[geeks] [rescue] E250 temperatures

[Jonathan C. Patschke]

On Tue, 15 Apr 2008, Joshua Boyd wrote:

> Wouldn't the people buying the debt be just as guilty as the people
> buying the houses or selling the debt?

Well, in a way, yes.  But the way this is done is that the larger
mortgage brokers will bundle the debts into huge funds graded by risk,
and then sell that debt in shares on the open market.

> If home owners are to be expected to understand what they are getting
> into (and I think they should), shouldn't debt buyers be that much
> more aware, even if they are retirement funds?

The problem came into play when the mortgage brokers misrepresented the
class of debt.  A lot of the sub-prime stuff was represented as
commercial property loans and "grade A" mortgage debt.  Some of this
debt is sold and repackaged numerous times before showing up on the
market under the name of a well-known bank, several layers of
indirection from the guy who bought the house he couldn't afford via the
weasel at the mortgage company who fudged the numbers.

On one hand, the mortgage brokers outright lied about the quality of the
debt.  On the other, the people buying it on the open market trusted the
banks to rate their own debt honestly.

In -general- one would expect the largish banks to rate bundles of debt
fairly honestly, on the other, it's possible that most of them didn't do
their due diligence, and were just trusting the folks they bought their
debt from.

It's all a very sordid situation.  Again, the sad part of it is that
purely innocent people that were relying on financial managers to run
their investments will get screwed out of their retirements because the
financial managers were buying what they thought was good debt from
banks who didn't know it was bad.

I'll stick with tangibles for now, thanks.

-- 
Jonathan Patschke | "There is no such thing as a short of reserves...
Elgin, TX         |  one bank can have a problem...the Fed can print
USA               |  money, there is no shortage."
.                 |     --Jim Glassman, US Economist, JPMorgan Chase