Yet another reason among many why in my opinion these so-called mortgage backed securities ought to be 100% illegal.
Problem is that in the late 90's, Manhattan went crazy with bizarre versions of MBS, putting out tons of the things with little or no documentation and due dilligence, and literally fraudulent marketing propaganda. The fact that investment bankers are paid on how many deals go through, regardless of proper documentation and quality of collateral, meant that irresponsible dumbshit liberal New Yorkers did what irresponsible dumbshit liberal New Yorkers should be expected to do...
The problem isn't MBS per se, but rather a banking sector that lives off of government welfare and protections. Manhattan is full of crony capitalists who claim they support free markets, until an opportunity comes their way to use the state to advance their private interests at the expense of the rest of the nation. And when they lose money, they always expect someone else (the taxpayer) to fit the bill. After all, they went to Harvard. They shouldn't be allowed to lose money. //s
Simply outlawing MBS won't solve the problem, because really any kind of investment security could result in this kind of stupidity so long as the government rewards stupidity. What we need is a truly free-market financial system where those who fail, fail period, and no one's lobbying efforts are rewarded with laws meant to destroy more talented small competitors. This will punish irresponsible dumbshit liberal New Yorker-ism, and reward dilligent, intelligent, and responsible investing behavior.
Problem is that in the late 90's, Manhattan went crazy with bizarre versions of MBS, putting out tons of the things with little or no documentation and due dilligence, and literally fraudulent marketing propaganda. The fact that investment bankers are paid on how many deals go through, regardless of proper documentation and quality of collateral, meant that irresponsible dumbshit liberal New Yorkers did what irresponsible dumbshit liberal New Yorkers should be expected to do...
The problem isn't MBS per se, but rather a banking sector that lives off of government welfare and protections. Manhattan is full of crony capitalists who claim they support free markets, until an opportunity comes their way to use the state to advance their private interests at the expense of the rest of the nation. And when they lose money, they always expect someone else (the taxpayer) to fit the bill. After all, they went to Harvard. They shouldn't be allowed to lose money. //s
Simply outlawing MBS won't solve the problem, because really any kind of investment security could result in this kind of stupidity so long as the government rewards stupidity. What we need is a truly free-market financial system where those who fail, fail period, and no one's lobbying efforts are rewarded with laws meant to destroy more talented small competitors. This will punish irresponsible dumbshit liberal New Yorker-ism, and reward dilligent, intelligent, and responsible investing behavior.
Mortgage backed securities were created so lenders could offer longer term loans in the first place.
There were banks and S&L's that went under in the 80’s because they didn't use the secondary mortgage market (MBS’s).
They made a 30 year mortgage to a customer and funded it with deposits.
Say they made the mortgage for 7% and funded it with 3% CD’s.
What do you think happened when the CD’s matured and they had to pay 9% to renew the CD?
Correct, they were out of business.
MBS’s made it possible for the bank next door to make the same loan, keep the servicing (customer still made payments to the bank that made the loan) but have the rate risk offloaded.
It was a good system.
Long term fixed rate financing just won't be available without a secondary mortgage market.
And it would put the banks in a much riskier position the next time interest rates shoot up which we are overdue for.
I haven't watched the 60 minutes episode and probably won't because it is 60 Minutes.