You Can't Trust
A lot of folks are
the recent economic downturn and daily news descriptions
mantra “ since The Great Depression” have many wondering
and how we have reached the edge and perhaps soon the abyss.
we are in now is the result of a lack of confidence caused
really shady business dealings.
The entire mess
began with home
loans. These mortgages were not your grandparents’
mortgages; in fact,
these loans could not be further from those time-tested and
transactions. In “the old days” when you went to the bank
for a loan it
was a local bank that loaned you the money and held your
same bank would have collected the payments on your loan
mortgage was paid off. The business deal was very basic and
straightforward, not like the banking system we have today.
until they got their wish list turned to law. What the law
possible was a financial shell game. A typical loan goes
hands on the way to the final servicer. The loan may have
through five entities before you even make your first
loan has been originated, brokered, warehoused, underwritten
assigned to a servicer. The process has been made
deceptive on purpose.
low-interest teaser rates lured many people into loans they
afford. Within the banking system, a lot more was going on
regulations and well-marketed deals. There was also an
fraud going on; inflated appraisals, document tampering and
predatory lending practices. Many homeowners were ripped off
and switch” loan offers; the loans they were promised is not
The problem is further complicated when
thought it a good idea to “pool” or bring these loans
together into a
collective. These loan “pools” or mortgage-backed securities
bought by investors and became part of investment and
There was a lot
riding on these
loans: homes, investment portfolios, and the credibility of
institutions. Once people started defaulting on loans they
afford and were foreclosed on, this foreclosure depressed
the prices of
homes in their neighborhood. As foreclosures increase,
plunge drastically, causing many mortgages to go
the homeowner's mortgage debt is higher than the property
has resulted in more and more people abandoning their homes.
devastation that is
sweeping through the housing market has exposed the
security (MBS) investments for what they are: a scam.
the damage will be far and wide destroying the retirement
have been building for a lifetime.
There is no trust
among the banks
because they really do not know how much bad debt they or
associates have within their institutions. This lack of
trust has cut
off lending to everyone, you, me, businesses, and other
complete shutdown of liquidity or cash has frozen the
Consequently, the economy is shrinking meaning that we are
recession and perhaps a severe and long sustained recession
depression is in our future if the cycle of destruction
unchecked. Bad things happen when you can't trust bankers.
All content on this site is
G. B. Taken. All rights reserved January 1, 2010