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What's Mess Up With the Financial System

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July 21, 2010 – Comments (0)

From this morning's Wall Street Journal:

"Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios." 

Because they must hold them in their portfolios? That's the reason? How about "because that's how lending is supposed to work. You lend money to people who can reasonably pay you back, and demand a buffer. It worked that way for thousands of years, up until about 10 years ago." 

Barry Ritholtz said this yesterday at a conference I'm at in Vancouver:

"The history of credit is that of lenders focusing on borrowers' ability to service debt. 2002-2007 basically changed those rules. It became: we don't care about borrowers' ability to service debt. We care about lenders' ability to collateralize debt, stampt it AAA, and send it around the world. That's all we cared about."

The end of that insanity is now scaring people. Even the Wall St. Journal. 

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