This Is Really Happening

A little short history for those that keep asking why?
Any mortgage company or bank that participated in Subprime lending and what's called Alt-A loans are feeling the pain. Those loans were made so long as you could fog a mirror. And they beat the hell out of the appraisers to push value. So you ended up with a borrower that could not repay the loan in a over valued home. Perfect set up for a financial storm. So how did this start?

You might say ground zero was with Countywide Mortgage. The CEO Angelo Mozilo (The Don) created the first subprimes loans in 2002 to 2003. They caught on like wild fire. Soon all the mortgage companies and banks wanted in on the action. Even though they knew the loans were dangerous. That's called GREED! To avoid the Feds and Congress from shutting them down, they spread the money over both parties; R & D.. so everyone that supported them got re-elected. Some politicans even got sweethart low cost loans....i.e. Christopher Dodd, Barack Obama.

The biggest problem with these loans is what's called the teaser rate. The loan started out during the first two years with a 2% rate then at year two jumped up to the market rate which would be 6% today. So their mortgage payments easily doubled. You might say these loans became time bombs. As soon as the rate increase hit (Called a reset) they went bad (foreclosure). The first batch that went bad was late 2006 and the biggest batch to reset will be 9/2008. Then comes the next very big batch called Alt-A which is even worse than the Subprime. Those should die out around summer 2010.

The foreclosure fallout from these loans is bringing all the US finincial institutions to their knees. Many will not survie. Only the biggest banks, that the Fed will not let die will survive. It's basically a 1929 all over again.

So why are people pulling their money out of the banks? Mostly panic and fear. You are insured to $100k for an individual account and $200k for a joint account. Many people, especially the Sr Citizens still fear a 1929 depression. Back then the banks closed and never opened again. Our grandparents lost everything. No wonder they do not trust the banks or the Government.

But you must ask yourself...would our Government ever lie to us? Would a bank ever lie to us? Well my answer is.. have you ever heard of WMD (Iraq)? Did you know Indymac Bank said one week before they were taken over they had double the reserves and would not be taken over by the Feds. Did you know Uncle Ben our Federal Reserve Chairman said no banks would fail or be forced to close just last April 2008. I hope this helps.

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