Tuesday, October 07, 2008

How the US subprime mortgage meltdown started

US Federal lending institutes - The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nicknamed Freddie Mac, cover 17 Trillion dollars of the US mortgage market.

They've gone bankrupt and most of the loans may be bad.


This makes the 700 billion dollar bail out - look like a bucket of water to a raging house fire.

Read here to find out about how the subprime mortgage meltdown got started.

Basically - the mortgage industry was forced by the Government - esp. the Democrats - to issue loans to high risk borrowers (poor people in poor neighborhoods). The assumption was that house prices would go up inevitably. And eventually the house prices would double - and everyone would be rich. However, this created a housing price bubble. House prices were pushed artificially high. Valuations were dodgy. There was no accountability - and finally the house of cards came falling down.

The Democrats tried to help the poor to become rich. As they say - the road to hell is paved with good intentions.

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