In my opinion overleveraged investing by Wall street firms and hedge funds using margin way above assets on hand is the problem according to
everything that I have read, Wall Street bears a huge part of the responsibility for this problem, plain and simple, a main street subprime or even as
we are finding out prime loan holder possibly knowingingly borrowed more than they could afford but as with anything qualifying for a loan is only a
short term bar or snapshot of one's situation in a period of time, it says nothing about future responsibility or financial decline, anyone that has
a great job can lose it, anyone that is in a trade that might make money enough to qualify for a loan might find what they do obsolete so really no
one can afford to buy a home on credit, I don't care how great your job or your income is, you can't see the future.
But I bet you there are very few homeowners that possibly borrowed 100 to 1000 times their assets or provable income, and the debt to income ratio
was at least used in some of the loans given was nowhere near what the wall street investment firms and brokerages were doing with investor money and
also quietly using funds pumped into the economy and banks to gamble with.
Now the only reason i used the above examples was that the Wall Street investment banks that no longer (we know their names) exist were using margin
money or loaned money to buy stocks betting that they would profit and be able to pay it back, essentially gambling, well we know that some of these
banks might only be worth as just an example 1 million dollars, assets and everything, their debt might be 10 million.
On top of that they go out and get loans against their current stock value (buy on margin) for 500 million to buy stocks, but at any point in this
process the ability to make money off the over leveraged 500 million loans and the value of the money they invested goes down they cannot repay the
money fast enough so then on top of that you start adding in derivitaves and bunch of really poorly packaged mortgage securities that are worth less
than half paid for you can see the dillemma created
The banks have overborrowed and overextended their credit essentially buying things they could not afford just like the people on mainstreet are
accused, people buying homes the last 6-8 years have been accused of causing the mess, well the banks have loan officers and standards, someone
decided to change the rules and make loans easier government partially to blame but the banks who did it and did so irresponsibly are to really blame,
we know that the greed on Wall Street is probably about 95% of the problem so I have to disagree Wall Street is the biggest culprit in this collapse
because even before the bailout, the Federal reserve was injecting billions of dollars monthly into banks to keep them afloat almost the last year, no
one mentions these money injections much.
Also don't forget about the ratings agencies that valued these firms, the products they sold and other thngs investors use as guides are also as
responsible for this mess because they overvalued much of the securities being traded and sold all over the world, also the other factors are credit
default swaps and corrupt financial executives like Madoff.
[edit on 7-2-2009 by phinubian]