Thursday, September 18, 2008

Subprime Crisis

You need to inform yourself. First of all, the housing bubble was primarily fueled by errors on Wall Street, not Washington. The explosive growth of the mortgage-backed security industry created an environment that gave people lots of incentive to do really stupid things, like loan people money without requiring them to invest significantly in what they were purchasing or demonstrate that they had the money to pay back the loan. Secondly, here [] is just one of many available articles explaining that the really big hit has come from borrowers with good credit ratings and sufficient cash flow who simply do not wish to continue to pay the mortgage on a house that is no longer worth nearly what they paid for it. It turns out that you can default on your mortgage and all they can take is your house, not your other assets (who knew?).

Anyway, it's certainly not "authoritative," but here [] is a funny and true cartoon that does a pretty fair job of explaining how the screwed up incentives turned normal people in financial fuck-up machines.

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