I was listening to the most amazing recounting of how the subrime mess actually came about on NPR radio today. They actually had people from the banking industry that came in for interviews. If I can try to paraphrase it went something like this. It all started when India and China's wealth on the world market doubled that international wealth over the last 20 years from 35 trillion to 70 trillion dollars available for investment. This new money was looking for a high quality investment and found it in US Mortgages. This all went just fine for everyone until there were no more "solid" mortgages to invest in. So to accommodate all the foreign trillions the mortgage companies in the US dropped their standards so more people in the US could qualify for loans. Finally, these standards dropped so low that people only had to tell people that such and such was true without verification and then actually have a good credit score. In fact things got so bad that 23 dead people in one state in the midwest got mortgages. So as you can see this thing really got out of hand. Respectable mortgage companies fought these low low standards but found that unless they sold these low standard mortgages that they could no longer compete and stay in business. So many to stay in business and competitive were dragged kicking and screaming into these "joke" subprimes where literally anyone off the street with a decent credit score who told people anything got a loan. They even had one man who got a mortgage of $540,000 and this man said even he wouldn't have given him a loan if he had the money. He thought the whole thing was ridiculous.
Finally somewhere around 2005 to 2006 the losses in some SIVs started to reach 40% or more. Until they lost 10% to 20% they could break even and not lose money because the interest on the loans that did pay was so high. However, when the losses from people walking out of their subprimes because of not being able to pay such high interest rates and because the loans then exceeded the value of their houses the losses within an SIV reached 40% to 50%. this is where all the serious troubles for foreign investors began.
Before I listened to witnesses within businesses related to these problems as well home owners with these subprimes I didn't fully realize how it could actually be allowed to happen. I think the saying that best described what happened would be: "Too many cooks spoil the brew." Or another example would be when a woman is raped and killed with hundreds of people in a big city listening and watching out of their apartments with no one yelling or saving this woman. The woman in this illustration represents US economic health. The problem with dealing with an issue this large is that there is no one accountable. It would be easy to blame the person who sold the loan but he or she is only a person and worked for a loan company. It would be easy to blame the loan company but they were only trying to compete with the way things were. Can we blame the poor investor in a foreign country who was only trying to find a good safe investment? Can we blame the person who wanted to own a house for the first time and who was defrauded by the loan company? Who is to blame? Everyone and no one. However, the whole world is suffering unnecessarily because of it. The oil prices rising, the dollar dropping(though it is showing an increase since late April), the subprime, the droughts: if we take all of them together we must all recognize that millions of people likely will starve to death this year because of all this not just the ones dying this week and this month and the next and the next in Myanmar. Because of all these things millions are dying unnecessarily. NO one is accountable but millions are dying partly because of it.
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