Observations on life

Old Bernie and jailing Wall Street

β€œIt is an outrage that not one major Wall Street executive has gone to jail for causing the near collapse of the economy. The failure to prosecute the crooks on Wall Street for their illegal and reckless behavior is a clear indictment of our broken criminal justice system,” Mr. Sanders said in a statement.

How many people will accept this on face value? Most I suspect because there is no doubt irresponsible, greedy people took advantage of a unique situation by putting together risky investments misunderstood by investors who may also have been misled.

But you see, the real story is that none of what Wall Street did would have been possible had it not been for left leaning, even socialist style policy that pushed home ownership even among those who could not afford it; a political strategy that cajoled, even strong armed lenders into offering such mortgages. Ignoring unrealistic rising home prices coupled with overextended borrowers and pushing subprime borrowing is what caused the near collapse of the economy.

Pro people policies of the left and in Old Bernie’sΒ case, far, far left sound great, even desirable … as long as you ignore the real world consequences and human nature. And we haven’t learned our lesson yet. You can get a FHA mortgage with as little as 3.5% down payment which requires mortgage insurance and, of course, higher monthly payments all which put the borrower at greater risk.


I can just see my wife letting me run for president without getting a haircut. Old Bernie’s hippy side is showing.Β 

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7 replies »

  1. I agree that the homeowners that accepted the loans got what they deserved but a small percentage were pushed into believing that they could afford the loans by their brokers. The brokers were in turn feeding on what the big banks wanted to make more money. The real crime in my opinion was the robo signing of the loans and marketing of subpar quality mortgage derivatives as investment grade. There had to be some Sr. VP in several banks that knew this was going on. If the truth of the quality of the derivatives got out I think the money might have slowed down or the rates would have gone up to equal the risk. The government and Congress kept their heads in the sand during this time pushing home ownership as an entitlement.

    I also bought a house in 1987 at 10% and finally sold in 2014 and barely double the value in 27 years so I know the pain.

    I have friends who bought at the end of the bubble in 2007 and their house is now valued $150k less and never expect to make back what they paid for their home. It is a good thing they are planning to die in that house and it was not an investment.

    As individual buyers having to move to another town, bubble or no bubble, sometimes it is hard to see outside the forest to see the desert just pass the tree line because you do not know which “expert” to believe. The SEC, FHA, Fannie Mae, and Sally Mae should all have been prosecuted for failure to do their jobs too.

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    • The idea that people could be talked into buying something they could not afford is something that bothers me because it is disturbing to think there are that many people who are so uninformed and gullible at the same time.

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      • You must remember that financial education is not taught in high school. Until the Internet, car salesmen prided themselves into “selling” car buyers into bad deals. Remember the credit card debt of the 1990’s where college freshmen were getting credit cards without even a job? Then there are currently college loans that the society insist is worth every penny no matter what the ROI is going to be. So if a mortgage broker convinces you that you can own a part of the American dream, you are going to believe all the way to bankruptcy court. After all the loops you jump through to get to settlement, then it must be true that you can afford the mortgage right up until that first non-budget expense.

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  2. I agree that the mindset of home ownership as an entitlement puts our economy at risk, but let’s not blame the victims. The finance industry leveraged the All-American Dream to feed their coffers without any thought of the long- term impact and I don’t think they’ve learned their lesson yet.

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    • The victims were the investors in mortgage derivatives, not the homeowners. The homeowners who bought what they could not afford, who overused home equity, who paid unrealistic prices, who had no reserves and then who could not make their payments were contributors to their own downfall and that of the economy.

      Of course their actions ten affected others who were not so irresponsible.

      I bought a house in 1987 at the top of another bubble, my house was not worth what I paid for it for nearly ten years, my mortgage rate was 9.75% and I could not re-mortgage to a lower rate for nearly ten years because I had insufficient equity. I kept paying my mortgage and now the house is worth 2.5 times what I paid.

      In 2008-2009 I know several friends and one relative who simply walked away from their house, defaulted and moved on ignoring any responsibility.

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      • The banker that approved the mortgages for those homeowners is not blameless. But I agree with you that investors who did not receive the benefit of full disclosure were victims as well.

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