HOW MAIN STREET HAS DESTROYED WALL STREET

Over and over, when discussing the level of defaults and foreclosures, I hear people ranting and raving against those people who bought homes they couldn't afford. And, of course, the "banksters" love to make themselves out as the victims of borrower fraud.

But here's the other side of this. The banks, and Congress by encouraging home ownership for everyone, skewed the demand curve to it's extremes. Then the Mortgage Banksters opened up the spigots to include liar loans, no-interest loans, and ARMS.. But most importantly, they started financing illegal aliens, even going so far as to assist them in obtaining FICO scores that would meet the loan requirements. How they did this was by "renting" scores from other individuals by being added as "authorized users", but not being given access to the actual credit line. Of course, the borrower paid for this service.. ;0)

FICO piggy-backing

So every individual family that COULD afford to purchase a home honestly (meeting basic lending standards and downpayment) were forced to compete against the sub-prime borrowers in the housing market. And of couse, when the sub-prime borrowers default, or are just abandoned (in the case of many illegal aliens), then everyone's home values fall.

So the other side of this is Main Street. And the next time you hear someone complain about how unqualified borrowers are at fault, read this to them:

How Main Street destroyed Wall Street

In sum, home prices should have risen according to the traditional standard based upon the credit worthiness of the borrower. Instead, the banksters turned the mortgage market into a huge real estate stock market, through the (illegal?) securitization process. Take a contract debt instrument, package it into a security, and sell it to an investor.

What exactly is a Mortgage? Isnt' it a debt contract, backed by collateral in the form of a house? Isn't that what all debt is (unless unsecured).. a contract between borrower and lender. And now we're turning contracts into stocks, to be bought and sold furiously, and for those with the wherewithal, destroyed by using Naked Credit Default Swaps??

This is implicitly why Glass-Steagal should be re-implemented. It's one thing to have a market for determining the value of asset prices, including real estate and stocks. But to have a actual debt contracts turned into securities undermines the foundation of our entire economy.

In sum, debt is debt.. a contract between borrower and lender. It's value should be dependent upon its performing status.

An asset, hard, paper, or commodity, should be valued according to market price discovery processes.

Scrutinizer