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The US Economy, and bailouts. by Illiad2007-08-08 14:25:04
  It isn't the institutions that will be hurt. by ShadoCat 2007-08-08 15:21:41
Most instututions don't actually own the loans they collect payment for.

They package the loans and sell them to mutual funds and REITs. It isn't the companies managing the funds that will be hurt. It will be everyone who has their IRA, annuities, life insureance, etc. invested in these loans that will be hurt.

It is this large group of people who will have their savings wiped out that will need the bailout (Social Security won't be around).

So, it's not just faceless institutions who will be hurt, it's your parents, grandparents, and likely you.

The trouble is that nothing in this system protects the average investor. The mutual fund companies are not liable for the performance of their funds. The mutual fund managers get paid whether the fund goes up or goes down. The instututions who bundle and strip the loans for sale to funds are mostly out of the deal and just stand to lose the thin slice they take collecting and passing on the payments. The companies who wrote the loans are already out of the deal. Though they might be liable for some bad loans, most of those companies have already closed their doors.

In fact it was those last guys who caused the problem by knowingly writing risky loans. They would collude with the borrower to lie on stated income loans because they just care about writing the loan and selling it off. It is hard to inforce anything against those guys bucause it is hard to prove that they knew the borrower was stretching the truth.

the upshot is that most instututions will weather the storm (only the flakiest will be hurt). It is the average 9-5 worker with an IRA or company retirement plan who will be hurt.
[ Reply ]
    Not if they're smart by DesertRat662007-08-08 17:23:12
      Yes, those who can, should think about doing so by ShadoCat2007-08-08 17:43:10

 

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