What Caused The Mortgage Meltdown

  I have spoken several times about the lack of media understanding in regards to the mortgage meltdown.  The Banks and Wall Street teamed up to blame the brokers for the mortgage meltdown.  I continue to see article after article blaming mortgage brokers which is absurd!  I will run down some of the latest headlines; 

  • Loans done by a mortgage broker are more likely to fail than a loan done by a bank. 

      Anyone that can count can see through this one.  Mortgage brokers originated  more than 60% of all mortgages done during the boom.  This would mean that           mortgage brokers would have more to fail than banks in shear numbers alone.              Simple math that gets twisted in order to point the blame at brokers.  The reason            brokers did so many loans is because the banks did not want to pay the overhead          to employ the staff in order to create these loans.  The banks paid nothing to generate the loans so they had very little risk. 

  •  Mortgage Brokers Caused The Meltdown

      This is yet again another unfounded headline.  Much like Coke the Banks made loan produces available to mortgage brokers to sell.  Coke makes their beverages and puts them in stores and the consumers come in and purchase them.  Much like the same consumers that come in and purchase a loan.  So where is the real break down and why is the Media not covering it.  Just as the big four banks get bigger many of the Media outlets are owned or have an ownership interest many Wall Street companies.  So let just say of argument, if you made a mistake and did not want anyone to know what would you do?  Again for argument, if you and an ownership interest in Wall Street and a Media outlet you could use the Media to throw out enough junk to get people off of your trail.  I have used this graph several times as it tells the path of how mortgages are made during the boom and still today.  The problem is not with the model or the graph.  The problem is with the companies that gave ratings to the subprime mortgage backed securities.

Bond Flow Chart

  If the ratings companies like Moody’s and others gave subprime mortgage bonds a less than triple “A” rating then hedge funds would no have spent so much money on these bonds.  The demand from Wall Street because of these ratings was enormous and the SEC did nothing about it as everyone was making money.  This shows you Government Oversight in action.  As long as we are making money then everyone be quite.  So next time you see a Media outlet blaming the brokers keep in mind that brokers can only sell products that banks make available to them to sell. 

  I have to wonder if the Media got the mortgage bond agent/broker and the mortgage origination broker confussed.


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