A major part of what drove the economic recession that lead to most all of the problems that these people are protesting was speculation on subprime mortgages. These are mortgages that are plain-to-see crappy to everyone. However, ratings agencies gave the vast majority of these mortgages very high ratings.
A bit late to the party, but I wanted to point out that this is a very inaccurate view of how the subprime mortgage thing went down. I would know; I used to be a wire transfer auditor for a subprime correspondent loan company (Bear Stearns Mortgage, in fact.) I was also in a committed relationship for about ten years with a woman who worked as a loan coordinator. I ate, breathed, and slept mortgages for a sizable chunk of the window for which these things occurred.
The thing is—what the ratings agencies were ensuring wasn’t the loans themselves, but the expected payout rate of the loans, when bundled into aggregate products. (I.e.; if 20% default each loan that doesn’t default brings in 25% profit, then the aggregate is worth 5% more than its invested value. This is a VAST oversimplification.) It’s worth noting that subprime loans were very often amortized in such a manner that the first few years of their existence, they were pure interest payments. People were sold on the notion of buying a house as a way to improve/repair their credit; spend five years on a subprime and then refinance into a better mortgage. The single most common loan product out there in many areas was a 5-year Option ARM. This was a mortgage that was termed for five years, with a balloon payment due at the end of the five years for the remainder of the note. It was designed to be refinanced away.
So from the ratings’ agencies perspective, these products were pure gold at the time. Of course, that was only true because the housing market kept going up—but it was the genuine widespread belief of nearly everyone in the industry that housing prices could only keep going up. Homes were described as one of the best/easiest possible investments.
( It’s also worth noting that some of this came down from Federal statutes coming out of the Clinton administration’s push to increase homeownership in the US. The lending regulations were adjusted for political reasons and… well, we’ve all seen what happened. Not quite related to the ratings agency thing, but… this is a complicated and nuanced topic. You did start it out by mentioning that the economic recession was associated with this, and that opens the floor to further root-cause analysis.)
At the end of the day, though, the people who need to hear that it was a Democratic usurpation of a Republican talking point that “caused” the housing bubble—are the same ones who, insofar as I can see, won’t hear it.
A bit late to the party, but I wanted to point out that this is a very inaccurate view of how the subprime mortgage thing went down. I would know; I used to be a wire transfer auditor for a subprime correspondent loan company (Bear Stearns Mortgage, in fact.) I was also in a committed relationship for about ten years with a woman who worked as a loan coordinator. I ate, breathed, and slept mortgages for a sizable chunk of the window for which these things occurred.
The thing is—what the ratings agencies were ensuring wasn’t the loans themselves, but the expected payout rate of the loans, when bundled into aggregate products. (I.e.; if 20% default each loan that doesn’t default brings in 25% profit, then the aggregate is worth 5% more than its invested value. This is a VAST oversimplification.) It’s worth noting that subprime loans were very often amortized in such a manner that the first few years of their existence, they were pure interest payments. People were sold on the notion of buying a house as a way to improve/repair their credit; spend five years on a subprime and then refinance into a better mortgage. The single most common loan product out there in many areas was a 5-year Option ARM. This was a mortgage that was termed for five years, with a balloon payment due at the end of the five years for the remainder of the note. It was designed to be refinanced away.
So from the ratings’ agencies perspective, these products were pure gold at the time. Of course, that was only true because the housing market kept going up—but it was the genuine widespread belief of nearly everyone in the industry that housing prices could only keep going up. Homes were described as one of the best/easiest possible investments.
( It’s also worth noting that some of this came down from Federal statutes coming out of the Clinton administration’s push to increase homeownership in the US. The lending regulations were adjusted for political reasons and… well, we’ve all seen what happened. Not quite related to the ratings agency thing, but… this is a complicated and nuanced topic. You did start it out by mentioning that the economic recession was associated with this, and that opens the floor to further root-cause analysis.)
At the end of the day, though, the people who need to hear that it was a Democratic usurpation of a Republican talking point that “caused” the housing bubble—are the same ones who, insofar as I can see, won’t hear it.