3 ms·

Spot on. Other responses are naive. They speak of "the banks". There are two entities here: 1. companies 2. individuals working for companies who get commission

Spot on. Other responses are naive. They speak of "the banks". There are two entities here: 1. companies 2. individuals working for companies who get commission for selling loans whether they get paid or not Plus there are many many other problems with banking other than sub-prime which boil down to the above. That's why we need to start putting individuals in jail.

JackFr 12y ago
This is ludicrous and ill informed. To put someone in jail, typically they need to commit a crime. If someone lies about their income, and borrows money based on that information, the borrower has committed fraud, not the lender. I'll grant that it is immoral to steer someone into a loan which they probably won't be able to repay. However, unless the lender's agent materially misrepresented the loan, it is not illegal. The originate-to-sell model does introduce perverse incentives on the part of the lender's agent -- prudence takes a back seat when you don't hold the note. But if a borrower lies, and the lender's agent willfully ignores the lie and then sells the loan, both the agent and the borrower have defrauded the buyer of the loan, and it is that investor who is the victim of the fraud. No one was making borrowers take out loans. The reason why no one is going to jail, is because no one is wants to talk about 1) the culpability of the borrowers; and 2) the trillions of dollars of lost wealth did not flow into Wall Street bonuses, rather it went into loans to the public which were not repaid.
- collyw 12y ago
  Is it not part of the banks responsibility to be checking that these loans can realistically be repaid? Would you lend a large amount of money to someone without a job and expect to see it all back?
  - JackFr 12y ago
    It is their responsibility -- their responsibility to their shareholders. However, unlike an unsecured line like a credit card, the claim on the property that a mortgage entails, makes the more likely to be repaid even in the event of a default. In the industry, the terms 'subprime' was often used interchangeably with 'home equity'. 'Home equity' was used not in the sense of the consumer borrowing 'Home Equity Lone of Credit', but rather that the basis of the loan was not the borrowers ability to pay, but rather the value of the home. This made sense in an environment of rising home prices. No one defaults when they can just sell to get out of the loan. That was the realistic basis for the loan being repaid. (However in an environment of stagnant prices it fell apart.)

JackFr 12y ago

This is ludicrous and ill informed. To put someone in jail, typically they need to commit a crime. If someone lies about their income, and borrows money based on that information, the borrower has committed fraud, not the lender. I'll grant that it is immoral to steer someone into a loan which they probably won't be able to repay. However, unless the lender's agent materially misrepresented the loan, it is not illegal. The originate-to-sell model does introduce perverse incentives on the part of the lender's agent -- prudence takes a back seat when you don't hold the note. But if a borrower lies, and the lender's agent willfully ignores the lie and then sells the loan, both the agent and the borrower have defrauded the buyer of the loan, and it is that investor who is the victim of the fraud. No one was making borrowers take out loans. The reason why no one is going to jail, is because no one is wants to talk about 1) the culpability of the borrowers; and 2) the trillions of dollars of lost wealth did not flow into Wall Street bonuses, rather it went into loans to the public which were not repaid.

collyw 12y ago
Is it not part of the banks responsibility to be checking that these loans can realistically be repaid? Would you lend a large amount of money to someone without a job and expect to see it all back?
- JackFr 12y ago
  It is their responsibility -- their responsibility to their shareholders. However, unlike an unsecured line like a credit card, the claim on the property that a mortgage entails, makes the more likely to be repaid even in the event of a default. In the industry, the terms 'subprime' was often used interchangeably with 'home equity'. 'Home equity' was used not in the sense of the consumer borrowing 'Home Equity Lone of Credit', but rather that the basis of the loan was not the borrowers ability to pay, but rather the value of the home. This made sense in an environment of rising home prices. No one defaults when they can just sell to get out of the loan. That was the realistic basis for the loan being repaid. (However in an environment of stagnant prices it fell apart.)