Sunday, September 28, 2008

An Example of a Cause of Financial "meltdown"

I have often noted this ad in The Denver Daily News that seems to me one of the most flagrant causes of the mortgage mess [the company who placed ad, not the Denver Daily News]:
I am quoting the words of the ad in yesterday's paper and that was also in the Sept 19th paper,2008:
"Get the lowest mortgage possible!
Lending nationwide
FREE credit report
Free Appraisal
No out of pocket costs loans
100% Financing with NO PMI [note; my explanation PMI=private mortgage insurance]
All Credit levels welcome
No income verification
Interest only loans
No surprises
We keep it simple
FHA/VA loans 30 yr fixed rate with 6.125%APR
Jumbo 5/1 ARM 5.625%/5.54%
30 yr Fixed payment for $100,000=$583.57
ARM payment for $100,000=$575.66
[end quote]
That was not all the ad and I am not going to put their name here because I am NOT advertising that fraud [predatory lending,dishonest risks,dishonest advertising] for them, but I want you to see how the mortgage mess happened. I am sure it is not just mortgages that caused the near collapse of the banking system but dishonest people, crooks, swindlers and some people who were trying to comply with government regulations about "redlining." I first heard of that when I lived in Augusta GA and it was in the news.
The obvious intent of that ad above is to entice people to agree to credit who have no way of paying it back and it was bad business from the get-go. When a potential home-buyer has no investment in the house at all, he has no incentive to stay in it or make the payments. In other words if he loses nothing why should he not walk away? Read the following article also for more insight into this :
A quote from a most excellent analysis of the situation and article:

"The roots of this crisis go back to the Carter administration.
That was when government officials, egged on by left-wing activists,
began accusing mortgage lenders of racism and "redlining" because
urban blacks were being denied mortgages at a higher rate than
suburban whites.

The pressure to make more loans to minorities
(read: to borrowers with weak credit histories) became relentless..." from:

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/?p1=Well_MostPop_Emailed1/
8:05 AM 9/28/2008
signed gloria poole, RN and artist, Denver CO 80203
Update as of 8:44am,MT:
This quote from the article in the NY Times today, entitled, "Behind Insurer's Crisis, Blind
Eye to a Web of Risk":
"In 2004, without admitting or denying accusations that it helped
clients improperly burnish their financial statements, A.I.G.
paid $126 million and entered into a deferred prosecution
agreement to settle federal civil and criminal investigations. "
Read entire article at:
http://www.nytimes.com/2008/09/28/business/28melt.html?pagewanted=4&_r=1&hp/
And this quote from this excellent analysis in the NY Times entitled,
"The Lost Tycoons' at:
"The death of Wall Street has been a long-running, slow-motion
crisis, barely discernible to participants who had still booked huge
profits in recent years. Beneath the razzle-dazzle of trading desks
and the wizardry of esoteric finance lay the inescapable fact that
these firms had shed their original reason for being: providing
capital to American business." Please read entire op-ed article at:
http://www.nytimes.com/2008/09/28/opinion/28chernow.html?pagewanted=1&_r=1/
8:54 AM 9/28/2008
Update:
Update as of 9:10 am,MT:
This quote from French Finance Minister Ms LaGarde about what France requires to buy a house:
"But France still believes in strict rules and regulations,
Finance Minister Christine Lagarde says.

"Expect two conditions - a down payment of 20% of the value
of the house plus mortgage [repayments] which will not
exceed 30% of income." [end quote]
Read the entire article and compare it to the free-wheeling attitude
of finance debt with debt that even the US government is planning to do momentarily.
Article at:http://news.bbc.co.uk/2/hi/europe/7635327.stm/
9:12 AM 9/28/2008
Update:
Update :
This quote from article in NY Times today:
"The last six months have made it abundantly clear that voluntary
regulation does not work,” he said in a statement. The program
“was fundamentally flawed from the beginning, because investment
banks could opt in or out of supervision voluntarily" according to
Christopher Cox who shut down the volunatary enrollment program.
Read article at:
http://www.nytimes.com/2008/09/27/business/27sec.html?_r=1&em&oref=slogin/
11:35 AM 9/28/2008

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