Quote:
Originally Posted by Pie
Now-a-days, we all know better. But back then it wasn't seen as a risky thing at all.
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ARMs were always a most risky thing. Long ago, banks held the mortgages. Therefore bankers shared in the risk and would not make deals that were risky and so stupid. With new financial games (ie mortgage backed securities and CDOs), bankers no longer held risk. They could lie and be believed because once banks were responsible. Once banks did calculate risk and determine who could qualify for loans. No longer. Bankers no longer determined what was and was not a risky loan. He would simply sell that loan to others. And reap rewards by no longer doing what was his job.
Once, mortgages were a safe investment because bankers would never make risky loans. Therefore buying a mortgage backed security was a safe investment – until bankers discovered they could ignore risks.
Everyone forgot to notice what made mortgages safe and stable. Bankers could ignore all risks. Therefore homeowners and naive investors got stuck with all risks. Bankers and Wall Street shysters got rich since that is the only purpose of the Mafia and business school graduates.
ARMs were always risky. Smart people who recommended them were enriching themselves using overt lies. An industry where regulations were removed or bypassed routinely, risky ARMs were sold in the tradition of a ponzi scheme. Bankers ignored risk. After all, the only purpose of their business is to enrich themselves. Providing a service was not relevant.