Tuesday, September 16, 2008

Should have seen it coming

About three years ago, looking back from what we know now, I should have known that the financial world was about to implode. At that time I was seeing the usual sixty different people in a month. What I realized even then was that about ten of the people I saw, who had been not doing too well professionally, were suddenly taking exams to become mortgage brokers. Even those who couldn't pass the exams were sell mortgages for their sleazy brother-in-law or cousin. The cousin was often the guy who sold mortgages, and to add to his profit margin, sold cocaine.

I had one woman who had a few relationship problems, but she was selling both real-estate and mortgages, and she was making many, many dollars. She worked constantly, looked stylish, networked with everyone, and knew everyone. Everyone thought they could be just like her.

Well, they couldn't.

But they all sold mortgages to their aunts and uncles and ner'-do-well brothers. They all seemed to have some sense that these people couldn't afford the payments. Many of the people taking the mortgages were taking money out of the houses they had owned for years, believing that the equity in the house would just continue to rise at 20% a year. Often they used the money to pay off the credit card debt they had gotten by buying SUVs, and the trips that came with them.

The banks were encouraging people to use the credit cards, and would sent new ones to people as soon as the old one was max-ed out. The mortgage companies were selling on the basis of low-rates that the Fed had dropped to get the economy going after the stock market bubble burst, without regard to creating a bubble in housing.

Then the bubble popped. Surprise!

It was completely unregulated. What made it worse was the brilliant investment bankers who devised "credit default swaps" and were leveraging derivatives on those at 30- 1.

Then the families who wanted it all now, and was encouraged to put it all on credit, was faced with the reality that they owned much more than they had in assets, and that they now had negative equity in their houses. It was over for everyone.

Now, John McCain wants to tell you he will reform all this, by stopping the greed of the "Fat Cats." Well those "Fat Cats" are the are Republicans he is counting on to finance is campaign. He forgets to tell you that. That's why he wants to keep the Bush tax cuts. That way they get to keep their money.

That's called getting tough.

4 comments:

Raine said...

hmmmmm howmuch you want bet he wants to use the "
trickle down effect" they all talk about- forgetting the fact that in order for that to work those same fat cats have to let go of some their profits in order to let some "trickle down" and they never ever do that

Amanda said...

We are in very, very bad trouble.

It is starting to dawn to people that their shares are developing a tendency of becoming worthless overnight.

And it's not the risky dot.com stuff we had before, but the kind that was supposed to outlast you and at least a couple of your descendants.

We aren't just depressed anymore. We ARE in a Depression.

Patty said...

Your assessment is right on about the way many had been living Therapist. What gets me irked is that I woke up to what I was doing four years ago and managed to pay off $150,000 in debt along with making a $400 to $600 variable interest only second mortgage payment (known around here as our "stupid tax")every month without complaining, and without using one drop of credit. Now that I have accomplished that I have a feeling I am going to get to pay off the debts of the people you wrote about in the form of taxes. (Insert angry face here!)

Anonymous said...

http://www.youtube.com/watch?v=kieyjfZDUIc