Tuesday, October 12, 2010

Three-house Monte

Here I was thinking about the latest in the "housing bubble" news - the recent spate of articles about some sort of large-scale, long-running scam in foreclosures - when I came across this; an explanation of how all these people got into the position of having their homes jerked out from under them.

Even rhe logic tree is fairly tortuous;And here's the thing; I cannot for the life of me discern how any of this frenetic financialization and securitization and banksterization of something as simple as a home loan benefits anyone other than the street hustlers in the nice suits at the places like Bear Stearns and Goldman Sachs that crafted all this cleverness.

Someone - Bob Reich, maybe? - said once that the financiers hadn't "invented" anything of genuine benefit to the average citizen since the ATM machine, and this sort of big-money street hustle makes me suspect that he was on to something.

Essentially a home loan should be just that, a single, simple transaction between lenders, who get interest on the money they lend, and borrowers, who get the capital they need to own the place they live. I cannot see how any further fiddling with the arrangement benefits anyone other than the three-card monte hustlers in the financial "business".

If they did this on a street corner you'd expect the beat copper (are there beat coppers anywhere anymore?) to chase them down the block with cards and quarters going every which way, the sort of minor comic scene you'd expect in a Thirties movie.Except at the moment it isn't a movie - it's our lives.

Can anyone explain to me why we seem to be more upset about things like public arguments over religion and television programs that this? Are we that stupid, or just that easily distracted by the shiny pretty?


Ael said...


Pluto said...

The thing that fascinates me about this is that the primary purchasers of "securitized" (pureed?) mortgages were supposed to be very smart businessmen themselves.

We're talking pension fund managers (most of whom had lived through a couple of these blow-ups already), money managers for foreign governments, and the like. These people are supposedly neither stupid or gullible. Why did they buy these steaming piles of mortgage excrement?

And the other thing that totally blows me away is that the recently passed financial reform package didn't do a thing to fix the basic problem AND the people who were bit last time are still buying these things! WHAT'S WRONG WITH THESE PEOPLE?

And we'll all still be here in another couple of years when it happens again...

FDChief said...

The thing I don't get is what these buyers were supposed to get out of these things?

A piece of the mortgage interest?

A part of the profit when the house sold?

Like I said, a home loan seems like the simplest of financial transactions. Money goes out, interest comes back. How the hell do you "securitize" it? It's not like owning stock, where you get dividends, or interest, or even a piece of the company. WTF?

Ael said...

Securitizing mortgages is actually a very clever idea, at least in theory.

There is a large pool of money looking for a safe place to park. There are a large number of people willing to handle other peoples money as long as some of it sticks to their palms.

FDChief said...

Ael: All the articles I read suggested that the amount of interest a typical mortgage earns annually is pretty small - something like $500 or less on a $200K loan.

Now I understand how bundling an assload of these together could be worth something; 1% of $500 times 6,000 might be worth some jack - but the nightmarish problem of keeping track of all that p-work! It doesn't seem worth it and sounds like it wasn't - which is why a hell of a lot of banks didn't do it right.

And the other goofy thing is, as Pluto points out, we've done nothing to ensure this can't happen again.