"It's tough to make predictions, especially about the future. " – Yogi Berra
Making the complicated simple.
Not diggin’ the message, but love the graphics.
You just hate teh orphan posts, don’t you.
Care to explain why you don’t dig the message?
Some of it is accurate, but some is misleading. While some of the bad loans were purchase-money loans to buy new homes, a lot of them were refinancing loans to cash out of the increased appraised values of homes. Some of those refinances were used to get caught up on ordinary expenses (I’m not guessing here) due to things like rising gas prices and the inability of some folks to pay their bills. The banks didn’t make the loans because they were run by altruistic people, but because the interest rates were higher to account for the higher risk. The housing market bubble made the houses look like good security, and the government-backed guarantees made the loans to an ordinarily unsafe clientelle look safe. Many of those sub-prime loans were “packaged” for resale to speculators, which meant that the banks that initially made the loans had little incentive to thoroughly investigate the actual risk of default. They were going to sell the loan to secondary markets, so it only had to look like the homes were worth a ton of money and the risk of default not so bad. As long as the numbers looked good on paper to someone in New York or Berlin or London, it didn’t matter that they weren’t really accurate. Housing values are really affected by location. A 2,200 square foot home in Ridgeland, SC, can’t really be compared with a similarly sized home in, say, Los Angeles, but secondary mortgage buyers are much less likely to raise an eyebrow at comparables that aren’t really comparable as to home values used for appraisals as the initial lender in an area where the loan originated. A local banker may not be an appraiser, but would spot a way-out-of-line appraisal much more easily than a speculator outside of the area.
The “See Dick Run” article casts the banks as honest, reasonable businesses forced by the evil government to make loans that they knew they would never get back, which is far from the truth. Granted, the government made the loans more enticing through guarantees, but John McCain was right that greed for higher interest rates and the appearance of reduced risk that created this mess.
…and I do want to take care of the orphan posts…
Very well written post. Will probably be precious to anyone who uses it, including myself. Keep up the nice work! For sure I will take a look at your articles again soon.
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