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You pretty much have it summed up. The trouble was these things got invented as a way to take advantage of a need generated in the market. It could be argued that much of the subprime meltdown was due to Government legislation in the 1970s prohibiting the then common practice of redlining and discrimination against people with bad credit. It was felt there was no risk for banks, insurers, etc because the whole thing (mortgage market) was guaranteed by the US government. Foreign banks and foreign governments were eager for a piece of the pie because it was risk free and all guaranteed by Uncle Sam. US Mortgage lenders were running out of people to lend to, because everyone with good credit already had a mortgage, so the easiest way to expand the lending market and make more fees was to lower credit standards. It was safe to do so, because it was all guaranteed by the government, and besides, it was what the government wanted; everyone to own homes, and nobody to be discriminated against. Who would want to stop this wonderful cycle?!!!!
Linked is an article from Glenn Beck's CNN column from last February. It's interesting to see how we've moved rapidly through the DEFCONOMY scale in 8 months, and I'd say we're not done yet. Remember, October is historically a disastrous month for the stock market. 1929 and 1987 crashes both happened at this time of year. I think we're teetering between DEFCONOMY 2 and DEFCONOMY 1 right now... thing is, I suspect Europe is in worse shape than we are; many of their banks are highly exposed to our mess, and exposed to messes of their own too, and the Euro is controlled by what's best for one or two countries, and the rest will just have to deal.
posted by 173.9.1...
, Mon, 6 Oct 2008 07:46:55
, Mon, 6 Oct 2008 01:11:23
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