Thursday, December 27, 2007

Shoot 'n Scoot Lenders, WSJ

On Wednesday's Wall St Journal op ed page, John W. Snow, former treasury secretary wrote:
"Fifth, banks should be required to stay on the hook after making an asset backed loan . While the securitization has clearly been an important cost saving financial innovation, an important source of discipline is lost when a loan originator simply sells off a loan to an unwitting investor without any continuing stake.
" Requiring banks to hold onto some portion of these loans would be a good safeguard against improvident lending practices. It would also help avoid the duplicitous behavior of publicly marketing an asset based security while privately betting it will fall in value. "

With these words Mr. Snow becomes the first, and perhaps only person to write about the real cause of the "subprime" crisis. Banks and mortgage operators hve been writing super bad junk mortgages left and right and then selling them off to more gullible investors. The mortgage originators don't care if the mortgage defaults and forecloses, just sell it fast before it goes belly up. Hence the teaser rate mortgages that will only last as long as the teaser rate lasts.

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