The idea of a sub-prime rate for a mortgage should have been a clue that something wasn't right. The prime rate is a very low interest rate that banks change each other for loans. So if a bank or mortgage company has a booming business, but not enough cash from deposits and investors to provide loans, they can turn to the Federal Reserve, which is an arm of the world bank, to borrow money at an extremely low rates. Why would a bank then loan the fund out at an interest rate lower than it would pay the Federal Reserve for the money? On its face such a transaction would be a losing deal.
The housing market was very hot for a long time, but then the housing market began to slow. The government, banks, real estate companies and real estate brokers were all making tons of money off the housing market and wanted to keep it going, so they began making loan to individuals, falsifying there loan applications to qualify them for the loans. They also brought fresh meat into the process by offering buyers very low interest rate as the bait, (eg loan at interest rates even below the prime rate). The buyers got loans and the money was used to pay the builders so they could go out and build even more homes and keep the housing boom alive. All of this was done out of greed, (eg to keep the housing boom going and the economy looking good). The mortgages held by the mortgages companies, that had the variable interest rate time boom, were then peddled on Wall Street to investment companies like insurance companies and banks, that eat them up, because they appear sound and very, very lucrative. However, when the bubble this created began to crack, (eg buyers were not able to refinance their loans as the new variable interest rates kicked in doubling and tripling their monthly payments), the defaults and foreclosures started and the bubble finally burst taking down the stock market and leading us to our current economic crisis. Regards, LelandJ Stephen Russell wrote: > On Thu, Feb 14, 2008 at 12:37 PM, Ricardo Aráoz <[EMAIL PROTECTED]> wrote: > > >> Stephen Russell wrote: >> >> >>> We have no idea how messed up New Orleans is and it's in our own >>> damn country. >>> >> You're probably right, but we Americans don't care so much about New >> Orleans, after all it's a local issue, you natives should sort it out >> yourselves. That would be after you sort out your economy, which you >> hopelessly mangled because you have no idea about how things should be >> properly done. But we Americans are done holding your hands, you should >> emerge as a developed nation by your own efforts. >> >> > ------------------------------------------------------------------------------------------------- > > I find it very funny how we created investment instruments that on the front > end seemed like great potential. Very short term lifespan for a 30 year > note. A rate change event was used to implement a reissue on said note. > > Suddenly we realize that we were generating false wealth and the rug got > pulled from underneath. > > I am curious how many other counties were doing the same thing in over > valuation for real estate and convincing many people that they could live > an affluent life when they really didn't belong there? > > > > _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[EMAIL PROTECTED] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
