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Monday, October 15, 2007

Subprime Mortgages Surrounded by Greed

I meant to post on this a few days ago when the WSJ ran another marvellous expose on the subprime mortgage mess, but for whatever reason, I didn't. Their article focused on just where the subprime mortgages had been made. From their interactive map, it looked like the mortgage lenders had targeted minority borrowers for these loans. It turned out that the actual data showed otherwise. The lenders had been targeting people with little cash, poor credit ratings and jobs that paid less than what was necessary to service the debt once the rates began to adjust.

That sounds like a classic anti-capitalist scenario, doesn't it? The evil bankers preying on the poor and making profits off of those that can't fight back. That interpretation is a load of manure.

The poor in this case were trying to get what they had not earned. Whatever the reason, be it bad credit ratings, low income or intermittant employment, they were more than willing to lie on their loan applications and claim income that didn't exist so they could buy houses they couldn't afford. If you read the interviews, you can see a theme of greed throughout. They wanted the goodies, but didn't want to have to work for them.

How does that fit the narrative you're seeing in the media? I have to confess that outside of the WSJ, I haven't been following this. It must be being treated as a class warfare issue since the debate questions I'm reading are all about how we can bail out the borrowers.

Why? They were just as greedy as the bankers. A pox on both their houses. I feel a little more sympathy for the investors who bought securities backed by these mortgages as it seems that many of the securities brokers selling them were lying about them. A pox on them, too.

Today's WSJ has yet another article on the subject, this one detailing a poor, little Japanese bank that got sucker-punched by it's own greed and a related story about the government working with the lenders to bail out all and sundry.
Japanese banking leader Nomura Holdings today became the latest financial giant to reveal the scars left by the collapsing value of subprime loans and other residential mortgages. And it has decided to get out of the U.S. home-loan business altogether.

Nomura now expects a pretax loss of 40 billion yen to 60 billion yen ($340 million-$510 million) for the quarter that ended last month, in part because of a $621-million loss from operations related to mortgage-backed securities. Nomura has already written off $620 million in residential mortgages...

Nomura's bad news comes the same day some of its U.S. counterparts are expected to announce a joint effort, orchestrated in part by the Treasury Department, to shore up the damage to credit markets wrought by mortgage meltdown by creating a $100 billion fund to buy troubled assets, as The Wall Street Journal reports. The banks, led by Citigroup and including Bank of America and J.P. Morgan Chase, would use new short-term debt to buy the problematic assets of structured investment vehicles affiliated with the banks.
Was any of this accompanied by any kind of education process to associate borrowers' actions with consequences? Of course not. All we get are big, salty tears for everyone involved, mostly from the staggeringly ignorant mainstream media (MSM).

The rest of us pay our mortgages, buy only what we can afford and work to earn what we have. Meanwhile, we are all going to have to pay taxes and higher interest rates for lenders and borrowers that won't be held accountable for what they did wrong.

3 comments:

  1. K T,

    Thanks for stopping by Conblogeration recently. I've enjoyed reading you here.

    I haven't followed the mortgage mess too closely, but it seems there's plenty of blame to go around. Mortgage companies have been very aggressive (and possibly deceptive?) in their marketing of $0 down, interest-only, second mortgages, and ARMs. But ultimately, nobody made anyone sign a contract. You don't borrow $100,000 without knowing what you're getting into. Just because somebody tells you that you can afford it doesn't mean you can.

    If mortgage lenders have been deceptive, they should be held accountable. But borrowers themselves have to also be held accountable for their greedy and short-sighted choices. And I share your resentment over having to pay for other people's folly.

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  2. Anonymous8:15 AM

    The very first thing that affects your overall credit report score is how well you repay your debts. Even a person with low income who carefully ensures that all his debts are repaid on time will be able to maintain a high credit report score. And timing is everything. A recent late payment is worse than several late payments some years ago.

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