Times are tough all over

[tw]

Originally Posted by lookout123

ARMs are simply a tool. A quite effective one for specific purposes that was used by far too many for very incorrect reasons. The loan isn't to blame - the people who approved it and the people who took it are.

lookout123's analysis far more accurately describes how the avalanch started.

ARMs always existed and were useful for the few (single digit percent) applicants that needed it. ARMs would never have been approved for so many when rules and standards existed. Few qualified for an ARM until recently with deregulation. Suddenly almost anyone qualified for an ARMs when we were fixing the economy by throwing money at it - tax cuts, Greenspans low interest rates, etc. Loan officers could offer such dangerous mortgages to most anyone. Those mortgages would then be sold to markets that no longer bothered to review what they were investing in - mortgage backed securities carefully written so as to not be insurance and therefore devoid of any serious regulatory oversight. NINJA became the new standard for mortgages.

Perot was quite blunt about this. An economy is never fixed by throwing money at it like a grenade. And yet that is exactly what we did rather than let a recession fix the economy. Unfortunately and as a result, we are now doing it with literally the entire value of both the Federal Reserve and US Treasury. Yes, even those institutions have run into monetary shortages by issuing so much corporate welfare.

Money games were so widespread especially since 2000 that even the Treasury and Federal Reserve are scrambling to find and free more funds. Appreciate how massive this meltdown. Accounting changes and the CRA had near zero effect - obviously irrelevant to the problem.