Date: 2008-04-14 07:13 pm (UTC)
For every consumer in this crisis that chose to get a mortgage they couldn't afford (and in this case choice is dubious, since banks tended to spend LOTS of time convincing people they in fact could afford a loan) there's a bank that not only chose to lend to someone who they knew couldn't afford the mortgage, but also chose to be undersecured. Banks are sophisticated financial institutions and can understand what happens when a lot of people suddenly can't afford their houses and a crapload of houses go on the market. Subprime mortgage buyers are not. And yet they still made grave mistakes regarding whether the loans were sound investments. If the banks were adequately secured, people who realized they were living beyond their means could just sell the house, most likely at least for what they owed on it. Which is what people have been doing for years until the current meltdown.

This is a similar problem with the credit card industry (which I agree is doomed for crisis) - credit card companies seem to think that just making consumer bankruptcy more difficult will make their investments safer. They've actually quite openly stated that they are more interested in preventing bankruptcy through stricter laws than through simply not making risky, high-interest loans, and that this is all because the sub-prime credit card borrowers make them the most money.
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Just Another Idiot

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