Interesting but confusing link to an article about economic collapse

[Raineyrocks]

I know it's no big surprise to anyone that has read my posts before that this stuff confuses me but I'm wondering if anyone can make sense of this article and tell me if his suggestions at the bottom of the page make sense?
Also do you think he's right about what would happen to people that owe debt in the beginning of the article?
Thanks to anyone that tries to help explain this to me!

http://cheshirecatz.blogharbor.com/blog/_archives/2007/7/19/3105084.html

[Lex]

I disagree with the article completely. He is the blaming fiat currency on mortgage companies?!?

People VOLUNTARILY took out mortgages to buy a house/land, they didn't have to. You borrowed money and you have to pay it back, it's as simple as that.

[J’raxis 270145]

I disagree with the article completely. He is the blaming fiat currency on mortgage companies?!?

People VOLUNTARILY took out mortgages to buy a house/land, they didn't have to. You borrowed money and you have to pay it back, it's as simple as that.

It's not just the fault of people taking out the mortgages:

Separately, Mr. Bernanke acknowledged that regulators needed to impose new rules on subprime mortgages — those made to people with weak credit — saying that the explosion of exotic mortgages in recent years was accompanied by lax underwriting standards, abusive lending practices and some cases of outright fraud.

[Lex]

Separately, Mr. Bernanke acknowledged that regulators needed to impose new rules on subprime mortgages — those made to people with weak credit — saying that the explosion of exotic mortgages in recent years was accompanied by lax underwriting standards, abusive lending practices and some cases of outright fraud.

I've had two different mortgages over the last couple of years and I find it hard to believe the above quote. Maybe there are a few banks here or there doing this but a majority of banks are not defrauding anybody.

If you need money and someone loans it to you, you have an obligation to pay it even if the money was stolen originally. As long as the lender follows the terms that both parties agreed to I think not paying your mortgage is wrong. And I find it hard to believe that there are so many banks out there violating their agreements.

[EthanAllen]

Sub-prime lending didn't have the same regulatory controls in place. Higher risks, higher rewards.

[Lex]

Sub-prime lending didn't have the same regulatory controls in place. Higher risks, higher rewards.

Which means people who couldn't afford a house ended up getting one. A now that house will be taken away. Sounds like the market normalizing itself. What's wrong with that?

[alohamonkey]

Sub-prime lending didn't have the same regulatory controls in place. Higher risks, higher rewards.

Which means people who couldn't afford a house ended up getting one. A now that house will be taken away. Sounds like the market normalizing itself. What's wrong with that?

I think the only thing wrong with that situation is if the lenders used deceptive practices to convince home buyers that they could afford a house that they really couldn't.  In my 2 years of experience as a real estate agent, I can assure you that not all lenders are honest and straightforward.  Hell, my girlfriend and I were approved for a loan more than double the amount of our house.  We strugge sometimes to make the payments as it is now. 

[Lex]

Hell, my girlfriend and I were approved for a loan more than double the amount of our house.  We strugge sometimes to make the payments as it is now. 

Is the bank charging you more interest than was agreed upon?

[Lex]

I think the only thing wrong with that situation is if the lenders used deceptive practices to convince home buyers that they could afford a house that they really couldn't.

You mean like if an automaker says that their cars are safe but when you drive your car into a concrete wall at 100mph your car is totaled and you are wondering why the car company deceieved you and told you the car was safe?

Common sense tells us that cars are dangerous in a crash and mortgages are dangerous when you can't afford the payments. If you don't want to be decieved than don't drive and don't get a mortgage.

[alohamonkey]

Hell, my girlfriend and I were approved for a loan more than double the amount of our house.  We strugge sometimes to make the payments as it is now. 

Is the bank charging you more interest than was agreed upon?

No, we'll have to make some decisions in 2 years when the rate adjusts though.  They're living up to their end of the bargain just fine.  I have no complaint with our lender.  I was just highlighting the fact that, if we sometimes find things tight now, I don't know what the hell the bank was thinking approving us for double the house.  If we were uneducated in the home-buying process, we could easily find ourselves in a tight spot right now. 

For someone like my girlfriend and I, we're not worried.  We're intelligent, cautious, and very knowledgeable about business matters.  The thing I have an issue with is lenders practicing false advertising . . . "Stop renting! You can own your own home for as little as $700 per month!"  Now, I know that buyers should be smarter and I put the majority of the responsibility on their shoulders . . . but some lenders' practices go beyond "sneaky" and venture into the "criminal" territory.  Telling someone they can own a house for $700 / month without telling them that their mortgage will jump to $1500 / month after 2 years is criminal to me. 

[alohamonkey]

You mean like if an automaker says that their cars are safe but when you drive your car into a concrete wall at 100mph your car is totaled and you are wondering why the car company deceieved you and told you the car was safe?

No.  But if the auto maker claims that their car will protect the occupants inside during a head-on collision at 10 mph, I expect it to do just that.  If I then get in a head-on collision at 10 mph and someone is paralyzed during the process, then I expect the auto maker to be accountable. 

Common sense tells us that cars are dangerous in a crash and mortgages are dangerous when you can't afford the payments. If you don't want to be decieved than don't drive and don't get a mortgage.

Very true.  I think it's sad to just accept the fact that you are going to be deceived when making the biggest purchase of your life though.  Instead of accepting that fact, I suggest weeding out the dishonest lenders and holding them accountable. 

[J’raxis 270145]

Separately, Mr. Bernanke acknowledged that regulators needed to impose new rules on subprime mortgages — those made to people with weak credit — saying that the explosion of exotic mortgages in recent years was accompanied by lax underwriting standards, abusive lending practices and some cases of outright fraud.

I've had two different mortgages over the last couple of years and I find it hard to believe the above quote. Maybe there are a few banks here or there doing this but a majority of banks are not defrauding anybody.

If you need money and someone loans it to you, you have an obligation to pay it even if the money was stolen originally. As long as the lender follows the terms that both parties agreed to I think not paying your mortgage is wrong. And I find it hard to believe that there are so many banks out there violating their agreements.

There are plenty of things I can bring up to defend a lot of the nonpayment that's going on, but that's not really what this thread was about; it was about the causes of the economic collapse that appears to be starting. Whether or not people are justified in defaulting on their loans, they are—and the fact that these banks are lending to people that they shouldn't be in the first place (due to the risk of these borrowers defaulting), is a major cause of this coming collapse.

[J’raxis 270145]

Sub-prime lending didn't have the same regulatory controls in place. Higher risks, higher rewards.

Which means people who couldn't afford a house ended up getting one. A now that house will be taken away. Sounds like the market normalizing itself. What's wrong with that?

Because when this is happening to thousands of people at once, the effects of the process, and the final outcome, tend to be a lot more than just a renormalized market. Things like panics, recessions, and depressions come to mind.

[J’raxis 270145]

I think the only thing wrong with that situation is if the lenders used deceptive practices to convince home buyers that they could afford a house that they really couldn't.

You mean like if an automaker says that their cars are safe but when you drive your car into a concrete wall at 100mph your car is totaled and you are wondering why the car company deceieved you and told you the car was safe?

Common sense tells us that cars are dangerous in a crash and mortgages are dangerous when you can't afford the payments. If you don't want to be decieved than don't drive and don't get a mortgage.

"Deceptive practices" usually means things like the lender working very hard to hide the true nature of the loan—obscure legal language, "fine print," hidden fees, and so forth. A mortgage contract, especially these "subprime" ones that shady lenders are so fond of, isn't just "I give you $100,000 and you pay it back over 30 years, in monthly installments, at 5% compound interest." Lenders can be rather creative trying to hide all sorts of fees and penalties in the contract, and then make sure the borrowers don't find out about all of it before signing.

[J’raxis 270145]

For someone like my girlfriend and I, we're not worried.  We're intelligent, cautious, and very knowledgeable about business matters.  The thing I have an issue with is lenders practicing false advertising . . . "Stop renting! You can own your own home for as little as $700 per month!"  Now, I know that buyers should be smarter and I put the majority of the responsibility on their shoulders . . . but some lenders' practices go beyond "sneaky" and venture into the "criminal" territory.  Telling someone they can own a house for $700 / month without telling them that their mortgage will jump to $1500 / month after 2 years is criminal to me. 

And this is another important point about subprime lenders: They intentionally target people who aren't knowledgeable about business matters, people whom they know are ignorant or likely to be careless in signing to contract.