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- kenvsryu, on 10/10/2007, -2/+91They didn't miss it. They profited from it and now someone else has to pay.
- torched, on 10/10/2007, -0/+27Nobody missed it they just ignored it. Peter Schiff has been talking about this meltdown since 2003 and everybody just laughed and said real estate was a 50 year bull market. He was on cnbc 3 weeks ago saying the same thing and the pundits just dismissed it as "gloom and doom".
- Albionshores, on 10/10/2007, -1/+24Short-term greed, compartmentalization, corruption and deliberate intent (long term greed).
Just like Enron. - idc5, on 10/10/2007, -0/+21I'm a loan officer here in So cal
people have maxed out on their LTVs by refinancing during the huge increase in value in the last few years, and now they are stuck asvalues have been slowing dropping in the area. i've seen numerous foreclosures, and people don't even have the chance to do a hard money loan as most don't have LTVs close to 70% (which is usually the max LTV they will accept for hard money loans) - dukeeeey, on 10/10/2007, -12/+30really cant be arsed explaining this over and over again but ....
The fed is a private bank. With private share holders. It's run entirely for the profit of the mystery share holders. They engineer all the problems in the economy. Example 1929, it wasn't the fact the stock market crashed that ***** everything up, it was the fact the fed contracted the money supply by 30!!%, that caused the problems.
The banks were given carte blanche to loan money to anyone. Not asking for proof of any sort of income when offering loans ? Of course you are going to cause a problem, they knew this, that's why they did it. Watch freedom to fascism or something. - moracity, on 10/10/2007, -0/+15They didn't miss it, they knowingly created it by giving mortgages to people they knew wouldn't be able to pay. I only place half the blame on them. The other conspirators were the idiots who bought homes that they should have known they couldn't afford. We pre-qualified for a $500k mortgage. Luckily, we were smart enough to realize that was way too much. We ended up buying a house for half of that, but I certainly would not go back and blame the lender if we had spent 500K. It's not the bank's responsibility to know how much I can afford. That's my job.
Unfortunately, we live in country full of greedy lenders and even greedier consumers. - punchinelli, on 10/10/2007, -2/+16They obviously have "NO IDEA HOW IT IS OUT THERE!!!!!!!!!!!!"
- SparkyMaGee, on 10/10/2007, -1/+15The dailyreckoning.com has been writing about this subprime disaster for years. I sold my house 3 years ago thanks to them
- NormalVisual, on 10/10/2007, -3/+16The Fed doesn't have "mystery shareholders". It's divded up into a number of Federal Reserve Banks and private banks own stock in their particular FRB, meaning the participating private banks collectively own the Fed. Nothing mysterious about it.
- brufleth, on 10/10/2007, -0/+12Yeah I don't see the mystery in why the banks let it happen. It made them money right then so the people in charge were happy. The mystery to me is why consumers would agree to ARMs or interest only loans. I understand that mortgage companies were pushing these loans very heavily and that the appeal of owning your own home is tasty looking bait. Buying a house isn't like choosing between blu-ray and HD-DVD though. You're talking hundreds of thousands of dollars. I know that was enough to prompt me to look past marketing hype and the emotional appeal of owning. So I'm still renting and probably will be for a while now since all of this is making home loans so hard to get. Better too blow the money on rent a few more years than go bankrupt on some adjustable rate mortgage.
- DangerCollie, on 10/10/2007, -2/+13For housing woes, this is only the beginning. I don't see things getting better in 08, it will likely get worse. 09 won't be much of an improvement and could continue the slide into '10 or even '11. I sold the last of my rentals back in '05, then retired my real estate license. It was turning into amateur hour. Trying to buy investment properties got insane. I was bidding against irrational investors. Looking at their bid, you knew they were either trying to flip or running on a razor thin margin. The signs this whole thing was going to collapse have been around a long time.
Before this was the energy market, expect more problems in that area. Before that the .com bust. Who in the biz didn't see that coming? VC's where throwing money at anything. IPO's were nuts.
What I'd suggest thinking about is what might be next. Here's what I think are looming threats:
- Health care
- Government outsourcing
- Education
- Infrastructure
The Republicans waive the tax cut flag but never give any thought to how we're going to fix our roads and bridges without any money. And how are we supposed to pay back all the debt from the Iraq war? They're leaving the mess to the next president is what they're doing and sticking your kids with the bills. Same people want to withdraw their support for public schools and give the money to their kids private schools. Shame. Let the poor kids schools suffer so you can send your kids to snooty private schools. Be sure and drive them there in a giant SUV that gets 9 miles to a gallon with a Jesus sticker on the back. How very Christian of you. - animecrazy9, on 10/10/2007, -0/+9Yes and wasn't it a couple years ago they made it MUCH more difficult to declare bankruptcy to get rid of your debts? They pushed for it, because they knew what was coming. Bastards.
- JD52, on 10/10/2007, -0/+9GREED?
Pigs get slaughtered. - devophl, on 10/10/2007, -0/+8The 5 stages of a crash:
1) Denial - its not a problem
2) Ignore - ignore it and it will go away. Maybe its just part of a cycle.
3) Propaganda - its an issue but play to the public like everything is fine, if not great
4) Cash is - this is when the brokers and those rich people on the inside see the end and cash in for great profit
5) The crash - this is when the rest of us realize we were duped by the very people who told us everything was great.
In the end, the institution is sacrificed for the profit of the individual. Just look at Enron! The banking system, if not the whole economy, can be sacrificed if the few can get filthy rich! So beware when things look too good, like when the Dow rallies 10-15% in a year, because the insiders are just trying to lure you into a sinking ship. - SwissCamel, on 10/10/2007, -1/+9Spending too much time on facebook?
- idc5, on 10/10/2007, -0/+8The situation is bad, and I'm seeing it first hand everyday at work. The number of closed loans for last month has been the lowest ever at my company.
There is pretty much very little to work with; people that want to refi can't refi due to the lack of value... Sub-prime borrowers are stuck in their 2 year (or 3 year fixed) which are set to go adjustable or are already adjustable, and they are left paying skyrocketing rates. Other parts of our economy are slowly going to feel the burn because many Americans won't spend on other goods and services as they are left paying mortgages that are a huge chunk of their monthly income (much more than they should be- I've seen cases of people left with ratios of 90%) - ThinkFr33ly, on 10/10/2007, -2/+10To some extent, the companies that bought these mortgages from the mortgage companies (hedge funds, large banks, etc.) were actually COUNTING on a certain percentage of people defaulting. It's actually what made the mortgages worth buying in the first place.
Think about it. Who would fork over $250k or $500k or whatever to only make 5% a year on a risky investment? Nobody. These banks were hoping that a larger percentage of people than non-subprime buyers would fail to pay. This would allow the bank to sieze the home (including any equity these people may have had it in) and sell it on what was then a very hot housing market.
If I can loan somebody $500,000 to buy a $550,000 home who is likely to then have to give me that home (instant $50k in my pocket!), and then I can sell that home on the hot housing market for $600,000, I've just made a crap load of money. A lot more than the 5% the loan was for.
What screwed things up for these people wasn't that people couldn't pay, it's that the housing market went cold faster than they thought it would. Indeed, part of this was due to the large surplus of homes due to all the foreclosures! In other words, they tried to time a market, failed, and ending up contributing to the rapid decline in the housing market all at the same time.
Welcome to the mortgage business. Have a nice day. - Albionshores, on 10/10/2007, -1/+8You couldn't have told everyone it was hype before a $300+ billion lifeline was thrown to the economy and the Fed cut the rate? What about the companies that have already gone into receivership - are they really just the target of a later than normal April Fools. Just Hype - Wow those boys in the FTSE that lost $120 billion are going to be so relieved.
Nothing to worry about here: CDOs go back to what you were doing. Someone phone Malaysia and stop the jumpers. Error601 has spoken. - mckinnej, on 10/10/2007, -0/+7Of course it was greed, but no one seems to have realized just how far it went and planned it was. Banks were forcing appraisers to over appraise properties. An appraiser told me this himself. If he didn't appraise a property for the amount a bank wanted, they would dump him and get another appraiser that would play the game. Don't know if this was widespread or not, but it was happening here in FL.
For those that may not understand this: bigger loan = more interest = more profit. No doubt this was a contributing factor to the housing bubble. While some people involved in the bubble deserve sympathy, many more deserve to be buried in the hole they dug for themselves. This situation has been obvious to the casual observer for at least 3 years. When wages in an area can't support the home prices, you can bet on a correction coming. $12/hour jobs will not buy $300K houses. It's pretty simple math.
If you have the money, now is the time to start getting rich! Its' definitely a buyer's market. - sjbdallas, on 10/10/2007, -0/+7It's not hype, it's a true crises that the companies brought on themselves. It's clear they they started to loosen the purse strings a little and started to see some profit, then they did it some more and saw a bigger profit and loosened them even more. Then the losses started and they tried to increase their loans to cover their losses until the breaking point is here.
- LetsGoHawks, on 10/10/2007, -0/+7This is a gross oversimplification, but look at it this way.
1) The loan officer gets commisions on the "sale" of the loan. If the loan goes bad, he doesn't have to give the money back. So all he's thinking about is getting that loan through come hell or high water.
2) The company actually supplying the money for the loan bundled it up with a thousand others and sold it on the debt market. They made their money selling the loan and if it goes bad, they don't have to give that profit back... so again, get that loan through come hell or high water. (Some big banks may hold onto a lot of their own loans but basically, this is a common practice)
3) The debt market kept buying up all the loans without worrying too much about what was inside of them. These are the guys losing the money. They are hedge funds and bond funds that sold shares to investors big and small.
(It's a giant ***** sandwich and we're all gonna have to take a bite)
If 1 and 2 had thought long term, they might have realized that enough bad loans and the golden goose dies, but they didn't. They got greedy. Now, a lot of the small players will go out of buisness.
Several million people will lose their homes and all of us will get pinched a bit in the recession that follows.
Once the markets settle down they will realize that this is not the end of the world, talk about how it's an overdue correction, and move on.
And there will be some new rules and regulations in the mortgage world that will make it harder for low income folks to get a mortgage, that will hopefully prevent this being so bad the next time it happens. - ElbowGeek, on 10/10/2007, -0/+6That's easy: greed and short-sightedness. As long as the money was spinning, nobody gave a hoot. Then when things started falling apart everybody panicked. This has been the story of so many financial crises over the last half century that it is frankly stunning to contemplate.
I honestly don't understand a lot about all this financial malarky, but it bugs the hell out of me to see a bunch of people who should know better, who've been to supposedly excellent business schools and have had decades of experience in their respective fields, act like midwestern housewives who've just received an amazing offer to launder cash from a Nigerian prince. In other words totally clueless and completely gullible, or at the very least utterly unwilling to think past next week.
Makes you wonder why they bothered with all that schooling frankly. - ZombyWoof78, on 10/10/2007, -1/+7Greed
- BESTenemy, on 10/10/2007, -1/+7Shakeups like this are standard bank repossession cycles following buildup of public confidence in easy credit. Bank has no interest in giving up property it can lend over and over again, collecting interest.
Thanks to fractional reserve methodology our country has adopted, money is backed up by banks ability to collect interest on the loan. The moment you sign your loan agreement, the bank has the document that allows the federal reserve to print 9 dollars for every dollar that they take out of their vault. The currency is essentially, debt money. Loan is the permission slip for operation of the printing press.
What happens when people cannot repay their loans? Seems like a failure for the bank, but in reality it isn't as it only wages 10% on your ability to repay. The money that you make while trying to meet payment aren't "funny money" like the loan - they are based on actual production or service that you have performed. So through your repayment you solidify the cash.
When sub-prime fails, small middle-man credit organizations go bankrupt, but the FED profits either way. It does "an adjustment". It dumps more cash and stimulates easy credit. It saturates the market with freshly printed greens. Through that it borrows the capital from lower part of the food chain - the middle and low income families. Takes time for the inflation to spread. For those that hold savings that results in depreciation of assets, for those that print money that means... absolutely nothing. They get to return the property that they have been loaning year after year. - FongoBongo, on 10/10/2007, -0/+6they didn't miss it, they knew it was coming, and in the end the people who took out those loans are paying for it with foreclosures.
- inactive, on 10/10/2007, -0/+5yeah, doesn't this article answer its own question? it's set up to fall on its ass, and there are wolves at the edges waiting to feast on it. i have very little pity for the idiot McMansion-craving suckers who got played by these demons, but unfortunately the rest of us are going to end up as shark chum too. thanks jerks.
- BushStoleMyBike, on 10/10/2007, -0/+5Lindsay Lohan is subprime.
- sjbdallas, on 10/10/2007, -0/+5Agreed, there were several guys saying that there was a bubble building and would burst. The pundits in the lending industry that needed the borrowing to continue shot it down. Just like the techboom. Why can it be obvious to so many outside these industries that there is unsustainable growth?
- brufleth, on 10/10/2007, -0/+4That largely depends on how money is invested through your companies 401k program.
- Albionshores, on 10/10/2007, -1/+5You're clueless. The Fed cut the rate because 8-10% had been wiped off companies. People are losing their houses, others are losing their jobs and not all those affected were with the sub-prime market. And it is by no means over. Stick around...
- Locke2053, on 10/10/2007, -1/+5nihilite, quit misrepresenting the issue!
If you bought a house a year or so ago, you would have LOST A LOT OF MONEY (on average). Renters would have been WAY ahead of you. If you own, you have to pay intrest, which is a 100% loss. You have to pay for maintenance and insurance, which is a 100% loss. You would have had to pay closing costs, realtor fees, and had other other 1-time, 100% loss costs. And on top of that, the average house lost 5% of its value, which is another $12,000 *POOF* gone to nothingness.
So quit spreading *****. Buying a house is a risky investment that can result in you losing a lot of money. Someone who rents and puts the extra money in the stock market would be WAY WAY WAY better off over the past two years than someone who bought a house.
Also, renters don't have to mow their own grass... icing on the cake :-P - cikcanada, on 10/10/2007, -0/+4Can we get off this blame the lendors wagon? It is the fault of nearly EVERYONE collectively.
1) Lenders shouldn't lend money to those who can't afford it. In Canada, we have things like CMHC to discourage just this problem.
2) Your government REALLY needs to step in with loan rules that make sense.
3) The markets: SOX officially makes it the REQUIREMENT that a company make as much money as possible for its shareholders. As such, those banks loaning money, have shareholders who are legally required to get a maximum return, to the detriment of all others. Thanks Sarbanes Oxley.
4) People. People are idiots. Why would you buy something you can't afford? Do you rush out to the store and buy a high end SUV if you make $30k a year? Why buy a house if you can only afford the payments assuming mortgage rates don't change?
5) Education (yes, that includes teachers). Students (at least in your country) are not taught basic economics. Unfortunately, that makes it rather difficult for them to understand the financial costs of their actions. Sadly this won't be fixed any time soon, because if the populace actually understood that there is good and bad credit, they might stop buying things they don't need.
6) Parents. While not all parents are like this, many simply give their children money, without causing them to work for it, or budget it, or manage it in any way. Children with budgets (even if it's just a dollar a week) quickly learn the value of a dollar. Unfortunately, the "me me me" North American consumerist society (note: not all of North America, just the consumerist portions) cause this to themselves. The worst part is the this mistake will happen again during my lifetime. It may not be housing loans, but it will be something rather similar.
On the plus side, I honestly couldn't care less what happens here. I buy index funds, and have 40+ years to invest. A blip (or even 25% decline) will eventually slide into the rest of the pattern. Sadly, others are not as fortunate.
Just remember, do your research. Companies are not there to help you, they are legally required to help themselves to as much of your money as possible. Education is both the best defence and offence. Getting that education is the tough part.
It's really too bad; it didn't have to be this way. - mrswirl, on 10/10/2007, -0/+4They didn't miss it - they chose to ignore it - as long as the $$ kept rolling in, that is.
Big difference. - Albionshores, on 10/10/2007, -0/+4It's not that one or two lenders fell off the ball here. The sub-prime debt has been broken down and sold on through CDOs, debt packages which mixed sub prime with other debts. People have bought that debt thinking it was a sure investment only to later realise (now) that is has been drugged by bad sub prime debt.
The entire market has been slipped a Mickey Finn and corporate banks and investors stood back and intentionally watched it happen. Those that knew what was happening have done it out of long term greed. Those that have gotten involved but were unaware either didn't want to know or didn't care; they were in it for short term, quick fix greed. - InetRoadkill, on 10/10/2007, -0/+4Yah. They were going to milk the situation for all it was worth. This was not the first time this has happened, nor was it a surprise. It was pure greed and the expectation that someone would bail them out if it hit the fan.
- EmmanuelGoldstn, on 10/10/2007, -1/+5I don't know that I'd go so far as to categorize the consumers as greedy. Many of these so called consumers grew up in a medium sized, suburban house that was affordable. I don't think it is greedy to hold that kind of house up as a reasonable standard. The only difference is that the same medium-sized, suburban home is now at least double the price that it was when we were kids, with median household incomes being about the same as they were back then. I'd sure like to own a house like the one I grew up in, but instead of being 180k, its now worth half a million.
Even "starter" homes are now well into the $400k+ bracket in my area (Seattle). When even a starter home is out of reach for most incomes, it's easy to see why average consumers are grasping at whatever loans they can find that will let them get into a home. - sjbdallas, on 10/10/2007, -0/+4It's a chain reaction though. The buying drove prices up so the busting is going to drive prices down. People that had equity are going to see that disappear as their value plummets. People that had interest only loans are going to quickly be upside down for similar reasons. And those that had subprime that tried to go traditional, will find that they can't borrow enough to pay off their subprime and move to traditional because the house is not worth what they financed.
Next you'll see the home improvement industry tank, then the furniture industry (rooms to go will be first there because of their ridiculous lending practices). - inactive, on 10/10/2007, -1/+5What are the banks that own stock then? Could you please list them here? Cause I can't find any specific information on each of these banks. Just speculation that they are JP Morgan Chase and others. Seems like a mystery to me.
Btw, the common public thinks the FRB is a Government Entity. NOT a private institution that can shift markets when they want. - LetsGoHawks, on 10/10/2007, -0/+3The ARM's reset based on the prime intereset rate. A lot of the intro rates are artifically low "teaser" rates, and the mortgage officer plays down what happens when it resets.... talking about how the rates will stay really low or they'll just be able to refi when the time comes. Basically "don't worry about it". Plus the idea of "buy as much house as you can barely afford" caught on in a tragic way. The idea is that the first year or two will be tight but after that you'll be making more money and your mortgage payment will stay the same.
You combine that with people desperate to buy a house who either don't think about what COULD happen or don't have the brains to understand what they are getting into and you're going to have people who can't pay their mortgage. - bishopknight, on 10/10/2007, -2/+5If we have another depression, what will happen to my 401k?
- soljin, on 10/10/2007, -0/+3G R E E D
- Sirocco, on 10/10/2007, -0/+3If you have invested properly this won't be a problem. Move your portfolio around if you're not feeling secure in your current markets. I dugg you up because you have a valid concern.
- hiphoc, on 10/10/2007, -0/+3Also remember that all those who shorted last weeks stocks made money. And when the Fed pumped in all that fiat money, the dollar dropped like crazy. We are ***** if the economy drops, we are ***** if the dollar drops. This is a game of russian roulette with 6 bullets in the gun.
Watch Money as Debt on google video. its only 40 mins. You will see why the economy is ***** and how to save it. - quetivity, on 10/10/2007, -3/+6it is only the beginning of something big to follow.
- LetsGoHawks, on 10/10/2007, -0/+3Gotta disagree here.
If the homeowner has substantial equity built up, they will (probably) be able to refi before they get foreclosed. The majority of the current foreclosures have only been in the house a few years. On a 30 year loan, they haven't built up much equity at all.
There are costs involved with foreclosing and selling the house.
Foreclosures are auctioned off. Since potential buys cannot inspect the property before they sale, they aren't likely to pay a premium price. A lot of the people bidding are trying to make a buck themselves or trying to buy a house on the cheap. It's not a recipie that makes for big profits.
So you end up with a big loan, little equity, and zero guarantee that the house is going to sell for a profit.
Heck, mortgage companies and banks get so worried about taking a bath on some of the properties that they send their own agents to bid. That way, either they get enough money that they aren't worried or they end up owning the property and they can market it in the traditional way.
Nice try though. - diggerphelps, on 10/10/2007, -0/+2Just like Enron is right.
Although it's more like the S&L debacle, Enron and dotbomb all rolled into one. - LetsGoHawks, on 10/10/2007, -0/+2The landlords pay property taxes on the building.
Where do you think they get that money from?
That's right, the rent that they charge the tenants.
So renters do pay property tax, it's just indirect. - CiXeL, on 10/10/2007, -0/+2I'm reading a book called Gladesmen. Its a firsthand account of living in the everglades in the great depression.
I found something very interesting towards the back of the book under notes. It was interesting enough that i typed it up here:
15. Land sales were so rapid during the boom years that small deposits (usually 10 percent of the property's value) were placed as binders, or options, for land in exchange for the ownership papers. A substantially higher payment was then due in thirty days or less. These land speculators, or so-called "binder boys" would then resell the bound property at a much greater profit to someone else, with only ever-increasing binders exchanging hands. the frenzied accumulation of binders and their brisk turnover partially account for the period's great inflation. When land values dramatically dropped in 1926, speculators left with multiple binders, in most cases, faced immediate financial ruin.
sound familiar? - CiXeL, on 10/10/2007, -0/+2buy old versions of the joy of cooking. tells you how to make soup from pigeons and stuff.
- oldhick, on 10/10/2007, -2/+4Any insured bank is a member. So when you see the little sticker telling you not to worry about your deposits, they're a member of the Fed. Most any bank you see on the street is a member of the Fed. Its not a secret, its not a mystery. If the public is ignorant thats their own fault. It is a private bank and it does make its own decisions.
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