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How Much $$ to Bail Out the Liars?

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April 25, 2008 – Comments (2)

That's a question we'll be asking soon. First, see the summary of a great Slate Article, vs. Liars' Loan production and resets upcoming, here at Blown Mortgage: Sample stated loan research shows 3 out of 5 inflated income at least 50%

Then, read the Slate Article. It illustrates exactly why we should not be bailing out anyone involved with this entire fiasco. People's ethical meters were completely reset due to rampant greed, and to reward them in any way means risking the entire system on which our economy is based.

When the norm is: Lie, cheat, and get bailed out when you're caught, or at least, have your frauds ignored, you end up, as the author states, like Russia.

2 Comments – Post Your Own

#1) On April 25, 2008 at 11:40 AM, leohaas (31.09) wrote:

As usual, an excellent post, Bent!

Alt-A is the next problem we will be facing. And it is way bigger (about 50% in number of mortgages; about 100% in dollar amount) than the sub-prime problem. And people who lied about their income to obtain a mortgage ought to be prosecuted for fraud rather than helped out.

By the way, Alt-A is not the only problem. Look closer at Figure 1-7 in the Blown Mortgage article and you'll notice that Option ARMs are about the same size as Alt-A. With an Option ARM you typically have a choice of how much you want to pay every month, allowing you to tap your home equity by paying less than the interest you owe. I wonder how many of those will be in negative equity territory when they reset (most of them from 2009-2012). Clearly, the financial crisis still has a few years to go before becoming any better.

Bottom line: stay way from banks for another 3 or 4 years.

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#2) On April 25, 2008 at 11:51 AM, leohaas (31.09) wrote:

Click here for a larger version of the figure I was referring to.

This article gives a good explanation of the Option ARM problem (some scrolling down required for the section on Option ARMs). 

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