That is basically incorrect.
The banks and insurance companies gave doc free loans and Moodys graded them triple AAA, then they bundled them up into collateralized debt obligations and sold those sub prime loans as triple AAA paper.
So our government was partner to pure fraud. We frauded the world. Why a lot of the 182 billion went to banks overseas.
Then to add to that, AIG sold credit default swaps (CDS's) which were multiple real estate insurance policies on the same property to increase leverage. They increased leverage to the trillions and made billions doing it. Out of London. 400 of them and they all made over a million each.
Wall street had built a house of cards. When the RE market started to implode the house caved in. Same thing as 1929. That is why Paulson begged Pelsoi for 182 billion for AIG no questions asked and another 700 billion of the peoples money to bail out the banks.
The libor rate rose to 4% and all lending in the world stopped in Sept of 08 in one day, when credit markets froze up due to no ability to mark to market i.e. banks would not lend ot each other because they could not figure out hte value in each CDO, but most of htem were shit sub prime bundles.
That is the real story. It was the gambling by wall street. They took the leverage up into the hundreds of trillions.
People taking out too much debt was peanuts by comparison!
>>It was Liberal, give-a-way loans that got us in this fix in the fix place. Congress, in it's infinite wisdom, demanded that any borrower who could fog a mirror was entitled to a loan to buy a home or two, or three, or a dozen (with lies). No worries about borrower qualifications or appraisals, price acceleration would prevent any problems - until it wouldn't, and didn't. And you want more Liberalism in lending? Geesh!
Here's an economic fact. The easier it becomes to access other peoples money, the more expensive things become, because everyone has more money - real or not. That's why when credit markets shrink, prices/values drop. Keep up the credit, extend the problems it creates.
VP in AZ |
