UK may go bankrupt

[Peikko 1,575]

No, I don't think that, but to knowingly build a house of cards? That's my problem with it, the banks allowed these crazy mortgages to go ahead knowing that it was jeapordizing their very business - just hoping that it wouldn't be their turn when the music stopped? That's such a mad thing to do - but then as I said, I am no expert

That's a different argument - I agree that they shouldn't have allowed these mortgages to go ahead.

I thought you said that banks shouldn't be allowed to sell the potential profits from mortgages;

but that's precisely how they raise capital.

No, my suggestion was that it was crazy to finance these unrealizable mortgages - especially since they had to know they were unrealizable. That's the bit I can't really get my head round, and that's the bit that caused the depth of this crisis, in my limited understanding. Selling potential (realizable profits) I get, selling potential (unrealizable) profits, I just don't get.

[luckytxn 2,264]

The ok to bad risk loans seemed to the banks and lenders to be a good risk at the time in the past when the housing market was booming. They expected (stupidly in my opinion) the market to keep going upward. The worst warning I had read about was the market may go flat in the future for awhile. A couple of scattered reports predicted this melt down but they were in the extreme minority. The banks expected that the few bad loans would happen but that they would be able to unload the houses or properties at a market price to at least recoup their loans.

They were right for a long time and got sloppy and they all started to gorge at the trough and as the profits were rolling in they put blinders on to what the first warnings that came that should have told them trouble was brewing.

[Peikko 1,575]

The ok to bad risk loans seemed to the banks and lenders to be a good risk at the time in the past when the housing market was booming. They expected (stupidly in my opinion) the market to keep going upward. The worst warning I had read about was the market may go flat in the future for awhile. A couple of scattered reports predicted this melt down but they were in the extreme minority. The banks expected that the few bad loans would happen but that they would be able to unload the houses or properties at a market price to at least recoup their loans.

They were right for a long time and got sloppy and they all started to gorge at the trough and as the profits were rolling in they put blinders on to what the first warnings that came that should have told them trouble was brewing.

You are expecting me to believe that banks en masse had no clue that these types of mortgages made bad financial sense? I am not that deluded, and I have heard much evidence that many, if not most in the business did know that it was tantamount to economic suicide but once up and running there was no escape - they just tried not to be the one holding the bad debt when the house of cards crashed down.

[Trompe le Monde 1,107]

No, I don't think that, but to knowingly build a house of cards? That's my problem with it, the banks allowed these crazy mortgages to go ahead knowing that it was jeapordizing their very business - just hoping that it wouldn't be their turn when the music stopped? That's such a mad thing to do - but then as I said, I am no expert

I only heard of Zero down once I came to the US. Downunder not only do you have to have a sizable deposit, you must have months of verifiable income (backed by pay stubs) as well as a reasonable credit history. You also must be a citizen or legal resident to obtain a loan from most Banks. On top of the 100 point ID check.

Banks even ask for pay stubs for credit cards let alone any other lines of credit.

You could do 110% mortgages with Northern Rock for a few years in the UK - probably one of the reasons they went under

[luckytxn 2,264]

No I never said that at all. They were chasing bad loans with more in hopes but the end came as it had to. They did think the market would allow them to sell the house again to someone else if the original homeowners defaulted and thus encounter little or no risk. I saw it coming myself as it has happened before in the area I live in. It was brutal then and it will be even more brutal as it is more nationwide now. It was stupid decisions. I am positive that there were people at each bank and other loaners that probably warned about too much bad debt and they were probably blown off. It happened before many times. (Remember Enron?) They were making good profits and maybe even if they knew it could be a bad move it is hard to go to your share owners and say we have to start pulling back and divest so the profits will be down for a year or two. I am surprised the bubble lasted as long as it did.

Of course you can keep saying you don't believe something all you want but the fact stands they and most everyone did nothing. Of course they all maybe knew what they were doing and would bring financial ruin to them eventually. Maybe the business schools now teach a course to ruin your company beyond repair. I think it is more likely they never expected the market to collapse so badly until the end. The housing bubble went on and on. They probably thought they would be able to make money even with a percentage of bad loans.