market. Those houses still have value. Someone owns them and should be able to get money out of them. The prices were inflated so the houses were worth less than the shitty mortgage. What about the betting on how they would fail from the other end of the insurance companies.

It comes from the interest paid on the mortgage. The mortgage crisis - and the general lending crisis it spawned - didn't come about just because of the over-inflated value of the properties. The banks knew that the housing market was over-valued. The whole concept of mortgage-backed securities was a response to that.

In a normal mortgage market an person will go to a lender and apply for a loan. The lender will assess the risk for the customer and the current & expected value of the property, and either approve or deny the loan. If the customer is an acceptable risk, and the lender can make an acceptable profit on the mortgage interest, then they'll approve the loan. If the customer defaults, then the lender still has the property, and can sell it at - or maybe slightly below - market value. All the lender loses is the expected future profit from the mortgage interest. This is what keeps the lender honest. If they keep making bad loans they don't make money & they go out of business.

The securitization of mortgages was designed and intended to take away the lender's responsibility of assessing the risk of a particular set of mortgage customers - those that would normally be rejected (either because they're a bad credit risk or they're asking to pay too much for a particular property) - and for that reason used to be illegal. Bill Clinton & the GOP congress changed that in 1999 by repealing the Glass–Steagall Act. Banks became nothing than clearing houses for the securities market, approving nearly everyone for a mortgage, regardless of risk or the actual value of the property, because they knew they could bundle the bad loans with good ones and make their profit selling them as AAA-rated securities. As time went on, a larger and larger portion of those securities - still being sold as AAA - were made up of nothing but bad loans. And finally, since the scam was unsustainable, the bubble burst.

Shit like this only happens when we allow commercial banks to play in the stock market.

The securitization of mortgages was also designed to take risk from the people writing the mortgages and pass the risk on to the suckers who bought the bundled loans from the originators.

when one CDO crashed it affected 3, 6, or 12 balance sheets.

Add to this the rampant system of bribing real estate assessors to overvalue homes.

...It wasn't even weed. It was pure China-white heroin complete with syringe kit.

down the world market.

It was the fact that the banksters loaned money to people to buy houses that were way overpriced for the market. The market for homes was being determined by "what the market could bear," and not what people earned and what people could pay back. Stop and think about it. That cannot work. You can only pay for rent what your paycheck permits.

But even that was only a tiny, tiny part of what brought down the world market. Imagine that you go to Rome and you buy a gallon of holy water. You come home and your neighbors want to buy some of your holy water, but you don't have enough to give a portion to everyone. So, you add some water to your holy water and you sell that mix to a few neighbors.

You realize that you need money, and you also realize that the holy water looks just like plain old tap water and nobody can tell the difference.

So you start putting less and less of the holy water you got in Rome and more and more of the worthless tap water into your bottles of "holy water." Pretty soon you are selling water that is anything but holy.

That's what the banks did. They discovered that they could sell a mix of tap water that was worthless (the bad mortgages that had been given to people whose incomes could not cover the cost of the homes they had bought and the mortgages they had agreed to pay) as holy water.

So all kinds of people ended up owning water they had been told was holy. But when they started trying to cash in their water -- for example, trying to get some valuable and much-needed help from God -- they realized that it wasn't holy at all. It was just tap water.

The banks sold tap water as holy water or as Taibbi said, oregano as weed.

If you remember houses became increasingly expensive as mortgage rates declined in the early 2000s. Wages, however, did not rise enough for the home-buyers to pay off the mortgages. All kinds of gimmicks like adjustable rate mortgages and no down payments were offered to get people to buy into these loans.

My advice: Buy your house when mortgage rates are high because housing prices usually go down at that time. You can refinance if the interest rate goes down. You can sell your house without owing a lot if you have a high interest rate and a low-priced house. But you have a big problem if you buy when interest is low and houses are expensive.

Even if you bought when interest rates are high and housing prices are low and the housing prices go down, your loss will not be as great as the losses that people are facing now if they bought houses at inflated prices (money they owe on the principal of the loan) and low interest rates (money they only pay as long as they owe on the loan).

That difference (i.e. you pay five,ten times what the house is worth or even more) means that only a small proportion of the money involved is backed up by real houses. All the rest is just hot air, and can be made to disappear whenever it is most profitable to do so.

You're right in making the statement that a house has a REAL commercial market value, regardless of the amount the original mortgage was for. IF the Congress, instead of just handing the financial firms the bailout money, had BOUGHT every bundled mortgage those firms had on their books (say, for 10 cents on the dollar), turned all of that paper over to the Treasury Department, and then had Treasury hire a ton of people to go assess the actual value of an (every) individual home they had just bought, steps could have been taken to keep people in their homes by issuing a NEW mortgage (at say 15% simple interest, and you make you make your house payment to the Treasury Dept). The banks would have been paid enough cash for that paperwork to keep most of them alive-albeit seriously injured and short on new investor capital for a few years or so-,the nation as a whole could have maintained a larger (than we have now) homeowner base that was still invested in actually owning and maintaining their own homes, AND the Fed. Govt. would have made a KILLING off of simple interest home loans that in a functional market economy they would have NEVER been in a position to issue in the first place (and used the money they made to pay off a nice chunk of the Federal debt).
To do this the RIGHT way would have been a BreakEven-Win-Win for the parties involved; to do it the way it was done, the banks got let off the markets-eat-the-weak hook, and WE the taxpayer got not a whole lot to show for it, with a spike in homelessness and unemployment to boot.

Just my observation, but if anyone has anything to add, please feel free=)

I really appreciate his work & intelligence. This was really moving, looking at all the young faces in the video.

Take care, Matt Taibbi, whilst we all spread this information!

that I didn't take the bait and buy a home. I could never muster the enthusiasm for entering into debt like that back in the 90's. I remember seeing all these stories on how "you don't need 20% down" and thought "why would you not put 20% down?" What those were were those balloon mortgages. Many folks thought they'd never see their interest rate rise, or at least thought they had the time to build equity in the house and sell before the balloon hit--but things didn't work out as they'd planned and they got hit hard.

I never saw sense in a mortgage that was the equivalent of "letting the other shoe drop" and playing a game of Russian Roulette with it. That is how I count myself fortunate... a lot of folks didn't take that approach, unfortunately.

having the temerity to stand in a public area talking to people.

One of the BEST books and best reference volume to own on the basics of the banking crisis, IMO, is "The Looting of America" by Les Leopold. It's inexpensive (about $10.00 at Amazon) and even less, used.

We need people like Matt, standing on street corners all around the country, explaining to people how they've been screwed by the financial industry. Some how, some way, people like Jamie Dimon and Hank Paulson should be incarcerated. Forever.

They don't make journalists like you very often.

This is the first chart I saw about 3 years ago when I started researching for the truth. Goldman was secretly betting on the fraudulent mortgage back securities to fail..they knew because they sold them to their customers as AAA like Matt said. As you see if wasn't the subprime it was the derivatives. All kinds or mortgages good and bad bundled together and sold to investors. Banks were buying homes too when they couldn't find chumps to sell them to. It's called the 'repurchasing market.'





http://www.mcclatchydc.com/2009/11/01/77791/how-goldman-secretly-bet-on-the.html
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http://repowatch.org/about-repo/
The financial crisis was “systemic” mainly because of repo.

In 2007 and 2008, repo lenders started to worry about the quality of their collateral and the financial condition of the repo borrowers. They refused to renew their repo loans. Suddenly forced to repay, banks like Lehman Brothers hemorrhaged cash and plummeted toward insolvency.

When frightened repo lenders demanded their money back, it was just like 100 years ago when frightened depositors lined up outside their banks and demanded their deposits back.

In 1907 it was called a run on the bank. In 2007 it was called a run on repo.

And the cops on the beat (the SEC) put their stamp of approval on those bags of oregano and went to lunch (as guests of the bank, of course).

And when those jilted customers complained to the pusher about his rank shit, he told them ''fear not, for I am doing God's work!''

- K&R