Sub-Prime Collapse Doesn't Add Up

Tap ,

Regards the financial crisis – I was led to believe by the media that it was just subprime mortgages which went bad – i.e. bad lending to Ninjas who defaulted – but I was always suspicious about this .

Even when a house is repossessed it still has a value – obviously things may be different in the US – because I don’t believe the same thing has happened in the UK . From my own local perspective , I know that an average property retains 60-70% of its value regardless – even after repossession . Subprime mortgages can only ever be a small percentage of the total mortgage money lent – and of course their failure rates are higher – but that is already factored in with higher interest rates charged from the start . We never get to see the details on the problems – just the glib excuses – which seem to make sense – but since we don’t see the details – they are impossible to verify .

That said – it just doesn’t make sense to me that the financial collapse would happen because a minority of loans ( subprime ) had to be repossessed – given that there remains a residual value in the property . Sure – it could make the system take a tumble – but not a collapse .

Working it through – if we assume that subprime accounts for 20% of the mortgages – even if half of them go bad – we just lost 10% off the total amount of money mortgaged – but given that those properties will still sell ( be mortgaged ) for 60% of their original mortgage value , we only really lost 4% of the total value. Given that an amount is already factored in for losses – I can’t see that this type of value would cause instability. I appreciate that due to Fractional reserve lending – losses are multiplied in the same way as gains are leveraged – but still I’m suspicious that losses of that size would cripple the system . Of course I just made up those numbers – who knows the real values ?

The media story is that the problems occurred because the various mortgages were packaged together and sold as ‘ debt bundles ‘ to investors – but still I don’t see how this could cause a collapse.

I read a new account of what went on from ‘ what really happened .com ‘ – He says that the real route of the problem is simple fraud - the mortgage resellers sold the same debts over and over as parts of different bundles – leading to the situation where one mortgage debt would have multiple owners . He compares the situation to Fractional Reserve banking – which seems to work fine as long as every depositor doesn’t come in for their cash at the same time . Now if that has happened – I readily accept that the whole system would nose dive into collapse . IE , only one owner can re-coup the 60% value left in the repossessed house – the other 10 owners are left with 100% ++ losses ( including costs ) .

What’s your understanding here – Are you aware of this alleged fraud ? If the media did cover this – I missed it .

Sean

GREECE TO DEFAULT ON THURSDAY 15MARCH2012.

Yep! this ties in nicely with Moody's Down Grading of Greece to category 'C'

tap link:-


I was talking to a Greek Guy the other day, what he didn't have to say about The Banksters' wasn't worth hearing, he said he had lost a couple of relatives in the Rioting.
Greece Telling them to get stuffed could signal further round ups of The Banksters'.

It is no accident that 1,700 Bank jobs have been cut.

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We can but hope the Parasites at the Top on their Illegal Bonuses
will shortly follow.

REGARDS ......... WASP