The only time mortgage confusion was higher that it is right now is back when sub-prime mortgages were not known to be the cesspool that we now know them to be. The collapse of the world economy can, in broad strokes, be laid at the feet of three parties; the Federal Reserve, mortgage lenders, and American home buyers. But the Federal Reserve Bank should carry most of the blame.
It was the Federal Reserve Bank, and only the Federal Reserve, that was responsible for increasing the ratio between how much money a bank had on deposit and how much it could lend to 30-1. When Jon Stewart repeatedly asked Jim Cramer, “Who thought a 30-1 leverage was a good idea?” he was referring to the Federal Reserve upping the deposit-to-loan ratio to 30-1 for American banks. The answer to who did it, Jon, is: The Federal Reserve Bank. Congress must replace the FRB.
Mortgage brokers tried selling a subprime mortgage to any prospect that had a pulse. Millions who trusted their financial advisors had no idea there money was getting tied up in mortgages to unqualified people.
When the FRB raised the ratio it flooded the market with more money, which went out in loans to unqualified buyers which were then bundled as the infamous ‘asset backed paper.’. Toxic assets don’t exist in the real world. In the real world they have a different name: liabilities. Your tax money is being used to the American government.
Finally, the people who sit and tell CNN cameras that they didn’t know that they had an adjustable rate mortgage are simply too stupid to own a home. I cannot conceive of people so clueless that they make the largest financial commitment of their lifetimes without reading the document they are signing – or at least paying a lawyer or advisor to do so. These people should never have been allowed to purchase a home, and they certainly shouldn’t be rescued from foreclosure.
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