Originally Posted by
crjohnson32
Call me foolish, but I still subscribe to the idea that if I take out a loan from a lender (bank), I ought to pay that loan back. Hell, I would think the bank would expect me too. Sadly that is not the case, the banks don't care if I pay it back.
As it is now, lenders sell that loan to an investment bank. Investment banks combine 1000's of mortgages, car loans, student loans, and CC debt into 1 unit, knows as collateralized debt obligation, or CDO's. These CDO's are availble to be purchased by investors. So now, when a home owner pays his mortage, it goes to investor all over the world, the original lender doesn't care. That's why any Joe making minimum wage can buy a hlf million dollar home. The investment banks then include a 3rd party known as rating agencies to provide a grade on theseCDO's, AAA being the highest grade a CDO can receive.
Therein lies the flaw of our current economy and is why the middle class is getting the short end of the stick.
Many low level investors (middle class Americans) are investing their money in AAA rated CDO's. Rating agency's have no liability if a AAA rated CDO fails. Investment banks receive more money for the more AAA CDO's they sell, who in turn, create incentives for the unregulated rating agency's to pump out more AAA ratings on CDO's. So what happens when a bunch of these AAA rated CDO's fail? Everyone loses, the banks, and middle class American's. And who received the bailouts???
I may have some Idealistic views about the world, but you don't need to be idealistic to see how that is not fair.