Re: It's amazing
@ The Axe 11:09
Thats what you are lead to believe. Far, from it. Those mortgages became useful to bundle into CDOs (collateralised debt obligations), CDSs (credit default swaps) and other SIVs structured investment vehicles.
The best analogy is a race horse. Joe says to Fred I bet you that the horse will win. David hears this and says to Sandra, I bet you Joe doesn't pay Fred if the horse wins. Sheila hears of the deal and says to Bob I bet you David doesn't pay Sandra. At some point you can even have Joe doing a deal with Sheila! This is why you may have heard in some media (even Radio 4 covered it) banks didn't even know how exposed they were to sub prime mortgages CDS etc.
Back to the mortgages - They basically became part of a portfolio where you deal on the future income and treat them as assets but the problem is that these portfolios can themselves also become bundled into other packages:
. . . . which is then re-hypothecated. That is the reason why liar loans, became so popular. That is the reason finance companies would actually lie on your behalf, even if you didn't want them to. There are cases where a 60 year old mechanic was earning $250,000 a year etc etc. Problems were all pointed out to the governments and leading finance companies but the irony is that even chiefs that hated these models had to become involved or they would have been consumed by the companies that were abusing CDSs etc.
These packages became so complex because they were all bundled and placed into tranches of varying risk (some risky mortgages added to some safe mortgages, loans etc etc), these could then be re bundled. To figure out what was actually inside one of these bundles you would have to track back across huge numbers of 'spagetti transactions'. The rating agencies were intimidated by the finance companies who were out of their depth in assessing the real risk anyway so they just stamped them with triple A rating. If the SEC does start to cause problems then you create a branch in London which covers the insurance requirements and that keeps SEC happy.
Politically all was fine as the American Gov scored huge points with home ownership. The players just needed to keep issuing the money - FYI debt is created BEFORE the money is created.
Imagine paying rent in America and living in poverty (+ virtually no education) somebody knocks on your door and says look at the trend for property prices, we give you the money to buy this place, no deposit, nothing we do all the work and you just sign the dotted line. In just 2 years time you will be looking at approx 10s of thousand of dollars. These people signed up by the thousands, everybody is happy. Like all ponzis it will burst.
This is interesting and has also been placed on the gov Library in September 2008:
Be sure to read the link from the above site to:
Have fun folks, the sh*t still has not hit the fan, . . . . .