Shofercia wrote:Once again, my main argument is this: money was lent to people who couldn't pay back the money, i.e. if you make $20,000 a year, you can't pay back a $200,000 loan, and the housing bubble, which as you pointed out, was about to burst, was used as collateral. It doesn't take Einstein to predict that the system will fail if this is done. Duh! You've done a masterful dance around it yet again.
How many times do I have to explain this, we're talking about wall street and the shadow banking sector here, not the retail banking sector, the protesters are not protesting retail banking on the whole. The only thing that really mattered for wall street in terms of the securities being exchanged was the value of housing, the default rate didn't actually suddenly massively increase until after the crisis, that was never the problem, and did not cause the bubble. Wall Street was already aware that the default rate was higher for sub-prime, so you're just simply missing the point, the main problem was identifying if housing was overvalued. I'm going to ignore your nice story about Johnny for now on, since it's not relevant, I'm not discussing the practice of retail banks.
Hydesland wrote:If the banks were aware of the housing bubble, why the fuck were they using houses as collateral on high risk loans?
Again, by then it was already too late, this is something you need to know about before you make huge investments into that particular asset, the banks already had significant long positions on MB securities. Which leads to:
As for "not much could be done about it" - umm yeah there was. How about not using overvalued housing as collateral on high risk loans?
As I just said, too late, they were already hugely invested with leverage into the assets, there is no easy way out of that situation when your assets are worthless, a sudden huge sell off could cause a panic in the financial markets and make investors suspect your bank is insolvent and shedding its shit as fast as possible, causing your share price to plummet and you to go bankrupt, not good. This is where it gets very difficult.