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Nah you’re throwing the baby out with the bath water. Poor people can’t afford homes and in many cases don’t have proper identification even to buy a home. Tha

by debt 8y ago

Nah you’re throwing the baby out with the bath water. Poor people can’t afford homes and in many cases don’t have proper identification even to buy a home. That’s where the whole NINJA subprime thing came in. But the actual problem was that those loans were being rated AAA when repackaged into a CDO. From that point forward is where the problem began. Tha is, if they were properly rated ‘08 would not have happened. The swaps and derivatives that nearly brought down AIG then took that bug in the system(the bad improperly rated mortgages repacackaged is high quality shit) and nearly collapsed the world economy. There’s nothing wrong with helping poor people buy homes but don’t call those mortgages AAA otherwise you’re basically operating under false information from there on out and should expect unpredictable results.

ksdale 8y ago
I agree completely with you, but I remember during the crisis that a large part of the outrage was directed at banks "taking advantage" of the poor by lending them sums that they couldn't hope to pay back. I can remember a couple years later trying to buy a house and being surprised that the formula for loan size was so concrete. They didn't care what you actually spent your money on, just that your payments be no larger than 30% of your income. Because we're frugal, we could have afforded quite a bit more house than they were willing to lend to us for. Indeed, we paid way more in rent than we could get for a monthly mortgage payment. We ended up wishing that the banks had tried to "take advantage" of us because that would have meant giving us more latitude to manage our own affairs.
elhudy 8y ago
>But the actual problem was that those loans were being rated AAA when repackaged into a CDO. I was under the impression that the CDO as a whole was being rated well - and the junk loans still maintained their rating when they were packaged. In other words, both parties were aware that the highly rated CDO contained bad loans. Is this not the case?
- debt 8y ago
  The junk stuff was repackaged many times over and sold as separate financial products. That was where the whole rocket scientist quant bs came in as it required made-up math to make it work. So it was re-rated from crap to AAA. And then AIG started offering insurance against those products and things really started heating up. So it took taking some good bonds and some bad bonds and throwing them into the same CDO to get a good rating.

by debt 8y ago

ksdale 8y ago

I agree completely with you, but I remember during the crisis that a large part of the outrage was directed at banks "taking advantage" of the poor by lending them sums that they couldn't hope to pay back. I can remember a couple years later trying to buy a house and being surprised that the formula for loan size was so concrete. They didn't care what you actually spent your money on, just that your payments be no larger than 30% of your income. Because we're frugal, we could have afforded quite a bit more house than they were willing to lend to us for. Indeed, we paid way more in rent than we could get for a monthly mortgage payment. We ended up wishing that the banks had tried to "take advantage" of us because that would have meant giving us more latitude to manage our own affairs.

elhudy 8y ago

>But the actual problem was that those loans were being rated AAA when repackaged into a CDO. I was under the impression that the CDO as a whole was being rated well - and the junk loans still maintained their rating when they were packaged. In other words, both parties were aware that the highly rated CDO contained bad loans. Is this not the case?

debt 8y ago
The junk stuff was repackaged many times over and sold as separate financial products. That was where the whole rocket scientist quant bs came in as it required made-up math to make it work. So it was re-rated from crap to AAA. And then AIG started offering insurance against those products and things really started heating up. So it took taking some good bonds and some bad bonds and throwing them into the same CDO to get a good rating.