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marcus
2010 Jul 7, 12:09pm
Actually it was the so called "shadow" banking system that went crazy. They packaged mortgage backed securities into complex securities that not even the investment banking community fully understood. And they even managed to get rating agencies to put on their stamp of approval. And then they traded exotic highly leveraged ( totally unregulated - NOT exchange traded) derivatives against them. It really was not a flaw in our regular banking system.
There was huge liquidity and a demand for places to invest money, and these fraudulent mortgage backed securities were created to meet the demand, with financial people taking fees at every step of the way. Then the demand for those securities allowed mortgage brokers and banks to make the terrible loans that were packaged into the fraudulent unregulated securities.
As for your interpretation of what banks want ? I don't think they have outstanding loans that they need to protect with deflation, that's not how it works. They make money on fees up front with loans and then the loans are offset in one way or another, or packaged into securities that people invest in. Although I'm not a banker, so this is partly assumption on my part. I have wondered whether the shadow foreclosure market could be in part a hedge on some paper that they do hold, but that is idle uninformed sort of speculation.
The primary force behind our great prosperity during the past few decades has been our central banking system. Â The banking system increased the amount of liquidity in the market through the sheer amount of housing speculation taken on by the people of the world. Â For every 100k mortgage issued, the banks were able to make a little less than 1 million dollars in loans because of fractional reserve banking. Â As housing prices increased, more and more loans were taken out...resulting in insane fees and additional liquidity flooding into the market. Â This liquidity has been sloshing around the global economy for almost 20 years resulting in speculative bubble after bubble. Â Money is a stampeding herd that is desperately looking for someplace to be safe (currently gold) while the storm clouds build. Â I believe deflation will be the rule rather than inflation as liquidity begins to freeze up. Â Cash is truly becoming king. Â However, the world is locked into massively expensive depreciating assets (homes, cars, commercial property) with no recourse (read up on deficiency judgements). Â Banks don't intend to mark housing to market (housing crash), raise interest rates (housing crash), help out the little guy or allow inflation to take root because that would devalue their loan assets and their personal holdings. Â Banks pay for the politicians campaigns and the politicians must placate the banks to stay in power. Â The laws defend those with power and money (the upper 5%) while they bombard us with a "dog and pony" show to keep up fighting amongst ourselves.Thoughts?
#housing