Zeev's Turnips Patch-No Politics (ZEEV)

[Bruce A Thompson]

According to data provided by the Mortgage Bankers Association, default rates on subprime mortgages were above 8 percent every year from 1998 to 2002. In 2001, the default rate on subprime mortgages reached nearly 10 percent. But in those years there was no “mortgage crisis.” And after those years, subprime default rates steadily declined.

The 2006 vintage of subprime mortgages (the vintage of mortgages commonly blamed for the 2007 “mortgage crisis”) defaulted at an average rate of only 6.8 percent. The 2007 default rates were not much higher than that. And even by the second quarter of 2008, long after the mortgage markets had collapsed, the default rate was still only around 8 percent. So the link between default rates (even on the least credit-worthy subprime mortgages) and the mortgage crisis is not at all clear.

The Financial Crisis Inquiry Commission (FCIC) said as much in its February 2011 report to Congress. According to the FCIC, the “mortgage crisis” was not primarily the result of “reckless” lending to subprime borrowers. It was, rather, largely the result of the 2007 collapse in the market for collateralized debt obligations (CDOs). And the CDO market collapsed because more than half of all CDOs issued in 2006 and 2007 were so-called “synthetic” CDOs.

Regular CDOs are packages of mortgages that trade like securities. So-called “synthetic” CDOs do not contain mortgages themselves. They contain bets against mortgages, usually in the form of credit default swaps. That is, the sellers of these “synthetic” CDOs (more than half of the overall CDO market in 2007) were people who were betting against mortgages and therefore wanted the mortgage markets to collapse.

This must be stressed: a small number of specialist firms and short sellers deliberately created financial weapons of mass destruction that they knew would destabilize the banks and the American economy. As U.S. Senator Carl Levine stated (singling out “synthetic” CDOs as evidence): “The recent financial crisis [of 2007-2009] was not a natural disaster; it was a manmade economic assault.” [the emphasis was Senator Levin’s]


http://www.deepcapture.com/the-miscreants-global-bust-out-chapter-21-how-a-small-gang-of-organized-criminals-wrecked-the-world/