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Old 12-16-2011, 11:03 AM   #29
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Originally Posted by Shadow View Post
It is your responsibility to live within your means.

Placing the blame on the banks is moronic to say the least. .
I do blame the bankers and I think that's far from moronic.

On a wider philosophical level, Alain deBotton has done a pretty trenchant analysis of this way of thinking. If you believe that the rich and successful succeed largely through their own efforts, then the inevitable corollary is that the poor and unsuccessful must be so purely as a result of their own moral flaws. This is a very comforting viewpoint, though without much foundation in reality. Without knocking the US in any way, no country in the world blames the poor for their own situation quite as much as America does.

But that aside, down to specifics. Were the borrowers or the lenders more culpable? A borrowers' beliefs about what is an affordable debt to take on is going to be shaped by the culture they're in and the advice that they're given. The culture was of massively increased borrowing. This was partly due to low interest rates, but also led by lenders.

Mortgage brokers were on commission, and under a top-down pressure, to sell the biggest loans that they could, any way they could. In a huge number of cases, this involved predatory selling and outright fraud. As the financial crisis inquiry commission tells us:

You will read about mortgage brokers who were paid “yield spread premiums”by lenders to put borrowers into higher-cost loans so they would get bigger fees, often never disclosed to borrowers. The report catalogues the rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports—reports of possible financial crimes filed by depository banks and their affiliates—related to mortgage fraud grew 20 -fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at 112 billion
(p 22)

In many cases borrowers were flat-out defrauded by the lenders. They were missold mortgages through misleading them about interest rates. Ameriquest were prosecuted for their selling tactics and settled out of court for $325 million. Here's something about their selling tactics from former employees.

It's a pity, but not really a surprise, that the response to this ghastly mess is not to say 'there but for the grace of God go I' - but to villify the victims.
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Last edited by Tannhauser; 12-16-2011 at 11:06 AM.
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