Thirty year mortgages aren't the issue, at all, not even in the subprime market. It was the prevalence of lo-doc and no-doc ARM's coupled to low rates that led to explosive prices and a truly cruel illusion of "affordability" provided. Add the Bush Admin's push for the "ownership society" with the GSE's and their tying the hands of state banking regulators to round out the picture.
30 year subprime notes can be and often have been refinanced at more favorable terms to the borrower, provided they're not upside down, that they make their payments and improve their credit scores over time. They've actually improved the lives of many, properly applied.
Lenders applied the same parameters to mortgages that they've applied to furniture loans for decades- suck 'em in with the nothin' down, no payments for a year, bah, blah, blah, then put the hose to 'em for high rates once they're hooked... Yeh, sure, it's a screw-job, but one that most people could actually afford, and the margins in that business are huge, anyway. But they made a fundamental mistake wrt mortgages- people simply can't afford it when their payments jump through the roof, and are forced to default. Very simple.
Lots of people were sold houses they couldn't afford on the basis of a 30 year note through the mechanisms of introductory teaser rate ARM's and negative amortization flimflams, but it didn't matter to the providers until the got caught holding their own paper... or in the case of the GSE's, paper they were forced to acquire for political purposes beyond their control...
Making bondholders whole is just another cruel flimflam on the taxpayers- it's not like bondholders would be wiped out, except for those who bought what they obviously knew was high-risk high-return paper...
Roubini's rhetoric leaves a lot to be desired, unfortunately. While he correctly identifies the issues, his description of them in Marxist terms is absurd. Phrasing it in terms of class warfare is, unfortunately, entirely appropriate.
30 year subprime notes can be and often have been refinanced at more favorable terms to the borrower, provided they're not upside down, that they make their payments and improve their credit scores over time. They've actually improved the lives of many, properly applied.
Lenders applied the same parameters to mortgages that they've applied to furniture loans for decades- suck 'em in with the nothin' down, no payments for a year, bah, blah, blah, then put the hose to 'em for high rates once they're hooked... Yeh, sure, it's a screw-job, but one that most people could actually afford, and the margins in that business are huge, anyway. But they made a fundamental mistake wrt mortgages- people simply can't afford it when their payments jump through the roof, and are forced to default. Very simple.
Lots of people were sold houses they couldn't afford on the basis of a 30 year note through the mechanisms of introductory teaser rate ARM's and negative amortization flimflams, but it didn't matter to the providers until the got caught holding their own paper... or in the case of the GSE's, paper they were forced to acquire for political purposes beyond their control...
Making bondholders whole is just another cruel flimflam on the taxpayers- it's not like bondholders would be wiped out, except for those who bought what they obviously knew was high-risk high-return paper...
Roubini's rhetoric leaves a lot to be desired, unfortunately. While he correctly identifies the issues, his description of them in Marxist terms is absurd. Phrasing it in terms of class warfare is, unfortunately, entirely appropriate.
