May 25, 2008

House Of Cards: The Mortgage Mess

60 Minutes Reports On How The Subprime Loan Crisis Is Shaking Markets Worldwide

  • Play CBS Video Video The U.S. Mortgage Meltdown

    Steve Kroft reports on the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, and how this crisis is now roiling capital markets worldwide.

  • Photo

     (AP / CBS)

  • Timeline Credit Crunch

    Feeling the squeeze? Here's a look at actions and statements from key players in Washington.

(CBS)  That is not to suggest that there aren’t huge losers in all this and much suffering and particularly hard-working people who have lost their dream. Home values are plummeting, and the housing sector - one of the largest and most vital parts of the American economy - has ground to a standstill, pushing the country towards recession.

The Wall Street and foreign investors are now stuck with the millions of distressed properties on Sean O’Toole's map, the unsold condos in Miami, the unfinished apartments on the Vegas Strip, the developments in Atlanta that are sitting idle and the thousand stucco houses in Stockton. Not even Kevin Moran, who has copies of the foreclosed mortgages, can figure out who exactly owns them.

"That’s the fascinating part of this whole debacle we’re in. Mortgages are sold in mortgage backed securities, so they’re pooled. I’ve seen everything from some of the largest financial institutions in the country, and you see 'Deutsche Bank' in a series and a series of numbers and letters to a mortgage pool," he says.

The pools are part and parcel of those high-yield mortgage backed securities everyone gobbled up a few years ago, and are now stuck in the windpipe of the world's financial system. No one wants to buy them, so no one can sell them.

"Bonds marked triple-A are now quoted at 50 cents to the dollar, 40 cents on the dollar. Some of them, much less," Grant says.

"How much on the dollar, do ya think?" Kroft asks.

"Some of them are worth nothing on the dollar. Nothing on the dollar. This is the worst thing that has happened to Wall Street in a long time," Grant says.

Asked how many of these securities are out there, Grant says, "A trillion with a T-plus."

Asked who bought them and owns them, Grant says, "You know, state pension funds, the hedge funds bought them. Foreign central banks own some of these things, if you please. So the ownership is very widely dispersed, which accounts for the general anxiety, and the persistence of anxiety."

There’s already a two-year supply of properties on the market in Stockton and so many foreclosures that real estate agent Cesar Diaz decided to start the "Repo Bus" to take bargain hunters and bottom feeders on a weekly tour to see some of them. He got the idea from the Hollywood tour of the stars' homes.

The day Kroft went along, there were two busloads checking out houses that are now 70 percent cheaper than they were when the crisis began. The consensus seemed to be prices are going to drop still further. Not particularly encouraging news for the past two chairmen of the Federal Reserve Board.

"Alan Greenspan and his successor, Ben Bernanke, would say over and over that it's contained. The problem's contained. It turns out, it is contained only on planet Earth," Grant says, laughing. "That's it."



One hundred of the world's biggest financial institutions now are on the hook for a reported total of $379 billion in bad debt - and counting.

As for Stockton, it remains the nation's foreclosure capital, with more than 6,000 homes currently in default or foreclosure.


Produced By L. Franklin Devine and Jennifer MacDonald
© MMVIII, CBS Interactive Inc. All Rights Reserved.
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by golfer3800 January 27, 2008 7:36 PM PST
Once again you fail to get to the root cause of the issue! In the 2002-2004 timeframe, the US Congress put pressure on banks to lend money to Blacks, Hispanics and poor whites so that they copuld participate in the American dream---home ownership. Unfortunately, these weak kneed banks acquiesed and then needed to lower their credit standards in order for the parties so named to qualify for the loans. They did this after "pressure" from lobbying groups put on the banks "or else". They then started the snowball rolling and we now have the greatest credit fiasco in the US history. These dumb banks then started to package and then "trade" these "securities. The rest is history. Root cause of the problem. The dumb ***, ignorant Congress of the US that only worries about getting reelected and nothing else. They are beyond dumb, on the take in most cases and more ignorant than a box of nails. Throw all of them out and start all over!!! J . Slater, Charlotte, NC
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by vegasfloyd January 27, 2008 7:42 PM PST
There''s a number of directions to point the finger. I thought that was a fairly accurate piece.
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by tonys58 January 27, 2008 7:44 PM PST
I always scratch my heads as our highly compensated CEO''s amaze me how ignorant they are. Enron, WorldCom,
Tyco take us for a loop. Now the high priced bankers want their share. The bankers should watch "It''s a Wonderful Life" at least once a week. Lending money should be rather simple and not become a high stakes poekr game.
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by smithbjs1 January 27, 2008 7:50 PM PST
You make it seem as if the consumer is at fault here.
I can we had no problems before homecomings financial bought the loan. AS soon as our 2 yers were up. They immediately upped the payment, would not answer phone calls, take payments and hold them in "suspense" claiming we were short and not credit them. It was expained to us that the APR was what the current interest rate was in that year and could be changed annually
It is the the fault of greedy, fly by night mortgage comapies. They know your income and make it impossible for you to meet the payment. They know they are forcing you into a foreclosure!!!!!!!!!!
Now they want to cry foul of the mess they have caused.
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by dobbsj January 27, 2008 8:01 PM PST
Great Job 60 Minutes - Stockton and many other places deserve to suffer enormous pain for this

I wish stupid politicians would watch to understand there is no quick fix to this. This was mortgage fraud gone wild. As a reader of Ben Jones Blog for a couple of years many of us warned that this was happening. Somehow it was thought that everyone should own a home regardless if they could afford it. In CA some farm workers with $20k income bought $700k homes and put money in their pocket at closing. Brokers and everyone made money and everyone looked the other way at this fraud.

We should go into a depression to clean this mess up. But washington politicians think they should use my tax money to bail everyone out. We need to fight to prevent this.
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by smithbjs1 January 27, 2008 8:01 PM PST
excuse my mispellings. Yes, we walked away from the home. As explained homecomings owned by GMAC, owned ultimatly by JP morgan. I feel is at fault. They knew we could not afford triple the original payment. We did not go in over our heads on a home we knew could not afford nor a payment we could not afford. I would dearly love to see an interview with these type of companies. Let them explain how they justify a 10% rate increase in less then one year. Our credit was good when we bought the hoem and we like so many others planned on refinancing before the 2 year fixed was up but was uanble because of falling house prices. The mortgage companies and banks got greedy.
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by gc7865 January 27, 2008 8:06 PM PST
When did it change that the homeowner can''t depend on our state agencies in ensuring that the loan officers, mortgage brokers; appraisers and settlement companies all uphold their fiduciary responsible to the lender. Underwriters had a fiduciary responsible to the lender that the loan meets the guidelines if the appraiser states a value you believe it. We took a subprime because of life-events of medical expenses we believe the real estate market but unless you are in the line of work you don''t see the changes happening to the value. Yes we have try to work with the lender countrywide and they advise that the best to do is walk away..
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by whatithink-2009 January 27, 2008 8:25 PM PST
golfer3800,

These same issues are happening in Spain, UK and several other countries throughout the world. There was a GLOBAL housing bubble because of GREED. It was not only related to the US and not only related to blacks, hispanics and poor whites. Quit playing your race/class card! The only color that was the problem in this debacle is the color green.
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by whatithink-2009 January 27, 2008 8:28 PM PST
golfer3800,

Ireland is also going through the same problems.
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by nicktse January 27, 2008 8:29 PM PST
The world now thanks the greedy Americans for triggering a global recession.
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by feelfree1 January 27, 2008 8:30 PM PST

Re: "Steve Kroft Reports How The Mortgage Meltdown Is Shaking Markets Worldwide"

You read it here first- not from Steve Kroft, 60 Minutes, or CBS Newz, of course, but right here in the comments section, moths ago. This was predictable and was predicted.

CBS has a lot of catching up to do. The real estate meltdown is bound to get much worse, before it gets better.
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by skyk-2009 January 27, 2008 8:36 PM PST

Ireland is also going through the same problems.


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Posted by whatithink at 08:28 PM : Jan 27, 2008
+ report abuse

Really? Does the Government have the same problems? It''s hard to imagine another country with a leader and a political party as Incompetent as Bush and the Repubican''s. When you look at what they were handed and were we are it takes the breath away. Going from a Balanced Budget and a Surplus to Record Debt and Interest Payments in the BILLIONS.. that''s tax dollars by the way... It''s just mind boggling. You would figure a High School Student could do better than they did.
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by skyk-2009 January 27, 2008 8:38 PM PST
We should go into a depression to clean this mess up. But washington politicians think they should use my tax money to bail everyone out. We need to fight to prevent this.

Posted by txengr at 08:01 PM : Jan 27, 2008
+ report abuse

Did you benefit from the Tax Cuts we borrowed all that money for? If so, yes you should pay. If we do NOT get money into the system and soon we could well slide into a Depression. Maybe someday we''ll figure out that "Trickle Down" doesn''t work because it''s the Working guy who pays the freight. If he doesn''t have the bucks then it doesn''t work... take it from me in recent years NONE of the money has "Trickled Down" to us.
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by billpl-2009 January 27, 2008 8:42 PM PST
no one had a gun pointed at them when they signed the loan papers.

...there''s a reason why the rich get richer....etc.
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by whatithink-2009 January 27, 2008 8:43 PM PST
skyk,

The trigger of this problem was Alan Greenspan lowering interest rates to levels never seen before because of the dot com bubble and 9/11. Many central banks outside of the US followed suit. This flooded the market/banks with cheap money. One bubble (the dot com bubble) was transformed into a new bubble (the real estate bubble). Speculators started buying houses around the world and driving up prices. Banks were getting rich and had little risk because they bundled these loans up and sold them to greedy investors searching for yields. That''s where the problem with the banks came in. They started giving loans to anyone because the loans didn''t stay on their books. So, they didn''t care. This has been happening in many countries throughout the world.
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by valerie0903 January 27, 2008 8:43 PM PST
As a former executive in the lending industry, we were prodded and given authority to fudge the numbers to make the loan. The average home buyer had no idea what was happening to them, other than they were getting a home. ARM''s...balloons and so on had no explanation. Buyers were told not to worry, they could refi. This is no surprise to me. I refer back to "former," I didn''t have the stomach for the business. I pray for those that did/do.
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by valerie0903 January 27, 2008 8:44 PM PST
As a former executive in the lending industry, we were prodded and given authority to fudge the numbers to make the loan. The average home buyer had no idea what was happening to them, other than they were getting a home. ARM''s...balloons and so on had no explanation. Buyers were told not to worry, they could refi. This is no surprise to me. I refer back to "former," I didn''t have the stomach for the business. I pray for those that did/do.
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by feelfree1 January 27, 2008 8:49 PM PST

Thank you, "Valerie0903".

Honest perspective from a former insider is obviously very valuable to this topic.
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by jay_michaud January 27, 2008 8:50 PM PST
WHAT A CROCK of horse DUNG! You sign a contract (hand shake), you own the contract (A man stands on the hand shake). Just because the MARKET fails you will default on the contract (hand shake). What a Democrat!

It is stories and people like this that will allow the US economy to fail! If you signed it, OWN it. Do not come back and say "I did not know". What a crock! Take some ownership and live it. We ALL read the same thing at CLOSING. If you are an IDIOT, do not buy a house and claim someone else at fault.

The report was so one sided I dare the producers to contact me and ask what responsible folks consider. My wife and I bought the house we are in in the time frame spoken about. Go figure, we took a fixed rate and fought the whole way to the table as I wanted the ARM. Look who is right. SHE WAS!

Do not blame Bush or the gov. for this. This is 100% owned by the industry. And private industry.

Jay Michaud
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by z1313132 January 27, 2008 8:51 PM PST
"No-one pointed a gun at them".............does that mean its ok to take advantage of someone for naivety ? That''s the same sort of mentality as grabbing cash from a child or an old person because they are waving it around....ethics is what you do when no-one is around to observe you......

The "professionals" in this could see this coming a mile away - its exactly the same thing Milken did 20 odd years ago - they needed the people at the end of the chain to keep buying as long as possible so they made it easier and easier and also "pushed" the idea that property would never go down - I could have bought in 2002 but never did - I will buy in 2010 for probably less....

people like mozilla at countrywide should be in jail.
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by whatithink-2009 January 27, 2008 8:53 PM PST
Jay_MIchaud,

What does this have to do with politics? However, since you bring this up, the last time something like this happened was in 1990/91 and people also walked away and mailed the keys to the bank. Who, by chance, was the president at that time? I''ll give you a guess, he had the same last name as the current president.
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by whatithink-2009 January 27, 2008 8:57 PM PST
Z1313132,

There is a reason to keep the vast majority of the population barefoot and stupid. Many of the buyers were stupid and some were fraudulent. This does not however let the banks and regulators off the hook. At the end of 2006 I remember hearing about the huge bonuses given out on Wall Street. Many bankers (not even close to CEO level) were getting 10 million and 20 million dollar bonuses for one year. Much of those bonuses were tied up in this mess and they don''t have to give it back.
Reply to this comment
by mcvet January 27, 2008 8:59 PM PST
Do not blame Bush or the gov. for this. This is 100% owned by the industry. And private industry.

Jay Michaud


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Posted by Jay_MIchaud at 08:50 PM : Jan 27, 2008
+ report abuse

So Bush ASKING the Fed to LOWER Rates and asking the Fascist in Congress to take off the restrictions to prevent just such events don''t count? I''ve come to the Conclusion that you fascist will come up with and excuse for the Incompetent fuhrer of yours no matter what. YES he is partly to blame and ALL to blame for the failure to balance the budget and for the Debt that''s comsuming all our tax funds...even MORE now to get us out of this mess. Sieg Heil Bush!!
Reply to this comment
by mcvet January 27, 2008 9:02 PM PST
That''''s where the problem with the banks came in. They started giving loans to anyone because the loans didn''''t stay on their books. So, they didn''''t care. This has been happening in many countries throughout the world.


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Posted by whatithink at 08:43 PM : Jan 27, 2008
+ report abuse

It''s always someone else''s fault isn''t it bootlickers??? ROFLMAO For 7 long years now, through failure after failure.. after LIE after LIE, I''ve heard just about every excuse known to man. The ONE thing I have never heard though is an responsibility. The ONLY thing that I can think of as far as success from the fascist congress was interferring in that Florida Family''s decisions on a Brain Dead Woman. Sieg Heil Bush!!
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by jay_michaud January 27, 2008 9:03 PM PST
WHAT A CROCK of horse DUNG! You sign a contract (hand shake), you own the contract (A man stands on the hand shake). Just because the MARKET fails you will default on the contract (hand shake). What a Democrat!

It is stories and people like this that will allow the US economy to fail! If you signed it, OWN it. Do not come back and say "I did not know". What a crock! Take some ownership and live it. We ALL read the same thing at CLOSING. If you are an IDIOT, do not buy a house and claim someone else at fault.

The report was so one sided I dare the producers to contact me and ask what responsible folks consider. My wife and I bought the house we are in in the time frame spoken about. Go figure, we took a fixed rate and fought the whole way to the table as I wanted the ARM. Look who is right. SHE WAS!

Do not blame Bush or the gov. for this. This is 100% owned by the industry. And private industry.

Jay Michaud
Reply to this comment
by whatithink-2009 January 27, 2008 9:03 PM PST
http://www.youtube.com/watch?v=xDRpsch4fTg
http://www.youtube.com/watch?v=iVLB9LfHXjU


Two youtube videos on the global housing bubble.
Reply to this comment
by whatithink-2009 January 27, 2008 9:10 PM PST
MCVet,

Banks have a responsibility to make sound decisions. They were led by greed these days. With mortgage vehicles like NINJA loans (No income, No job, Absolutely No problem), they were clearly asking for problems.
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by jay_michaud January 27, 2008 9:13 PM PST
All,

You forget, THIS IS PRIVATE INDUSTRY. Let them fail and they will be replaced with companies that know how to run in the market.

Take Bush or the soon to be *** out of the game and let capitalism take over. Do not allow those from public education sway you.

Take ownership and drive the consumers do do the work. If you bought a 200K home and could only dare to afford a 100K home, who''s fault is it? BALANCE YOUR CHECKBOOK and SAVINGS ACCOUNT!!
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by whatithink-2009 January 27, 2008 9:13 PM PST
As it was truncated (the Youtube links):

v=xDRpsch4fTg
v=dL8Kx_ZnEcw

plus another good one:

v=fG5Z9_VFI8U

Reply to this comment
by jay_michaud January 27, 2008 9:18 PM PST
If you watch and or listen to YOUTUBE.com links, that is part of the issue. Stand up for what you believe to be true in person, no matter the side of the isle. Just know, PRIVATE industry IS what drives America. NOT the liberal media.

Jay_Michaud
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by sbuhl January 27, 2008 9:19 PM PST
This report failed to discuss the problem with predatory lending. There are a lot of people who have good credit, that have been mislead by loan brokers telling these people that they can save them a bunch of money. It turns out that the loans that they are selling cause their principle balances to rise. The toughest part of this is that these brokers come into your house and do the closing at your house where you feel safe, and they talk you through the paperwork, misleading you the whole way through. By the time you realize what has happened you are stuck in a loan that will evntually cause you to lose your house!
Reply to this comment
by whatithink-2009 January 27, 2008 9:20 PM PST
Jay_MIchaud,

What is needed is a balance between private and public industries. Private industry is about making a profit. Some things should not be solely about making a profit. Have you learned nothing from Enron?
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by nyckate January 27, 2008 9:20 PM PST
I watched this episode - and it showed the real problem if ''fixing'' this is that there are some who truly weren''t financially savvy enough to make these decisions and relied on their mortgage brokers who were supposed to be the experts and provide them with reliable advice - advice they were paid for. Then there are those who are living well above their means, knew it and took advantage of ti - buying new cars ... and now expect, no, demand that the banks lower their mortgages because the property they bought isn''t worth what it was when they bought it.

How do we separate out those who didn''t know what they were doing to those who were taking advantage of the system? We shouldn''t be bailing out the guy who invested in too many properties or the couple who are business savvy enough to know they were playing with fire - but we should help out those like the day care owners who relied on the advice they paid the mortgage broker to give them and got taken.

The banks already got their money up front - they knew they were *** around but those fees kept adding up and they took them - now they should forfeit instead of being bailed out. The people they took advantage of are the ones who should be helped instead.
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by mmabear747 January 27, 2008 9:20 PM PST
Are there really any "Deals" out there? I would like to hear from someone that got a good deal on a foreclosure that wasn''t a piece of junk that nobody else wanted.
Reply to this comment
by beartlex January 27, 2008 9:22 PM PST
Not everyone is running away from their committment. With the help of some Government programs it is possible for mortgages to be refinanced away from interest only or other bad loans to a conventional fixed loan. I should know we are going through the process now. Once there we can plan to stay here pay on our debt and move when the market turns or we have the equity to walk away. It would have been nice to see some information provided on that end. Then perhaps people in this situation would not think the only thing to do is walk away.
Reply to this comment
by jay_michaud January 27, 2008 9:22 PM PST
MCVet is 100% correct!


MCVet,

Banks have a responsibility to make sound decisions. They were led by greed these days. With mortgage vehicles like NINJA loans (No income, No job, Absolutely No problem), they were clearly asking for problems.
Reply to this comment
by nyckate January 27, 2008 9:23 PM PST
Jay Michaud

There is a system of federal banking regulators put into place for a reason - they were instituted following the Great Depression.

Under the Bush Administration there are been an attitude of ''olly olly oxen free'' for every industry from energy companies to banks to coal mining.

Bush is an utter disgrace - but then again he always was wasn''t it.
Reply to this comment
by jay_michaud January 27, 2008 9:24 PM PST
So,

You made a bad judgment, the gov. should bail you out????? Or, should the LENDER take the bite?

"With the help of some Government programs it is possible for mortgages to be refinanced away from interest only or other bad loans to a conventional fixed loan".
Reply to this comment
by jay_michaud January 27, 2008 9:25 PM PST
Enron has cost the PRIVATE industry WAY TOO much.!

Have you learned nothing from Enron?
Reply to this comment
by nyckate January 27, 2008 9:29 PM PST
Jay_MIchaud

Of course the banks had a responsibility - and we have to make them responsible - that''s what the Federal Banking Regulators are supposed to be there for -- they let the country down - yet another Bush failure.

There appears to be no department left untouched by the Bush failed theory of neoconservatism -- Bush and Cheney kept telling Congress and the country that the private industries could and would be able to self-regulate.

ANother line of hooey from George W.
Reply to this comment
by nyckate January 27, 2008 9:30 PM PST
Jay_MIchaud

Stop being SUCH a tool.

The janitory that cleans the office building you work or live in isn''t financially savvy - which is why he''s not working on wall street. DUH
Reply to this comment
by stsmith6 January 27, 2008 9:31 PM PST
The report completely failed to mention what started it all! The Government! They passed a law forcing banks to lend money to high credit risk people at lower interest rates. You can''t do that. The interest rates that the people had been paying were based upon risk/reward just like everything else in the free market. Everything else that happened was the result of that one move. This is what happens when government tries to mandate results in a free market. Want to see it again? Watch what happens when government starts "backing up" insurance for hurricane alley.
Reply to this comment
by whatithink-2009 January 27, 2008 9:33 PM PST
stsmith6,

This has nothing to do with the government forcing banks to loan money to anyone. Banks are not the "victim" in this story. Banks have been making loans to people in poor neighborhoods for the last thirty years. I work in the banking industry. These people still had to meet certain lending criteria. You are mixing things up. Banks were not forced to lend money to anyone. They did so willingly because they were making huge profits.
Reply to this comment
by whatithink-2009 January 27, 2008 9:37 PM PST
I should say worked in the banking industry. I worked in community lending for a period of time. Not everyone was given a loan and most loans were very small, similar to microlending in other parts of the world. This had nothing to do with what has happened recently. This was sheer greed on the part of the banks and little risk because the banks were able to transfer the loans off their books.
Reply to this comment
by pkimball January 27, 2008 9:39 PM PST
Mr. Kroft: Did not include real estate brokers aka Realtors as culpable parties in the current real estate mess. They, as much as any other party brought their greed to the mess. Their blandishments to refinance, to "move up" to buy a second home sounded almost like carnival barkers. Their hands are as dirty as the mortgage brokers, bankers and financial institutions.

PK
Reply to this comment
by pkimball January 27, 2008 9:41 PM PST
Mr. Kroft: Did not include real estate brokers aka Realtors as culpable parties in the current real estate mess. They, as much as any other party brought their greed to the mess. Their blandishments to refinance, to "move up" to buy a second home sounded almost like carnival barkers. Their hands are as dirty as the mortgage brokers, bankers and financial institutions.

PK
Reply to this comment
by jay_michaud January 27, 2008 9:41 PM PST
All,

Get OVER Enron, it is the past and does NOT apply.

Just so we are on the same page. I voted for Bush, but would kick him out in a heart beat. What is going on now,falls on the banking system.

I can tell you this as I am a living proof why NOT to get an ARM.

If you signed the deal you own it. If you have the expectation of a government hand out, than why do we NOT embrace the style of a Socialist ( Communist) Republic?
Reply to this comment
by pkimball January 27, 2008 9:42 PM PST
Mr. Kroft: Did not include real estate brokers aka Realtors as culpable parties in the current real estate mess. They, as much as any other party brought their greed to the mess. Their blandishments to refinance, to "move up" to buy a second home sounded almost like carnival barkers. Their hands are as dirty as the mortgage brokers, bankers and financial institutions.

PK
Reply to this comment
by jay_michaud January 27, 2008 9:45 PM PST
Can he/she Read English?

The janitory that cleans the office building you work or live in isn''''t financially savvy
Reply to this comment
by pkimball January 27, 2008 9:45 PM PST
Mr. Kroft: Did not include real estate brokers aka Realtors as culpable parties in the current real estate mess. They, as much as any other party brought their own brand of greed to the mess. Their blandishments to refinance, to "move up" to buy a second home sounded almost like carnival barkers. Their hands are as dirty as the mortgage brokers, bankers and financial institutions.

PK
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