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36. Re: Morning Legal Briefs Oct 29, 2012, 23:55 Beamer
Wowbagger_TIP wrote on Oct 29, 2012, 23:23:
Beamer wrote on Oct 29, 2012, 22:30:
Wowbagger_TIP wrote on Oct 29, 2012, 22:24:
Beamer wrote on Oct 29, 2012, 20:40:
I sadly worked for a subprime mortgage company in the early 2000s. One of the better ones, sadly. No one was forcing anyone to give those loans, in fact the companies were bending over backwards. Did your numbers not work? We fired one sales manager for advising his loan officer to advise his customer to photoshop his pay stubs. That guy was rehired at a much bigger company in under a week.

No, everyone wanted to give bad loans (and, incidentally, get bad loans.) The thought was that everything would be consolidated, sold off in a package, and probably work out for the best. If not, well, by that point it was someone else's problem.

As it turned out, it was all of our problem. Pretty much everyone deserves blame here. Bankers. Loan officers. Borrowers. Bill Clinton. George Bush.
Don't forget Congress. Aside from the Bankers, who sure as hell should have known better, they are the most guilty. Banks are supposed to do the underwriting and not tell people they can afford more than they actually can, but I had that happen when I was looking for a house. Thankfully I had the sense to go with what I knew I could afford, and get a regular 30yr fixed mortgage, but a lot of banks were just telling people what they wanted to hear. That homes are a great investment and that they'll just keep going up in value, so it's no problem, and we've got this cool new type of mortgage so you can have affordable payments, etc.

It was fraud, fueled by greed, plain and simple, but a lot of people were too ignorant about finance and/or too greedy to care, so they signed for those stupid loans. Probably why Congress was so quick to bail out the banks too, as they were largely responsible for the laws that allowed it to happen. Of course they still caved to the banks afterwards and made sure to water down and stonewall all the reforms so that they banks stay fat and happy and still legally allowed to continue screwing with the economy.

Maybe the investment bankers should have, but they didn't. They didn't know better. Their models were too complex and faulty. And no one really knew.

But banks weren't underwriting these, subprime mortgage companies were. New regulations started originators, who would do the loan themselves then sell them. If no one would buy they loan they'd put them into scratch-and-dent, meaning they'd package a whole bunch of bad loans together and sell them off. Odds were only a small amount would foreclose. Turns out most did.

Yeah, you're right that they probably didn't actually know what was going on, at least not until it was too late. But everyone was doing things that were dumb and/or outright fraud. Either by duping the lendees, or by duping investors, or by duping ratings agencies, etc. Everyone thought they could make it someone else's problem. A lot of those packages were full of terrible loans and were still given AAA ratings and sold off as such. They were making so much money off of it that nobody cared. They just wanted their fat bonuses and someone else could deal with the fallout.

Yeah, the rating companies made asses of themselves. Ignoring the fraud, everyone basically did what they were supposed to. They made bets. Terrible bets.

The rating companies saying they were safe bets despite not understanding them is pretty poor. Sure, traders also didn't understand them, but they thought they'd be good, and it wasn't their job to rate them, just make them, as trading is always betting.
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