Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Not only that.
Just consider the US mortgage market. As I understand it (from reading on the Internet) one simplified way of getting a mortgage was:
  • go to a mortgage brokerage
  • they´ll get you a loan from a bank (and a commission for that)
  • the bank then will bundle x loans/mortgages together and sell them to investors.

Mortgage broker and bank both have their money. That´s actually both of the instances that deal directly with a customer. Any risks stay with the investor (not mentioning the clauses for an eventual buy-back).

And they handed out sub-prime and Alt-A mortgages to people with 0% down-payment, no documentation of income, teaser rates or negative amortization.
Why could they do it? Because they got rid of the risk.

So they looked only for market share and their commissions. Employees, mortgage brokerages and banks. Worked fine for a time in a booming housing market.
Now of course, several mortgage companies have declared bankruptcy. But for years, brokers got their bonuses and I suspect the owners of the bankrupt companies didn´t evolve into paupers either.

I suspect the theory didn´t include the possibility of transferring the risk to others. :)

by Detlef (Detlef1961_at_yahoo_dot_de) on Mon Apr 23rd, 2007 at 03:20:44 PM EST
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