This is a reply to Steve's post , but not to Steve . Clearly I'm wasting my time trying discuss anything with him . Stubbornness , pride , thickness or whatever but I'm sure everyone else is over the merry go round .
The subprime issue . Yes , banks were writing increasing numbers of loans i.e. sales were up , but they were subprime ( or bad customers ) loans that were being packaged with good loans to become ' mortgage backed securities ' . These mbs's were onsold to various institutions around the world looking to invest money . More than likely to a council or other body near you in Australia . These mbs's were given positive ratings by the ratings agencies even though they turned out to be bad .
Companies such as Goldman Sachs who were selling these products even bet against the very products they were selling .
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
Read more here: http://www.mcclatchydc.com/2009/11/01/77791/how-goldman-secretly-bet-on-the.html#storylink=cpy
The point that old mate Steve keeps missing is that defaults became so common that there became an over supply of mortgagee properties for sale . Unlike here , you could hand your keys back to your lender and walk away . So , this massive oversupply caused prices to fall , banks started to fail , securities became worthless , people did their dough .
So , yes , property prices started to fall , but only because of record numbers of defaulted properties coming on the market , not the other way around .
In comparison to the Australian market . You can't walk away from your commitments here and the banks aren't writing subprime loans or packaging them with better ones to hide them . So , in summary , the conditions that caused the gfc do not exist here so therefore , at this time , we aren't at risk of a crash .
The subprime issue is a real interesting one . There are tons of videos and editorials available in plain english so that anyone can understand ( except Steve ) . It's worth taking the time to see how greedy people can be and it can help you to understand market dynamics much better .
We have not had another financial event that has been so well documented ( even ongoing ) that you can study in real time .
