This Is Not A Normal Recession: Moving on to Plan B
By Daniel at 21 November, 2008, 10:26 am
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by Mike Whitney
“…The global economy is being sucked into a black hole and most Americans have no idea why. The whole problem can be narrowed down to two words; “structured finance”.
Structured finance is a term that designates a sector of finance where risk is transferred via complex legal and corporate entities. It’s not as confusing as it sounds. Take a mortgage-backed security (MBS), for example. The mortgage is issued by a bank (the loan originator) which then sells the mortgage to a brokerage where it is chopped up into tranches (pieces of the loan) and sold in a pool of mortgages to investors that are looking for a rate that is greater than Treasurys or similar investments. The process of transforming debt (”the mortgage”) into a security is called securitization. At one time, the MBS was a reasonably safe investment because the housing market was stable and there were relatively few foreclosures. Thus, the chance of losing one’s investment was quite small.
In the early years of the Bush administration, Wall Street took advantage of the gigantic flow of capital coming into the country ($700 billion per year via the current account deficit) by creating more and more MBSs and selling them to foreign banks, hedge funds and insurance companies. It was real gold rush. Because the banks were merely the mortgage originators, they didn’t believe their own money was at risk, so they gradually lowered lending standards and issued millions of loans to unqualified applicants who had no job, no collateral and a bad credit history. Securitization was such a hit, that by 2005, nearly 80 percent of all mortgages were securitized and the traditional criteria for getting a mortgage was abandoned altogether. Subprimes, Alt-As and ARMs flourished, while the “30 year fixed” went the way of the Dodo. Lenders were no longer constrained by “creditworthiness”; anyone with a pulse and a pen could get approved. The mortgages were then shipped off to Wall Street where they were sold to credulous investors.
long article here:
http://www.globalresearch.ca/index.php?context=va&aid=11072
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Everywhere in the press you read that this mighty recession is going to be our demise; yet no one is discussing that it’s actually a buyers market and with the right level of nouse you can actually make money.
It seems crazy but look at the situation, cars are falling in value, as are houses and indeed stocks. With the right attitude there are plenty of ways to make money in a recession. I read a really good article on the subject in The Elevator (link below):
http://www.the-elevator.net/content.asp?read=116062008202751
Making money in the “credit crunch” is entirely doable, you just have to be proactive and keep a close eye on those margins.