The New Gold Standard; YOU
Interesting to listen this a.m. on Maria Bartiromo's Wall Street report to Angelo Mozilo, now (but probably not for much longer) head of Countrywide, the mortgage firm just bailed out by Bank of America.
His use of the diversionary references to the 'first time buyers' who 'drive the market' was a little too obviously an attempt at ignoring the investors who bought a huge proportion of the subprime mortgages. While the news from the WSJ and Fortune magazine types is all about those with questionable credit who were trying to work up to a house for the first time, they are a proportion of the market that I suspect is a minority.
Investor/buyers were also pressing into unaffordable mortgages. Presenting a couple of income figures that could only qualify for a mortgage through the subprime rate, later to adjust upwards, is only one approach that has led to the present crisis in credit.
Multitudes of potential investors counted on juggling the houses through means of those same mortgages that they didn't qualify for on purely technical grounds. When the mortgage re-adjusted upwards, they were planning to be looking back on a house they'd turned over for a profit before that time came. Falling prices on houses were not going to happen in this investor plans. However, the questionable figures were accepted en masse by mortgagors like Countrywide.
After those mortgages were made, of course, they were sold in groups of mortgages by the lenders to financial investors such as hedge funds who buy into investments and businesses for a profit. Seems those ratings agents who were supposed to provide investors' information were not advising them of any risk to come.
Of course, the future risk would have had to assume that house prices could go down. It is conventional wisdom in market values that no one ever assumes that prices - that is, what consumers will agree to pay - will ever go down.
That makes you the new basis for the American monetary system. You might not see yourself as gold when you look in the mirror. But you are the New Gold Standard. As long as you will pay "market" for consumer goods, prices can keep being valued upwards. You're there with your assumed acceptance of prices, so the financial community keeps on printing the money.
Will you go out and 'keep buying' for that? I think not.
His use of the diversionary references to the 'first time buyers' who 'drive the market' was a little too obviously an attempt at ignoring the investors who bought a huge proportion of the subprime mortgages. While the news from the WSJ and Fortune magazine types is all about those with questionable credit who were trying to work up to a house for the first time, they are a proportion of the market that I suspect is a minority.
Investor/buyers were also pressing into unaffordable mortgages. Presenting a couple of income figures that could only qualify for a mortgage through the subprime rate, later to adjust upwards, is only one approach that has led to the present crisis in credit.
Multitudes of potential investors counted on juggling the houses through means of those same mortgages that they didn't qualify for on purely technical grounds. When the mortgage re-adjusted upwards, they were planning to be looking back on a house they'd turned over for a profit before that time came. Falling prices on houses were not going to happen in this investor plans. However, the questionable figures were accepted en masse by mortgagors like Countrywide.
After those mortgages were made, of course, they were sold in groups of mortgages by the lenders to financial investors such as hedge funds who buy into investments and businesses for a profit. Seems those ratings agents who were supposed to provide investors' information were not advising them of any risk to come.
Of course, the future risk would have had to assume that house prices could go down. It is conventional wisdom in market values that no one ever assumes that prices - that is, what consumers will agree to pay - will ever go down.
That makes you the new basis for the American monetary system. You might not see yourself as gold when you look in the mirror. But you are the New Gold Standard. As long as you will pay "market" for consumer goods, prices can keep being valued upwards. You're there with your assumed acceptance of prices, so the financial community keeps on printing the money.
Will you go out and 'keep buying' for that? I think not.
Labels: Budget; Economy, Corruption
posted by Ruth at 8:25 AM
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