board77

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Put it bluntly, your bank is out to make money, whether frugally or not, that IS its business. Some people swear by credit unions or savings and loans for that very reason.

hamlet over on TORC wrote:

Interesting article from Factcheck.org that I think might have been missed here.

http://www.factcheck.org/elections-2008 ... risis.html

Of great interest is this bit:

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The Real Deal

So who is to blame? There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:

The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.

Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.

Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.

Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.

The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.

An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) the crisis is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.

Dave_LF wrote:

yov, you ask why anyone would make a subprime loan when it's obviously a bad risk; much of the answer is that the individual making the profit and the individual taking the risk were two different people. You make a bad loan, bundle it up with a bunch of other loans of varying quality, then sell the whole thing as an "investment instrument" without disclosing how risky the whole thing is. Maybe the buyer understands what's he's getting into, in which case the whole thing becomes a game of hot potato, or maybe he doesn't, in which case it turns into a game of pin the bankruptcy on the sucker. As time goes by and nothing bad happens, people start to think they might have been worried about nothing and get more and more daring. Then the first domino falls.

yovargas wrote:

Why did it become more profitable to sell them than to hold them?

yovargas wrote:

Why did it become more profitable to sell them than to hold them?

yovargas wrote:

Dave_LF wrote:

yov, you ask why anyone would make a subprime loan when it's obviously a bad risk; much of the answer is that the individual making the profit and the individual taking the risk were two different people. You make a bad loan, bundle it up with a bunch of other loans of varying quality, then sell the whole thing as an "investment instrument" without disclosing how risky the whole thing is. Maybe the buyer understands what's he's getting into, in which case the whole thing becomes a game of hot potato, or maybe he doesn't, in which case it turns into a game of pin the bankruptcy on the sucker. As time goes by and nothing bad happens, people start to think they might have been worried about nothing and get more and more daring. Then the first domino falls.

This is part of the answer but it's an answer a few links down the chain. What changed to cause this to be attractive recently when it hadn't been before? Was this "separation of actions from their consequences" something that only started recently? If so, how and why?

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Banks selling junk mortgages pressured rating agencies to overvalue the instruments, and since they were the ones paying the fees, the agencies complied.