SoftBonds
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Joined: 2/10/2012
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quote:
ORIGINAL: JulianVanPatten
Listen, buddy, I'm not going to try to snow a snowman here. I am playing catchup trying to understand this whole financial collapse dealie, but I've been reading through Forbes and Business Week and some graphs at the Economist and to be candid I don't see why I am supposed to feel too bad for a bunch of people who bought houses they couldn't afford and then discovered a few years later that nothing in this world is free. I'm not happy about the collapse but it really seems like one of those hiccups in the system, like a painful correction and the people who got hurt the worst were the ones trying to ride the farthest on the gravy train. I don't want to sound heartless, but nothing in this world is free and maybe some of the people who are trying to crawl out of holes they've dug for themselves have learned a valuable lesson. Maybe our whole society has.
Well, the question becomes, do you think that people just decided one day to get houses that were too big to afford?
My understanding of the collapse was that someone decided to remove the firewall between investment banks (aimed solely at profit) and consumer banks (insured by FDIC, aimed at profit by managing account holder savings and using those savings to provide mortgages and other safe loans). After this happened, banks or "bank like entities" could set up a mortgage and promptly sell it, removing their "skin in the game." Unfortunately, no one realized that the "bank," or other entity needed to have a liability to make sure that they performed due diligence.
So a bunk of entities sprang up that made money off of creating loans, based solely on the dollar value of the loans, and with no liability if the loans went bad.
Now, ask yourself, are you a financial professional? If you are not a CPA, Investment Broker, or Real Estate Agent, are you likely to understand the best financial actions to take, or are you going to trust an expert?
If you are going to trust an expert, what do you do when the expert tells you that you can afford the house, you can afford the loan, and you would be foolish to get a smaller house?
Now do you see what happened?
BTW, a neat trick, not that you can generally use it, is to ask the person working for you to agree to be a fiduciary agent. If they agree, they have agreed to place your financial needs ahead of their own (they still get paid, but for example a real estate agent can't encourage you to buy more house than you can afford to inflate their paycheck). If they violate the fiduciary agent contract, there are legal remedies, including revocation of licenses.
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