American Economic Crisis: The real cause of the fiscal fiasco

March 25th, 2009 - 9:01 pm ICT by David M N James  

The current economic crisis has been attributed to hordes of fiscal mismanagement issues.. In fact, financial analysts and experts have pointed out various corporate mismanagement issues as the root cause. However, a comprehensive and rich expose about the global economic crisis has been told away through Dateline NBC.

The whole thing is about bad loans, mismanagement of resources, executive’s extra-ordinary incomes and a lot more about mismanaging funds. This has been the hype and certainly has been given credit. The confessions of some lenders expose a very reckless approach to lending. Lenders wanted someone with a pulse and they would certainly give you a loan. They did not do a portfolio survey on your credence; the pulse was the truly profound about the loan ‘thing’

This trend has led to foreclosures, which have projected the American mortgage sector as rogue and irresponsible with irrational experts. A certain case projected the grime scenario. A sheriff and his deputies showed at Junior Alvarez house to evict him. A case of foreclosures in Miami Fla. Fewer people in the fiasco will accept to be culpable, yet the president has been emphatic that accountability be looked up at.

The mortgage crisis is being attributed mainly to changing lending laws. Successive laws have eased the lending rules making loans affordable and available to anyone with a financial pulse. However, the money market and the stock exchange are the real good quality coal that made the burning real good. Wall Street found a way to invest its money in mortgages. According to Dateline NBC, investment banks began marketing mortgage-backed securities, bonds built from thousands of loans bundled into one instrument that paid interest to investors. The money rose from selling those bonds added to the flow of funds to mortgage lenders, who in turn were able to make more loans.

Then, Wall Street came up with a new type of security called a collateralized debt obligation (CDO), which pooled the risks from mortgage-backed securities and other debt. The little-regulated securities brought hundreds of billions of dollars more into the system.

Unfortunately, the lenders greed to make more money from interests rates in mortgage repayments have seen the worst scenario of dreams go pipe in real history. People were given loans while the repayment amounts were way up beyond these peoples monthly income. Actually, the lenders did not look at the actual income of the borrower; they looked at estimates in the non-stated incomes. This meant you actually have no verified incomes and Borrowers liked them because they made it much easier to qualify, and lenders loved them because they could charge higher interest.

The buck stops with lenders. They told clients “if you had a pulse, we gave you a loan. If you fog the mirror, give you a loan.” This was a ludicrous proposal that has cost the economy. Many borrowers defaulted the rogue bank managers provided refinance. However, none sufficed to close the gap between the economic slump and the constraint in the borrower’s pockets. The banks went for the borrowers necks and a massive foreclosure era is here. Those who had mortgages are now facing a crisis renowned foreclosure since they were lured into a trap that they could not wallop themselves out of.

According to the investigation and a sublime evaluation on the situation, there were so many inaccuracies in the mortgages. People lied about their income to get the loans. Today, they are facing foreclosures after exhausting all their options in the bank. Evictions are the most subtle solution for the lenders to recover their money. However, Wall Street was having fun making money. From 2004 through 2006, according to Inside Mortgage Finance MBS Database, more than $6 trillion in mortgage-backed securities were issued, slightly more than half in the private sector, with the remainder issued by government-backed entities like Fannie Mae and Freddie Mac. Those trillions of dollars were helping fund the housing boom, which was spinning out of control.

The Wall Street moneybags did not see the impeding storms. They lacked insights on what was happening on the ground but wanted to see the long-term benefits of the money.. Within the system, it was well understood that things were downright badly off. Files and documents with information about the unstated incomes, the rogue loans, and the bad mortgages were destroyed. The days of reckoning came by. Since the loans securities were not functional companies began to feel the heat. The lenders sought ways out but there was no reprieve. Many of those securities were hedged by insurance policies called credit default swaps, which were peddled heavily by the now-notorious insurance group, AIG. Wall Street cats like Bear Stearns and Lehman Brothers collapsed. The mortgage business dried up. Ameriquest closed up shop. Bank of America bought up Countrywide, and the smaller People’s Choice Home Loan filed for bankruptcy.

Another review of how the crisis became a storm will be on Saturday.

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