[GPK]

Originally Posted by dalakhani

Scuds is right and that was a portion of it. But there is a bigger part of it.

Securitization combined with deregulation combined with complex financial instruments equalled lack of transparency with no responsibility. In plain English?

In the past if someone wanted a mortgage, he would go to the bank and get a loan and send his payments to that bank every month. It was the George Bailey/Mr. Potter relationship like on Its a wonderful life. Securitization changed that.

In the age of securitization, you go to a bank to get a loan. That loan is then packaged and pooled and sold to investors in a mortgage backed security. The type of MBS (mortgage backed security) that are getting all of the attention right now are CDO's (collateralized debt obligation). Without going into too deep of an explanation, CDO's allowed crappy loans to be mixed in with qaulity loans in a way. At the end of the day, the liablity was passed on to unwitting investors who had no idea what they were buying. The originator of the loan (the bank) really didnt care if the loan performed or not because ultimately they didnt own the loan anymore as it was sold in a pool right after it closed. The bottom line idea was that A. there was little risk because values were going up. B. Whatever risk there was, it was someone else's. Risk was passed off till it eventually ended up at the end of the Ponzi scheme and into the hands of the poor investor(s) that wanted a "safe" return with a good yield.

So you ask why would a bank want to do a fraudulent loan? In simple English, it was good profit and they thought they would never have to pay the piper. Wall St. aided and abetted by creating products that just asked for fraud. Ninja loans to 100%? No income, no asset, NO JOB verification with no money down. It didnt matter...it was someone else's money.

Wow...thanks for the clarification.