View: Silver Coin Values
Here's a neat little video from Enspire Learning about the now defunct system of mortgage lending that was quite the rage earlier in the decade:
Thanks for the great video!I loved it because it correctly points out that (Greenspan's) low interest rates made all this possible.Also, it is one of the few times someone didn't blame the problem on falling housing prices.Falling house prices don't mean much if you actually live in the house, like it and can make the payments on it.It's only if you use your home as an ATM or if you don't live in the house and want to flip it that falling prices hurt you. In the latter case, you're really just trading in houses as a business.For those who got used to a refi every 6 months to 'pull out equity' and live beyond their means, they should have known better. You can't make payments without cash flow and 'equity' isn't cash until you sell.For those who planned to refi into a fixed rate once the rate started climbing and couldn't, you have to wonder how they thought they would EVER be able to make the payments if they couldn't afford a fixed rate mortgage payment up front.Again, great video!
The narrative in the video seems to place blame almost entirely on mortgage brokers. But brokers are merely a go-between. While they should rightfully share in the blame (especially in cases where they misrepresented facts of the situation to push an otherwise unfeasible loan to origination), and that the securitization mentioned in the video helped to severely amplify the problems, there should have also been more mention of ratings firms and history and effects of governmental policy, and ultimately, we need to ask how and why the tenets of risk management were abandoned and how and why we, as a culture, have begun to regard credit as wealth. It's bigger than brokers and more pervasive than regulatory negligence.
I don't think it was wrong that brokers lusted after fees. The video correctly shows that it was the lack of culpability for the default that set the environment for the broker to only go after the fees. The environment was bad, not the broker.Same thing at AIG. Accounting rules allowed them to book profits the year the policies were sold and therefore payout bonuses immediately instead of booking the profits over the lifespan of the policy or as they were realized.If you create short-term incentives, you get short-term results.People don't kill markets, masturbating monkeys do.(I am not a broker nor do I earn income or bonuses from selling... but I am willing to start a cult to improve our Gross National Happiness)
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