Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Subprime Mortgages Among Fastest Growing Investments for US Banks

  by    0   0

“As a dog returns to its vomit, so fools repeat their folly.” – Prov. 26:11

It appears there is some repeat folly brewing.

Remember subprime mortgages? Well, they’re back. 

According to an article published by SovereignMan, subprime volume at US banks doubled over the last 12 months and it is on pace to double again this year. Subprime loans rank among the fastest growing investments for banks in the US.

SovereignMan has dubbed these foolish bankers “financius dumbassus” to emphasize the folly of repeating a practice that nearly brought down the entire global economy.

Bottom line– financius dumbassus is once again back to its old ways… making risky loans to borrowers with pitiful credit. What could possibly go wrong? Leave it to financius dumbassus to try the same thing again and expect a different result. It’s textbook insanity.”

But this isn’t an identical repeat performance. The banking industry has changed the name. We no longer call these risky loans “subprime.” Now we call them “non-QM,” meaning “non-qualified mortgage.” But we are talking about essentially the same thing. Banks extend loans to borrowers who don’t qualify for conventional mortgages because they have bad credit ratings or don’t have enough money to make a down payment.

Indeed, we’ve seen this folly before, and as SovereignMan points out, nearly the entire financial system got into the game the last time around.

The mortgage brokers raked in huge fees for closing individual loans. The investment bankers made money packaging the loans into subprime bonds. And the ratings agencies (like S&P and Moody’s) made money slapping pristine ‘AAA’ ratings on these bonds, essentially promising the world that they were RISK FREE. Looking back they obviously weren’t risk free. Banks were making risky loans to borrowers who had a history of not paying their debts based on the premise that home prices only increase in value. And when home prices started to fall, the entire apparatus collapsed in late 2008.

And guess what? We also have another housing bubble blowing up.

We don’t have the same kind of housing bubble today that we did in 2007. It’s more like housing bubble 2.0. Nevertheless, we still have the same fundamental problem. People with average incomes cannot afford to buy an average-priced home.

In other words, the rising price of homes has priced a lot of everyday Americans out of the market. So to keep the ball rolling, banks are stepping up to the plate and loaning them money anyway – banking (pun intended) on the fact that the value of the house will cover their risk.

This isn’t to say we are poised for a repeat of 2007-2008. There are even bigger bubbles that could burst first. But this is yet another sign that everything isn’t as great as the mainstream would have you believe.

And it also demonstrates an ugly truth. People don’t learn. Or they forget. Especially when there is a dollar to be made today.

Einstein supposedly said, “insanity is doing the same thing over and over again expecting a different result.” Central bankers at the Fed sure do seem to suffer from this affliction – along with a lot of others in the banking system.

Like a dog…

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

More Gold for Russia

This has become a monthly feature here a SchiffGold News – Russia buys more gold. The Central Bank of Russia added another 18.7 tons of gold to its stash in March according to a press release last week. This boosts the country’s gold reserves to 2, 167.9 tons or 69,700,000 ounces. Gold now makes up […]

READ MORE →

This Is Silver on Sale; Take Advantage of the Opportunity

The silver-gold ratio currently stands at about 85-to-1. As one commentator put it, that’s “way out of whack.” But what does this really mean? In simplest terms, this is silver on sale! Related

READ MORE →

Social Security and Medicare — Still Going Broke

Last year, the Social Security and Medicare trustees warned that the programs are going broke. A year later — they’re still going broke. Social Security will dip begin dipping into reserves in order to pay out benefits next year and those reserves will run dry in 2035, according to the annual Social Security and Medicare […]

READ MORE →

The Fed’s Winners and Losers – Ultimately, We’re All Losers

When the Federal Reserve artificially manipulates interest rates, it’s messing with our minds by distorting important signals that prices provide in a free market. As investment guru Jim Grant put it in a recent article in Barron’s, central bank interest rates are nothing but crude price controls. Like all price controls, the Fed’s interest rate […]

READ MORE →

Study Shows Increasing Demand for Solar Energy Drives Silver Prices Higher

Rising demand for solar panels pushes silver prices higher according to a recently released university study. Researchers at the University of Kent found a “causal relationship” between solar panel demand and the price of the white metal. Related

READ MORE →

Comments are closed.

Call Now