Tuesday, August 21, 2007

who thought subprime was a good idea anyway?

let's see here... so-called "sophisticated" banks offered mortgages to individuals with bad or no credit histories and/or dicey jobs or crappy income... in an attempt to turn a profit. was there a collective synapse misfire here, did their analysts' microsoft excel spreadsheets all crash at once, or am i just not sophisticated enough to follow the logic?

just wondering.


emily1 said...

they turn a profit by immediately reselling the mortgage to someone else. they don't care if the borrower can afford to repay the loan. they only care if they can sell the loan to someone else.

emily2 said...

so they assumed that there would always be a sucker to buy such worthless stinking piles of shit off of them?

it does matter if the borrower can or cannot pay off the loan, because that is how the instrument is valued. buyers of such instruments are also "sophisticated" investors, and it just doesn't make sense that these junky pieces of trash actually exchanged hands between so-called sophisticated investors.

hello, junk bond crisis of the 80s?

The Pedant said...

There are two other ways the banks make money, because the interest rates are crazy high:

1) the borrowers pay back enough to cover the bank's costs, even if they foreclose, because the interest is gigantic.

2) the borrowers don't lose the house, because they skip eating instead or something similar, and the bank continues to collect the crazy mortgage.