Blog > US Stocks and Markets > Blog article: Mortgage Crisis: Securitization killed the U.S. economy
 | Email This Article Email This Article  | 

Mortgage Crisis: Securitization killed the U.S. economy

Posted March 28, 2008

"Contrary to what Wall Street would have you believe, this appalling sloppiness that created the subprime mortgage scandal has not been a feature of every housing boom for the last half century. It’s actually quite new, the result of the misdirected incentives caused by the mortgage-securitization business." — Martin Hutchinson

by Martin Hutchinson

Baltimore – (TFN): Contrary to what Wall Street would have you believe, this appalling sloppiness that created the subprime mortgage scandal has not been a feature of every housing boom for the last half century. It’s actually quite new, the result of the misdirected incentives caused by the mortgage-securitization business.

Traditionally, mortgage loans were made by small local institutions that took the credit risk themselves and who knew the borrowers personally.

You can see how it worked in the 1946 classic movie, "It’s a Wonderful Life."  Actor Jimmy Stewart plays George Bailey, heir to a local building-and-loan company, who battles the evil local capitalist Henry F. Potter to change the character of his hometown, Bedford Falls, by offering affordable housing loans to the poor but upwardly mobile.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

New Breed of “Blue-Hot” Chips to Unleash 3-for-1 Profits

Blue-Hot Chips are “bursting out of nowhere to take the world by storm” says the Economist. Returns are so big that 28 of them are set to explode onto the Fortune 500 list this year.

These “safe havens for profits” are about to churn out gains of 279%, 503%, 237% and 371% in the coming months - despite all the current economic woes.  Read the full report.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

It is an appealing model, with only one real flaw; if a local savings and loan is in financial difficulty [as was Jimmy Stewart’s in 1932] it will not be able to attract deposits, and no mortgage loans will be made in that locality.

With the rise of interstate banking, that problem would have been soluble - mortgage loans would be more expensive in an area if a large national bank was their only potential source, but they would still be available. Read on to learn how securitization caused a mortgage meltdown.

****Make sure you sign up for our free TFN News Feed for breaking news, special reports and new financial videos. You can pick your favorite reader . Or if you prefer, you can have the feed delivered to your email. 


Related Articles


Posted by Martin Hutchinson · Filed Under US Stocks and Markets 

Comments

Viewing 1 Comment

close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus