On Fri, 05 Dec 2008 13:10:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

The problem was that the demand for packaged loans became almost
infinite as people discovered the so called "carry trade" which used
inexpensive borrowed money from Japan to buy high yielding bonds. It
was almost a license to steal limited only by the supply of bonds to
invest in. Packaging and selling these bonds was also highly
profitable to the investment bankers. Mortgage brokers sprang up on
every corner to help meet the demand, and the money was flowing like
water to anyone who wanted to buy a house or speculate in the housing
market. That pushed up real estate prices across the country
creating the bubble which eventually broke as all bubbles must.

The rest is becoming history.

"Wayne.B" wrote in message
...
On Fri, 05 Dec 2008 13:10:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

The problem was that the demand for packaged loans became almost
infinite as people discovered the so called "carry trade" which used
inexpensive borrowed money from Japan to buy high yielding bonds. It
was almost a license to steal limited only by the supply of bonds to
invest in. Packaging and selling these bonds was also highly
profitable to the investment bankers. Mortgage brokers sprang up on
every corner to help meet the demand, and the money was flowing like
water to anyone who wanted to buy a house or speculate in the housing
market. That pushed up real estate prices across the country
creating the bubble which eventually broke as all bubbles must.

The rest is becoming history.

Well put. But I might add a blurb on how because the the government
controls interest rates there is no counter balance towards infinite debt.
When the market ran it, if borrowers exceeded savers, the rates went up
encourgaing savings. If borrowers paid debts down then rates would go down
for savers and allow inexpensive debt. Eventually finding a long term
stable rate that encurges more equity savings, real wealth that is.

Government, was it Carter? Broke this mechanism some years ago.