RECENT NEWS
Financial Times  Jun 22  Comment 
Berkshire Hathaway provides C$2.4bn financing package for Home Capital Group
Financial Times  Jun 21  Comment 
Profit warning at subprime lender shows sectoral risks
BBC News  Jun 21  Comment 
Subprime lender warns profits will be lower because of a shortage of doorstep debt collectors.
New York Times  Jun 18  Comment 
Millions of Americans are shackled to high-interest auto loans after a subprime lending spree, and regulators fear the effect on the broader economy.
Motley Fool  Jun 17  Comment 
One metric is giving investors pause, but the problem number is not what it seems.
Forbes  Jun 9  Comment 
While access to credit cards for people with bad credit is improving, average lines of credit are trending down. Find out how this is negatively impacting subprime borrowers.




 

What happened blaicasly was because of assuming that a trend was permanent. In the financial world, this is a form of mental disorder. Trends are why anyone could be a day-trader and make money, for a while. Their impermanence is why anyone that didn't get out of that in time lost their shirts. The subprime loans were designed to churn the loans. You had loans that were fixed for usually two years, then would become variable. The whole intent was for the borrower to refinance in two years, again generating all of the bank's new-loan fees. The trend for real estate to appreciate rapidly was counted on to continue to keep this attractive for the borrower. Borrow 100 with 5k in costs to pay off a loan of 95, wait two years, borrow 105k with 5k in costs to pay off a loan of 100, wait two years, borrow 110k with 5k in costs to pay off a loan of 105 but then the trend didn't cooperate by giving a home value of 110k, and the balloon broke. People still had the same house they did, but now a loan for more than they originally paid for it, and they can't get refinancing, and can't sell it for what they owe. Trends are temporary. People that think otherwise will eventually lose money. Now, how do you know when a trend is coming to an end? There's a story about the Crash of '29 about a broker who was getting a shoe shine, and the shoe shiner gave him a hot tip on a stock. He realized that when shoe shine boys were giving stock tips, the market was about to crash and he got out. During the day-trader era, there were stories about bus drivers and janitors making huge money in day-trading, just before that went south. How many times have YOU seen people offering to help people get loans in their answers right here on Yahoo, offers totally unconnected to the question being asked? It was a trend. Now it's not.

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