The Alabama Council on Economic Education

The Alabama Council on Economic Education
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Saturday, March 26, 2011

How should we feel about the mortgage crisis?

One night while I was driving, NPR did a story that was designed to explain the mortgage crisis.  They intended to explain the crisis to the layman, which I was.  I like NPR and most of the stories they cover that don't have anything to do with politics, so I listened.  At the end of the story I had an idea of what had happened but still wasn't really clear.  Truthfully, economics and money have never really been a big interest of mine.  Because as I get older I can't stand not to understand things, I kept looking.  Thank God for the internet.  I learned.  One thing that kept creeping up to me was the feeling that as a country we should feel foolish for what happened.  A mortgage that isn't owned by a bank?  I mean, knowing what I knew I could tell that this was a bad idea. 

The reality of the situation is that banks sold all of these mortgages to Wall Street in bundles, which were considered safe.  They were only considered safe until people stopped paying their mortgages.  It isn't like they just decided not to.  The stopped because they couldn't afford it.  They got into deals they couldn't afford because they were allowed to.  What kind of sense does that make?  How did no one see this?  You have no job and you have no money?  Welcome to the neighborhood, The Jones' will bring over a fruit basket later.  The American Dream.  So now, all of these people start defaulting on the loan that we were well aware that they couldn't pay back.  We knew because we asked them, remember.  No money, no job, no problem.....fruit basket.  Got it?  So now all of these bundles of mortgages are worthless and losing money, along with Wall Street. 

Enter the foreclosure.  Everyone has to report to the bank, right?  Explain what happened, beg for forgiveness, say that we have nowhere to go?  No.  The bank doesn't own the mortgage, they sold it to Wall Street.  Wow.  So how should we feel as a country that this happened here?  The crisis did damage that could take decades to recover from, not to mention the government got a lot bigger when it bailed out the banks.  That is what I consider a problem.  A big one.   So what do you think?  Everyone has an opinion and I would love to hear what people more versed in this than I have to say.

1 comment:

  1. I think a part of the story being omitted here in the part where these sliced-and-diced mortgage-backed securities were rated as "safe" by a sloppy and poorly-regulated rating system that fast-tracked these deals in a criminal way, allowing bets to be made on shaky or non-existing foundations. I also think it's a mistake to blame the people who took these mortgages or to blame the Clinton administration for encouraging more low-income folks to become home owners. The best reporter out there on some of these Wall Street deals and the mortgage crisis is Matt Taibbi, who has a series of indispensable articles in Rolling Stone and a new book on the collapse. Enjoying the blog!