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Yes but the majority of the fraud that led to the financial crisis was due to the way the banks fraudulently combined sub-prime mortgages into mortgage backed s

by lowkey 5y ago

Yes but the majority of the fraud that led to the financial crisis was due to the way the banks fraudulently combined sub-prime mortgages into mortgage backed securities and the ratings agencies looked the other way. There was rampant fraud in the mis-representation of assets used to back asset-backed loans. The system didn’t crash because everyday people took out loans. It crashed because of the incredible amount of fraud that went into baking a mortgage backed security. TL;DR: It wasn’t the regular people applying for loans that caused the whole thing to collapse. It was all the fraud used by bankers to justify lending to people who probably shouldn’t have been given mortgages in the first place.

ChrisLomont 5y ago
>the majority of the fraud that led to the financial crisis Really? How exactly do you measure "the majority?" All the borrowers that took money they were not going to pay back was exactly the root cause. Had they not borrowed, then not paid, there would have been no crisis. They first lack of payment wasn't because a bank forgot to pay. It was because a borrower that signed for a loan did not pay. And guess what - there are still tons of mortgage backed securities, yet now that more people pay, there is not continual crashes. The ratings agencies still work, the banks still work, but more people are denied loans. So the problem wasn't that MBS automatically fail, or ratings agencies are completely incompetent. We just stopped letting people access loans like drunken sailors.
- lowkey 5y ago
  The borrowers were not experts in the detail of the mortgage markets. They took loans that were offered to them by industry actors who knew or should have known that the sub-prime loan applicants were a bad risk, but let’s give them a pass on that because who could have predicted a real estate crash right? The real fraud was not writing these loans to less credit-worthy borrowers. It was the mechanism used by Wall Street banks to combine these sub-prime mortgages into mortgage-backed securities. Not only did the bankers often mis-represent the composition of their MBS, they also employed massive amounts of leverage based on the fraudulent ratings they knew they were getting from the credit rating agencies, no questions asked. The leverage involved in MBS is what makes them an attractive financial product to municipalities and governments since this extra leverage is what made the impressive promised returns available on such a “safe” asset class. However, since the Wall Street Banks lied about the quality of the mortgages, the resulting MBS were massively over-levereged. This is why Ryan Reynolds explained in The Big Short, it only required a small % of mortgages to default to create a cascade of failures. Tl:dr It wasn’t the fact that banks lent to less credit-worthy borrowers that led to the 2008 Financial Crisis, it was all the fraud that went into the construction of the mortgage-backed-securities (MBS)

by lowkey 5y ago

ChrisLomont 5y ago

>the majority of the fraud that led to the financial crisis Really? How exactly do you measure "the majority?" All the borrowers that took money they were not going to pay back was exactly the root cause. Had they not borrowed, then not paid, there would have been no crisis. They first lack of payment wasn't because a bank forgot to pay. It was because a borrower that signed for a loan did not pay. And guess what - there are still tons of mortgage backed securities, yet now that more people pay, there is not continual crashes. The ratings agencies still work, the banks still work, but more people are denied loans. So the problem wasn't that MBS automatically fail, or ratings agencies are completely incompetent. We just stopped letting people access loans like drunken sailors.

lowkey 5y ago
The borrowers were not experts in the detail of the mortgage markets. They took loans that were offered to them by industry actors who knew or should have known that the sub-prime loan applicants were a bad risk, but let’s give them a pass on that because who could have predicted a real estate crash right? The real fraud was not writing these loans to less credit-worthy borrowers. It was the mechanism used by Wall Street banks to combine these sub-prime mortgages into mortgage-backed securities. Not only did the bankers often mis-represent the composition of their MBS, they also employed massive amounts of leverage based on the fraudulent ratings they knew they were getting from the credit rating agencies, no questions asked. The leverage involved in MBS is what makes them an attractive financial product to municipalities and governments since this extra leverage is what made the impressive promised returns available on such a “safe” asset class. However, since the Wall Street Banks lied about the quality of the mortgages, the resulting MBS were massively over-levereged. This is why Ryan Reynolds explained in The Big Short, it only required a small % of mortgages to default to create a cascade of failures. Tl:dr It wasn’t the fact that banks lent to less credit-worthy borrowers that led to the 2008 Financial Crisis, it was all the fraud that went into the construction of the mortgage-backed-securities (MBS)