The banks lend money to individuals and businesses. The money will be used for investment and consumer purchases like food, cars and houses. If these investments are productive the money eventually found its way to the bank and created a global liquidity to an economy that works well. The money cycles round and round, if the economy works. If the market affects the financial markets tends to decline. The liquidity cycle may slow to develop, to one degree or permanently.
This is true because banks are highly leveraged. A well-capitalized bank is only required to have 6% of their assets in core capital. It is estimated that the residential mortgage crisis will cause credit losses of about $ 400 billion U.S. dollars. This credit loss is about 2% of all U.S. stocks. This hurts the bank balance sheets OSA because it affects their capital base by 6%. To compensate, banks have more loans to pay, pay less for deposits and create higher standards for borrowers, which in fewer loans.
Why is this happening? Once upon a time, after the Great Depression of the 1930s, OSA, a new national banking system was created. Banks were required to attend to adhere to high standards of safety and soundness. The aim was to prevent future failures of banks and other catastrophic depression prevented.
On the savings and loans (which still exist, but now call themselves banks) were the first to borrow money to make people buy houses. They took their depositor, AOS borrowed money to buy people’s homes and held these loans in its portfolio. If an owner does not pay, and there was a loss, the Institute took the loss. The system was simple and institutions are responsible for the construction of millions of households over 50 years. This situation has changed radically with the invention of the secondary market, collateralized debt obligations, also know as collateralized mortgage obligations.
Our government created the Government National Mortgage Association (commonly known as Ginnie Mae is known) and the Federal National Mortgage Association (Fannie Mae generally known) to buy mortgages from banks to increase the amount of money into the banking system property. Buying Second, Wall Street firms created a way to market to increase exponentially by grouping up home loans in an intelligent manner that allowed Wall Street and authors to make big profits.
Large firms had securitizers securities exchange mortgage-backed and resecuritizers and sliced and diced different parts of groups of home loans that are bought and sold on the stock market pricing by the market and analysts market. housing loans packaged as securities are bought and sold like stocks and bonds. In an effort to do business growing is to get the standards were a credit to a point where, at least in some cases, if someone wanted to buy a house and could claim that they can ensure they pay lowered to receive credit. Borrowers with weak credit or poor were able to obtain loans.
There was little risk to the lender, because they were unlike earlier days when home loans in their portfolios, these loans were sold and the loan in default, investors or purchasers of these loans should bear the losses namely Bank credit granted. The result today is tumult in our economy of the mortgage, the collapse of the financial system has a total disturbed, and affects all lending in a negative way. Who is responsible for this situation? All loans of copyright, including banks, are responsible for turning a blind eye on the loans that have been on grounds of bad credit.
Under the label, Äúsubprime, the loans were low-documentation loans, no loan documentation and loan-value loans, many the seizures that we read on a daily basis. Wall Street is responsible for pumping this system into a financial disaster to be able to assess the current dollars U.S. 400 billion dollars to push more than one trillion dollars. home buyers real estate, mortgage brokers, and speculators for their commitment to higher prices and higher for the homes on the belief that prices will pay higher and higher.
This principle has fueled the system’s collapse of the mortgage industry. Are there similarities with the crisis of savings and loans in 1980, the AM? Between 1986 and 1995 of savings and loan (S & L, SOC) has lost about 153 billion dollars. The institutions of the Federal Home Loan Bank Board and Federal Savings and Loan Insurance Corporation regulated. These entities have passed laws requiring the S & L, OSA, to make fixed rate loans for their portfolios. The awards were for these loans may be required by the market determines. Imagine an institution with $ 100 million loan at 6% to 8%.
For years, the interest rates on deposits should be regulated by the government. The interest rate may be distributed between the two institutions to make a small profit. In 1980, Congress passed the Deposit Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). A committee has been formed within the Congress. During a period of several years, the committee rates deregulated S & L, OSA may pay on savings. Nothing has changed in terms of what could be charged for home loans.
Many institutions have begun to lose large sums of money because they had to pay market rates of 10% to 12% for their savings, but they stayed with their usual loan of 6% to 8%. Some managers of savings and credit, according to the committee that damned idiots in Washington. Many books have been written about these events. There is documented evidence of serious errors by S & L executives seeking to invest funds to save their bodies were sometimes personal purposes. Some were sophisticated criminals.
The Congress recognized their mistake in 1982 when the Garn-St. Germain Depository Institutions Act was passed, so S & Ls to diversify their activities to increase their profits. It also allows AOS S & Ls to make loans at variable rates. It was a little too late. Following the failure of institutions liquidated by the government, S & Ls survivors of billions of dollars from the Federal Deposit Insurance Corporation, the Fund has estimated that insured depositors of U.S. banks to recover.
The collapse of the mortgage market and savings and loan crises are similar with regard to the presence of greed and criminal activity. You’re in charge depends on the fact that the S & L crisis from a broken system of government regulation and the mortgage meltdown has been caused primarily through a system that wild greed. It does not private lenders such as commercial finance companies offer loans hard money real estate, financing for the purchase and financing of receivables influences.
Most of these companies have their price and the development of standards for safety and soundness of the applicable operations. The key is to be replaced: Bank loans from other sources such as commercial finance companies to a certain extent. hard money, control and financing of debt financing helps companies to develop some in these difficult times. But for the average borrower, a businessman or an entrepreneur are economically difficult times, by the mortgage crisis that is staying here for several years. Copyright © 2008 Gregg Financial Services ¬ www. greggfinancialserivces. com