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Posted by David Sherman on Friday, December 07, 2007 at 12:11:06 :
In Reply to: Re: Ha!Ha! posted by Todd Wilson on Friday, December 07, 2007 at 11:55:24 :
Citibank is a "real bank" if there ever was one, and they just announced another $15 billion in losses, on top of the $6 billion they announced a couple months ago, which at the time they said was definitely all there would be. Washington Mutual is another stodgy old bank that's in deep trouble over its "aggressive" mortgage loans. We all know the Countrywide was the biggest sub-prime lender, but Wells Fargo (bank) was the second biggest.
The reason the whole financial industry is in such a mess now is that nobody really knows who is on the hook for all these bad loans. It used to be if you borrowed money from a bank, the banker looked you over and decided what kind of credit risk you were and how much interest he could charge you and then lent you his bank's money. The loan stayed on the bank's books until you paid it off. Now, almost everyone immediately sells the loan to outfits that repackage bundles of loans into all sorts of clever financial vehicles with names like "mortage-backed securities" and "collateralized debt obligations" that in turn get sold to everybody from pension funds and insurance companies to Saudi oil sheiks. It's not even so much that lots of people are defaulting on their mortgages yet. It's that the investors suddenly want nothing to do with any of those trick financial products, which means the company's that hold them can't sell them, and nobody wants to buy new ones. With no trick funding available, the mortgage companies aren't making the trick loans any more. Conventional mortgages for moderately-priced houses are still available. And like Norm said, this has nothing to do with auto loans.
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