"Why Republicans' Explanation Of The 2008 Crash Is Dangerously False"

Why Republicans' Explanation Of The 2008 Crash Is Dangerously False

by Eric Zuesse at Business Insider

http://www.businessinsider.com/republican-explanation-of-2008-crash-is-false-2013-2#ixzz2KLEYBivH

"SNIP..............................................


The dozen largest banks wanted to turn mortgages into bonds which could be sold to investors, because such securitizing of mortgages would vastly increase the bond markets and thus the top bank executives’ fees (including bonuses) selling this vastly increased number of bonds. Securitizing mortgages was magic for Wall Street: it produced more product for them to sell. And the mega-banks needed these “derivative securities markets” to be unregulated in order not to protect the buyers of these bonds (i.e., not to protect them against fraud). If the bond buyers were to know what was in those “investments,” they wouldn’t buy them.

The goal here was to maximize the number of bond-sales, not to produce investment income to bond-purchasers. Moody’s, S&P, etc., were paid by these mega-banks to AAA-rate these bonds without checking to see whether the “borrowers” were capable of paying their mortgages; this was necessary in order to enable the vast increase in mortgages that was required in order to maximize bond-sales and thus bank fees.

Companies like Countrywide Mortgage were motivated to sell as many mortgages as possible, regardless of borrowers’ ability-to-pay, because these mortgages would, in any case, be sold off to mega-banks, which in turn (as soon as the given mega-bank paid for the AAA-rating) promptly sold them to investors (mainly pension funds, etc.), who would be left holding the bag at the end, after Wall Street had “earned” its fees.

Exploding the number of mortgages meant selling mortgages to people who previously rented instead of “bought,” and this necessitated luring poor people to sign mortgages they couldn’t possibly pay, nor sometimes even read. So, with these AAA bonds, “investors” wouldn’t know that they were actually buying toxic assets, and would be left holding the bag at the end, once Wall Street got its fees and “homeowners” were dispossessed by banks.


............................................SNIP"