End Result of this debacle…US financial industry loses face?

[lendingbubblecontinues]

End Result of this debacle…I buy my next house;)

[lendingbubblecontinues]

End Result of this debacle…I buy my next house;)

[lendingbubblecontinues]

End Result of this debacle…I buy my next house;)

[sdnativeson]

Nothing new under the sun… people always come back for more.

“The meltdown in financial markets may seem scary or mysterious, but it’s part of a time-honored story. In Chapter One, a new financial instrument makes capital available to a new class of borrower, and the result is profits for the innovator along with gains for consumers. In Chapter Two, a group of not-so-smart investors misunderstands the novel instrument and bids its price up too enthusiastically; when the inevitable bust follows, the innovation is denounced as inherently dangerous. Then, in Chapter Three, the complaints blow over. The not-so-smart investors learn their lesson and the new instrument stabilizes. Financial innovation turns out to be beneficial without being scary, but by that time another newfangled instrument has emerged to frighten people, and finance is hauled before the court of public opinion — again.

This is likely to be the story with the current subprime mortgage meltdown, just as it was with subprime’s close cousin, the junk bond.

Junk bonds, you will recall, are a way of getting loans to companies that stand a big chance of defaulting, much as subprime mortgages enable people with questionable credit to buy homes. During the 1980s, the value of junk bonds in circulation went from nothing to around $200 billion, enabling dozens of fringe companies to innovate and experiment. Then, in the early 1990s about one in 10 junk borrowers lived up to their names and defaulted, and junk bonds were widely denounced. But the fuss was over quickly. By 2000, the value of the junk bond market had soared to $600 billion. Nobody doubted that fringe companies should have access to finance, provided that they compensated investors for the risk that they might fail”

[sdnativeson]

Nothing new under the sun… people always come back for more.

“The meltdown in financial markets may seem scary or mysterious, but it’s part of a time-honored story. In Chapter One, a new financial instrument makes capital available to a new class of borrower, and the result is profits for the innovator along with gains for consumers. In Chapter Two, a group of not-so-smart investors misunderstands the novel instrument and bids its price up too enthusiastically; when the inevitable bust follows, the innovation is denounced as inherently dangerous. Then, in Chapter Three, the complaints blow over. The not-so-smart investors learn their lesson and the new instrument stabilizes. Financial innovation turns out to be beneficial without being scary, but by that time another newfangled instrument has emerged to frighten people, and finance is hauled before the court of public opinion — again.

This is likely to be the story with the current subprime mortgage meltdown, just as it was with subprime’s close cousin, the junk bond.

Junk bonds, you will recall, are a way of getting loans to companies that stand a big chance of defaulting, much as subprime mortgages enable people with questionable credit to buy homes. During the 1980s, the value of junk bonds in circulation went from nothing to around $200 billion, enabling dozens of fringe companies to innovate and experiment. Then, in the early 1990s about one in 10 junk borrowers lived up to their names and defaulted, and junk bonds were widely denounced. But the fuss was over quickly. By 2000, the value of the junk bond market had soared to $600 billion. Nobody doubted that fringe companies should have access to finance, provided that they compensated investors for the risk that they might fail”

[sdnativeson]

Nothing new under the sun… people always come back for more.

“The meltdown in financial markets may seem scary or mysterious, but it’s part of a time-honored story. In Chapter One, a new financial instrument makes capital available to a new class of borrower, and the result is profits for the innovator along with gains for consumers. In Chapter Two, a group of not-so-smart investors misunderstands the novel instrument and bids its price up too enthusiastically; when the inevitable bust follows, the innovation is denounced as inherently dangerous. Then, in Chapter Three, the complaints blow over. The not-so-smart investors learn their lesson and the new instrument stabilizes. Financial innovation turns out to be beneficial without being scary, but by that time another newfangled instrument has emerged to frighten people, and finance is hauled before the court of public opinion — again.

This is likely to be the story with the current subprime mortgage meltdown, just as it was with subprime’s close cousin, the junk bond.

Junk bonds, you will recall, are a way of getting loans to companies that stand a big chance of defaulting, much as subprime mortgages enable people with questionable credit to buy homes. During the 1980s, the value of junk bonds in circulation went from nothing to around $200 billion, enabling dozens of fringe companies to innovate and experiment. Then, in the early 1990s about one in 10 junk borrowers lived up to their names and defaulted, and junk bonds were widely denounced. But the fuss was over quickly. By 2000, the value of the junk bond market had soared to $600 billion. Nobody doubted that fringe companies should have access to finance, provided that they compensated investors for the risk that they might fail”

[sdnativeson]

Nothing new under the sun… people always come back for more.

“The meltdown in financial markets may seem scary or mysterious, but it’s part of a time-honored story. In Chapter One, a new financial instrument makes capital available to a new class of borrower, and the result is profits for the innovator along with gains for consumers. In Chapter Two, a group of not-so-smart investors misunderstands the novel instrument and bids its price up too enthusiastically; when the inevitable bust follows, the innovation is denounced as inherently dangerous. Then, in Chapter Three, the complaints blow over. The not-so-smart investors learn their lesson and the new instrument stabilizes. Financial innovation turns out to be beneficial without being scary, but by that time another newfangled instrument has emerged to frighten people, and finance is hauled before the court of public opinion — again.

This is likely to be the story with the current subprime mortgage meltdown, just as it was with subprime’s close cousin, the junk bond.

Junk bonds, you will recall, are a way of getting loans to companies that stand a big chance of defaulting, much as subprime mortgages enable people with questionable credit to buy homes. During the 1980s, the value of junk bonds in circulation went from nothing to around $200 billion, enabling dozens of fringe companies to innovate and experiment. Then, in the early 1990s about one in 10 junk borrowers lived up to their names and defaulted, and junk bonds were widely denounced. But the fuss was over quickly. By 2000, the value of the junk bond market had soared to $600 billion. Nobody doubted that fringe companies should have access to finance, provided that they compensated investors for the risk that they might fail”

[Author]

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