Friday, October 15, 2010

A Fool & His Money Is Soon Parted...But Even If They're Kinda Smart, They Can Be Swindled Too

It isn't surprising to see a "behind the foreclosure crisis" story, even if some people are still treating the whole thing as if (1) the banks did all they could to prevent it and (2) the homeowners who got involved were simultaneously deceptive scam artists and stupid rubes (depending on how you perceive the issue).

Well, as for the first theory:

The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.

Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst, many of these operations languished with inadequate staffing and outmoded technology, despite warnings from regulators.


Then, well...you know what happened next (thanks for the reminder, Dave!). As a result, the banks did what they do best in a crisis: they panicked.

When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to deal the foreclosure process.

If only someone had warned them. I mean, seriously warned them that...wait, huh?

“We waited and waited and waited for wide-scale loan modifications,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, one of the first government officials to call on the industry to take action. “They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.”

At least until most of them went out of business. Of course some of them might have survived had they made the proper power moves:





As for the second argument: yeah I know it's easy to blame poor people (whether they were white, black or any other ethnic group/race) for being "naive" enough to believe that someone who went to school to learn about finance would tell them that gambling their home would be a good idea. After all, investing is a tricky business, and if you don't know what you're doing you shouldn't even try right? I mean, what kind of person would make themselves so vulnerable?

Hall of Fame quarterback John Elway and a business partner invested $15 million with a hedge-fund manager who was recently arrested for running a Ponzi scheme.

The Denver Post reported that the two invested $15 million with Sean Mueller in March with the understanding that the money would be placed in a trust until a final decision was made about where it would be invested.

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