment for fraud. For most of the rest of America, people were forced to borrow money to pay prices on homes and other things that were simply unsustainable based on bubble pricing. Once loans started defaulting and the banks started actually checking credit, the prices of homes, commercial real estate, and private businesses crashed.
Those of us that saw it early knew the crash was coming. But for many, entire life savings were wiped out and homes foreclosed.
The banks didn't care, they were cashing in on the swaps...both up and down becuase they had access to the actual performance of the portfolios, in real time.....while cities, states, and pension funds lost billions on an investment vehicle they really didn't understand that was sold to them by the banks......AND profited from their loss.
And these are the institutions that we are bailing out??? Since when was the rapist the victim?
These are absolute crazy times in our nations history. From my perspective, critical thinking has broken down and the pain is just beginning.
Welcome to Alstrynomics and you have just met the Zombulator.
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