ext_53286 ([identity profile] dolohov.livejournal.com) wrote in [personal profile] tiurin 2008-04-14 08:16 pm (UTC)

I still maintain that it was a choice, though. Whatever the banks did to persuade people, they still had to walk through those doors in the first place, and they still needed to sign their names on the forms. They may have chosen out of ignorance or vanity or misapplied optimism, but they still chose, and that still has to count for something.

The loaning banks were secured just fine, though. The biggest problem is that because of all these financial "products" they had a reverse incentive: they were repackaging and selling off all their loans, and so their incentive was to get as many loans as possible within this designation. And because the "subprime" designation is so absurdly wide, it was actually somewhat reasonable of buyers to assume that they were not that risky, because most mortgages aren't. (Since it's either "prime" or "subprime", and the cutoff is a credit score of 650-700, most mortgages fall under "subprime", including some very safe bets that fall in that category due to short credit histories or old problems with repayment such as an illness) That's the thing, except for the lenders themselves, pretty much everyone along the line made reasonable but faulty assumptions. And even with the lenders, it was the series of decisions rather than any single one.

The house price decline is what precipitated this crisis, though; all of a sudden people who were living above their means *couldn't* just bail. This wasn't a surprise, prices had to come down eventually, and a lot of the worst cases were people who bought at the height of the bubble.

I think the credit card industry is becoming a pyramid scheme these days. They're racing to sign up new people, and paying their transactions based on the presumption that their current customer base will continue paying fees. (Hell, every day I come home to a new offer to go further into debt at even more exorbitant rates) But even if people don't go bankrupt, they will still eventually die, and increasing numbers of them will die with assets insufficient to cover their debts. Even if they outlaw bankruptcy entirely, I still think they're doomed -- and given Visa's recent IPO, maybe they agree with me.

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