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<blockquote data-quote="Signature Only" data-source="post: 635650" data-attributes="member: 21043"><p><span style="font-size: 12px"><span style="color: RoyalBlue">No, I'm afraid you're mistaken. Reading articles in the WSJ, recent books and documentaries (Frontline, NPR, etc) the main problem was greed. If every single person that had a mortgage defaulted it would have been a minor hiccup in the world financial markets</span></span>. <span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">It started with the Chinese buying US Treasury Issues to facilitate the expansion of their exports. By snapping up this debt they kept the dollar high and the yen low making their exports cheaper and providing employment and growth for their citizens. Thus creating a huge US market for their products. And with this demand for issues the US felt confident to keep spending. As the wealth (government spending) worked its way through our economic house, others saw a way to get even richer by creating exotic financial investments. Because by then there was a push by government to increase home ownership. The reluctance of banks to lend gave way to a free for all as bankers and brokers packaged the mortgages and resold them as "solid government backed investments". No one ever doubted that the Feds would back Freddie and Fannie if something went wrong. Everyone saw huge profits being made and jumped in. Housing wasn't the only hot item. Shares of companies private and government owned in Asia and South America, most of them very risky, were packaged and sold to anyone who took the bait. And how could they resist with AAA ratings from Moody's and other agencies that were paid for with plentiful bribe money.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Even insurance issuers got in the act. AIG failed because they issued mortgage default insurance on the same mortgage every time it changed hands. By collecting full premiums on each policy, they made a lot of easy money and it was not uncommon to have up to 13 polices issued on a single mortgage. That meant if the current homeowner defaulted on, say a $100,000.0 mortgage, AIG was on the hook for 1.3 million dollars, nearly all of it to people that had long since sold their holdings because every one of them still held a valid default policy that AIG was obligated to honor. By 2002 AIG underlings complained that the company had over a 500 billion dollar exposure to a mortgage insurance market that was worth 50 billion.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Others complained too but so many payoffs, campaign contributions and bonuses were being paid that nobody listed. Add to that Alan Greenspan's </span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">reassurance that all was well and the stage was set.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Keep in mind that the housing bubble was started by the restrictive growth policies of local and state governments that led to higher than normal housing prices in some areas of the US, then add the federal government's push to Freddie and Fannie and then to the banking industry to lend, in private industry's case this amounted to legal "blackmail"; but it really grew out of control when the banks themselves threw caution to the wind and decided to take full advantage of the huge secondary mortgage market because of the big demand created by the financial brokers. The more loans you made, the more you had to sell and there were plenty of buyers standing at the door with dollars in hand. Everybody went wild; construction firms struggled to build fast enough, buyers lined up, buying not for residence but for flipping, bankers loaded their mortgages with every fee imaginable to maximize profits and the secondary market was screaming for mortgages to buy.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Yet, even with all of this, the economic system could have rolled on without much trouble had it not been for the likes of AIG and others. Their actions had multiplied the risk many times. And others who saw so much money being made, refused to limit their exposure for fear of missing out and staked too much on the housing market. So when things started to deflate the effect was amplified. And it became so loud that it nearly shook the global financial system apart for by that time, many overseas investors had gotten in on the act.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Also don't forget the secondary mortgages taken out on many US homes. The push of cheap imports, plentiful money, the booming housing market, Greenspan's wisdom, all made homeowners comfortable taking on staggering debt levels to fund everything from business startup expenses to new cars, new furniture, remodels, vacations, clothes, you name it.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">Yet even with all this, had every single homeowner defaulted on a mortgage deemed as substandard, the US economy would have been looking at a loss of no more than 200 to 250 billion dollars. And the entire housing boom default could have been absorbed without grinding the entire system to a near halt.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px">But greed changed the scale. And as in all human activity, once you change the scale, you change everything.</span></span></span></span></span></p><p><span style="color: Blue"><span style="font-size: 12px"><span style="font-family: 'Comic Sans MS'"><span style="font-family: 'Verdana'"><span style="font-size: 10px"></span></span></span></span></span></p></blockquote><p></p>
[QUOTE="Signature Only, post: 635650, member: 21043"] [SIZE=3][COLOR=RoyalBlue]No, I'm afraid you're mistaken. Reading articles in the WSJ, recent books and documentaries (Frontline, NPR, etc) the main problem was greed. If every single person that had a mortgage defaulted it would have been a minor hiccup in the world financial markets[/COLOR][/SIZE]. [COLOR=Blue][SIZE=3][FONT=Comic Sans MS][FONT=Verdana][SIZE=2]It started with the Chinese buying US Treasury Issues to facilitate the expansion of their exports. By snapping up this debt they kept the dollar high and the yen low making their exports cheaper and providing employment and growth for their citizens. Thus creating a huge US market for their products. And with this demand for issues the US felt confident to keep spending. As the wealth (government spending) worked its way through our economic house, others saw a way to get even richer by creating exotic financial investments. Because by then there was a push by government to increase home ownership. The reluctance of banks to lend gave way to a free for all as bankers and brokers packaged the mortgages and resold them as "solid government backed investments". No one ever doubted that the Feds would back Freddie and Fannie if something went wrong. Everyone saw huge profits being made and jumped in. Housing wasn't the only hot item. Shares of companies private and government owned in Asia and South America, most of them very risky, were packaged and sold to anyone who took the bait. And how could they resist with AAA ratings from Moody's and other agencies that were paid for with plentiful bribe money. Even insurance issuers got in the act. AIG failed because they issued mortgage default insurance on the same mortgage every time it changed hands. By collecting full premiums on each policy, they made a lot of easy money and it was not uncommon to have up to 13 polices issued on a single mortgage. That meant if the current homeowner defaulted on, say a $100,000.0 mortgage, AIG was on the hook for 1.3 million dollars, nearly all of it to people that had long since sold their holdings because every one of them still held a valid default policy that AIG was obligated to honor. By 2002 AIG underlings complained that the company had over a 500 billion dollar exposure to a mortgage insurance market that was worth 50 billion. Others complained too but so many payoffs, campaign contributions and bonuses were being paid that nobody listed. Add to that Alan Greenspan's reassurance that all was well and the stage was set. Keep in mind that the housing bubble was started by the restrictive growth policies of local and state governments that led to higher than normal housing prices in some areas of the US, then add the federal government's push to Freddie and Fannie and then to the banking industry to lend, in private industry's case this amounted to legal "blackmail"; but it really grew out of control when the banks themselves threw caution to the wind and decided to take full advantage of the huge secondary mortgage market because of the big demand created by the financial brokers. The more loans you made, the more you had to sell and there were plenty of buyers standing at the door with dollars in hand. Everybody went wild; construction firms struggled to build fast enough, buyers lined up, buying not for residence but for flipping, bankers loaded their mortgages with every fee imaginable to maximize profits and the secondary market was screaming for mortgages to buy. Yet, even with all of this, the economic system could have rolled on without much trouble had it not been for the likes of AIG and others. Their actions had multiplied the risk many times. And others who saw so much money being made, refused to limit their exposure for fear of missing out and staked too much on the housing market. So when things started to deflate the effect was amplified. And it became so loud that it nearly shook the global financial system apart for by that time, many overseas investors had gotten in on the act. Also don't forget the secondary mortgages taken out on many US homes. The push of cheap imports, plentiful money, the booming housing market, Greenspan's wisdom, all made homeowners comfortable taking on staggering debt levels to fund everything from business startup expenses to new cars, new furniture, remodels, vacations, clothes, you name it. Yet even with all this, had every single homeowner defaulted on a mortgage deemed as substandard, the US economy would have been looking at a loss of no more than 200 to 250 billion dollars. And the entire housing boom default could have been absorbed without grinding the entire system to a near halt. But greed changed the scale. And as in all human activity, once you change the scale, you change everything. [/SIZE][/FONT][/FONT][/SIZE][/COLOR] [/QUOTE]
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