My Favorite Business Resources
- Cheap Business Phone Service - Make phone calls anywhere for free or darn close to it.
- Cheap Printing - Always amazing deals on cheap printing with loads of free items.
- Manage Mobile Phone Costs - Great phone for controlling cell phone costs for business or teenagers.
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My Favorite Credit Resources
- Consolidate Your Debt - One monthly payment. Stop collection calls.
- Help Budgeting - Online and easy.
- Lower Your Car Payment - Refinance to reduce your monthly payment.
- Credit Report / Credit Score - This consolidated report is better than most.
- Credit Cards - Find the best card for you for low rates, balance transfer, credit rebuilding and rewards.

Jan

2008

Lunatic Lenders Giggling With Greed Gag on Loans

Posted by Steve Rhode as Banking, Business Failures

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The BBC website has a fascinating article that looks into the mortgage situation in Stockton, California. While lenders try to paint the credit crunch or mortgage meltdown squarely on the back of consumers being crazy with home equity hippie love, in fact we can’t take our eye off the fact that it took two to tango here.

Banks essentially found some new and creative ways of cooking the books to get around the 10:1 capitalization rules of only issuing $10 of credit for every $1 in capital reserve. It’s bad enough that banks get to create money by making loans anyway but guys, at least try to play by the rules.

“After previous financial disasters caused by excessive bank lending, regulators developed rules to limit how many loans a bank could have on its balance sheet.

The rules are complex, but as a rough rule of thumb, they say that for every $1 of shareholder capital a bank has on its balance sheet, it can also have about $10 of loans.

But, as is clear from the torrent of home loans in Stockton and across America, banks were lending far more than that 10 to 1 ratio.” - BBC

So all the time that some debt collector is screaming at Betty Sue on the phone and calling her a liar, cheat and thief because her car was totaled when a construction truck dropped a post off the back and she hit it, let’s not forget about the guys in bank HQ that screwed up credit, the economy and lending for all of us because they wanted to not play by the rules.

“To make their risky loans appear attractive to buyers, banks used complex financial engineering to repackage them so they looked super-safe and paid returns well above what equivalent super-safe investments offered.

Even savvy Wall Street veteran and billionaire Wilbur Ross could not figure out what was happening.

“What they were fundamentally doing was taking a $100 pile of low quality securities and creating something they could sell to investors for $103,” he says.” - BBC

So if you’ve got a couple of minutes, read “City of Debt Shows US Housing Woe” to see how the banks played the system.