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The dodgy mortgage companies that wrote--knowingly wrote--the NINJA loans(No Job, No Assets, on the part of the borrower) were wholly owned subsidiaries of well-known "respectable" banks, who in turn owned the dodgy mortgage companies for the sole purpose of generating loans (they did not need to be good loans) that they could buy and repackage and as Collateralized Debt Obligations (CDOs) that they could then sell at top dollar as AAA quality securities to unsuspecting pension funds, Norwegian town governments, and the like.  

It worked.  

And this is documented.  It is not like there is anything to, you know, debate!  

Now, several years later, in the ensuing melt-down of value as the CDOs and other alphabet securities turn up bad, some of the smaller people decide to follow the lead of the big boys and walk out of their obligations.  

If their obligations were to the same big boys, well, that is just strategy and survival and I have no problem with that.  

Worrying about the wrongdoings of the little people is like worrying about carpenter ants in the woodwork--and people do!--forgetting that carpenter ants do not show up until after the wood is already rotted out and useless.  

The Fates are kind.

by Gaianne on Thu Aug 26th, 2010 at 12:30:53 AM EST
good point, but then I would argue all the people involved in the "value" cahin of mortgages is/was a cheater.

To say that cheating is ok because others do it is the wrong way. Cheating is always bad.

I would rather argue the other way and say that the big boys should be punished for their cheating and not cheat because the others did it. If every one cheats then this equates to lawlessness and then society is doomed. In many ways I think this process is already underway in some countries and this will lead to revolution-like stuff happening. Unless of course, everything magically becomes good again...

That the big banks got rescued by honest little people tax payer money is not fair, sure, but it is no reason to be a cheater like the big boys too. At least that's how I see it...

by crankykarsten (cranky (where?) gmx dot organisation) on Thu Aug 26th, 2010 at 07:25:48 AM EST
[ Parent ]
In an environment where cheating is more profitable than any other activity, those who do not cheat go bust or are bought out. Either way, they cease to exist as independent economic actors. Call it a variant of Gresham's Law.

Individual homebuyers do not have enough market power to resist this mechanism, even if they don't get caught up in the speculative frenzy. Large financial houses may have that power, and the sovereign certainly has, should it choose to exercise it. So "cheating" is the wrong sort of framing for this - it is a political failure, first on the part of a deregulation-obsessed sovereign, then on part of quasi-sovereign banking houses.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 26th, 2010 at 07:37:04 AM EST
[ Parent ]
I think you're fundamentally misunderstanding how this works.

Finance and politics do not have the same morality that ordinary people do. Certainly not ordinary decent people.

The whole point of finance and politics is to screw everyone else for personal advantage to the maximum extent possible. That's the basis of Wall St and Washington morality.

The problem isn't that this 'isn't fair' - of course it's not fair.

The problem is that most people in Western democracies don't appreciate how systemically dysfunctional these cultures are, and they expect moral standards from so-called leaders, experts, and powerful people which those people have absolutely no interest in.

As for mortgages - this kind of creeping immorality corrupts everything it touches, so it's not difficult to understand why people will do the strategic default thing.

But a lot of people in strategic default have no choice, because they'll have lost jobs they would have preferred to keep, or suffered pay cuts they would have preferred not to suffer, and they haven't been given an affordable housing option.

There's a clear difference between that and someone who has no financial issues simply walking away from a debt because they can, and don't care to repay it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Aug 26th, 2010 at 07:40:21 AM EST
[ Parent ]
call me optimistic dreaming naive young guy, but I always thought that at least part of the political sphere was there to represent the people...

But I do get your point, as soon as the government does not represent the poeple anymore but is bought by wall street and big oil, well, then that's the beginning of the end as soon as things don't go continually up for everyone (some more than others) thanks to practically free energy the last 50 or so years.

The energy credit will soon be gone and then it won't be that easy and those socities where citizens are still more or less represented by their government will fare better than those ruled by dictator-like cartels of MBA alumni...

by crankykarsten (cranky (where?) gmx dot organisation) on Thu Aug 26th, 2010 at 07:46:13 AM EST
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Government is supposed to represent the people, and there's a narrative that it represents the people. But in practice - not so much.

In the UK in the last century there was maybe a decade when government was truly popular and representative. And as we've just seen - when there's danger of instability or change, the posh boys always ignore their nominal party labels and close ranks.

It's not unlike the US where one party despises poor people and wants them to die or live as slaves, and the other party despises them but understands that some concessions to their welfare are expedient.

I don't think it's a coincidence that offshoring has made it possible for those in power to ignore the working poor and shift policy right-wards. All those workers are no longer necessary, so there's no longer any need to pretend to be polite to them.

If more people realised how excluded they are, it might not be a bad thing.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Aug 26th, 2010 at 08:37:48 AM EST
[ Parent ]
If we brought in some medieval usury laws and gave whippings - with the number of lashes depending on how much you got - to everyone involved in a speculative bubble, maybe people would think twice. (Or the rich would become bloody pulp.)

When it comes to the houses I have no problem with people using their limited liability on mortgages. The bank gets the collateral that was put up, ie a house. The bank can then sell it or rent it out or build something else on the lot. If they absolutely did not want a house, they should not have made a loan with it as collateral.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Aug 27th, 2010 at 04:02:35 AM EST
[ Parent ]
Better than whipping, those involved should be made responsible to the full extent of their personal wealth and future earnings for high financial crimes.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 28th, 2010 at 12:03:20 AM EST
[ Parent ]


The Fates are kind.
by Gaianne on Sat Aug 28th, 2010 at 11:17:21 AM EST
[ Parent ]
The trick was that the implications of a NINJA loan were built into the system. I remember reading the trades at the time telling us what a blessing it was to be living in times that these new financial tools were able to give the AmericanDream to so many people down the ladder, that we were being racist and unkind to say that it was a fraud, that the mirror of spreading the wealth was spreading the risk.To not take a loan, especially after your friends had taken loans and had them re-financed several times as the notes became onerous ('promised' by several of the conn artists) or refi'd when the value of the house when up -- these conditions, nor the people who were not as financially clever or honest as you, should not be sneered at.

Back just after the dinosaurs left, loans defaulted routinely at a small rate. Adjustments were made (such as insurance for the loan payer) to mitigate against some percentage, But always within the cost of any loan is some percentage betting on default.

What the CDOs did was pre-bet that this cost could be spread about, so that looser money could be spread about. But there was a mistake made, in that too many people were cross betting. All the cards that we supposed to be supporting the other cards turned out to be reliant upon upper cards.

And thus it is called a ponzi scheme...though that tends to dilute the rank and number of people involved.

I just hate this 'holier than thou' attitude when discribing those who were buying in with offers that got them out of the economic cycle they were in.

That this was part of the disguise and repercussions of the Savings and Loan bailouts from 15 years before is a whole 'nuther tangent.

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Sun Aug 29th, 2010 at 11:57:06 AM EST
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That was exactly the point of my reaction to Jerome's argument that subprime loan borrowers were "willing gamblers": actually, they were clueless gambler. The very definition of a bubble is a shared belief, that the asset in question (housing here, but works the same for tulip bulbs, dot-com stocks...) will keep increasing in value and that when the mortgage resets, you'll just take a fresh new one or resell the house for a profit (to buy an even nicer one).

Plus the very strong pull of the "American dream": owning one's home (the US legal system is based on the property laws; unlike Europe, tenants have nearly no rights -- I know, I've been there).

When the nice mortgage broker explains that you too can be part of that home ownership dream: this is entirely legal (would I lie to you?) and when the introduction rate expires you'll have build plenty of equity in your house and refi will be a snap, not many people could resist the "dream".

Of course, the whole system worked (for a time) because neither the broker, nor the bank, nor the big guys like Goldman were holding the bag: they found a way to offload all the risks onto someone else while keeping the profits -- the very definition of modern finance.

A good opportunity to watch again this excellent presentation "How Subprime Works". Should be required reading on ET.

by Bernard on Sun Aug 29th, 2010 at 12:43:26 PM EST
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