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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (39572)	12/15/2009 12:00:46 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Re: "Private lenders made the majority of sub-prime loans. So what?" I believe that the implied thought there was that the PROCESS of SECURITIZATION itself, (as it was being practiced), bears the vast majority of the blame for inflating asset values into the bubble. In the 'old days', when banks underwrote loans they also generally held the loans on their own books 'until maturity'. Therefore they had NO REASON for lax lending standards, lax underwriting, or bogus appraisals. But once the practice of SECURITIZING loans became commonplace --- lenders selling the loans off as fast as they make them to third and fourth parties who assemble them into large pools, chop the assembled loans up into 'tranches' of varying composition, (&, through the 'magic' of M.P.T. turn 80% subprime loans into 90% triple A loans), and then, in turn, sell the whole kit and kaboodle off to global investors who are now THOROUGHLY disintermediated from the original borrowers.... One THIS became the common practice --- then it was the very pursuit of this activity by the big Wall Street firms (utilizing MASSIVE AMOUNTS of LEVERAGE --- some up to 70-to-1 levered with borrowed money) --- that BLEW THIS BUBBLE SKY HIGH. And, needless to say... once 'no fault' securitization became the NORM... the original lenders no longer had ANY REASON AT ALL to keep high standards on loan underwriting or lending. Since they were selling the loans OFF OF THEIR BOOKS as fast as they made them! It was simply a game of MUSICAL CHAIRS. Not a politician in the land, nor any other factor, had even a HINT of as much influence on the inflating of the massive GLOBAL BUBBLE (a hundred times or more larger then the notional value of ALL the sub-prime mortgages in the entire world) than the fast-and-loose practice of this securitization model of 'Musical Chairs' itself did.