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 most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
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

Is China Becoming the Newest Front in the War on Cash?

five dollar bill on fireBack in 2017, the IMF published a creepy paper offering governments suggestions on how to move toward a cashless society even in the face of strong public opposition. It hasn’t been in the news a whole lot lately, but the war on cash undoubtedly continues. In fact, the Chinese Communist Party (CCP) may be planning […]

READ MORE →

Serbia Joins Central Bank Gold-Buying Spree

Seeking financial and economic safety and stability, Serbia has joined the global central bank gold-buying spree. National Bank of Serbia Governor Jorgovanka Tabakovic recently announced that the bank purchased nine tons of gold in October, raising the country’s reserves to just over 30 tons.

READ MORE →

Inflation’s Up; So What?

Here’s a strange headline for you: “Gold prices near daily highs despite better-than-expected inflation in October.” This headline is bizarre on a couple of levels. First, since when are rising consumer prices and good news? And second, why wouldn’t inflation be good for gold? You really have to buy into the mainstream narratives to write […]

READ MORE →

Powell Lectures Congress About Government Spending the Fed Facilitates

Fiscal 2020 started just like fiscal 2019 ended – with a massive federal budget deficit. And that has Federal Reserve Chairman Jerome Powell worried. In an ironic bit of political theater, Powell lectured Congress about the spending he helps facilitate. The budget shortfall last month was 34% higher than the October 2018 deficit, coming in […]

READ MORE →

Student Loan Bubble Blows Up Another $32.9 Billion in Q3

American consumer debt pushed to a new record of $4.15 trillion in September. Part of that equation – the continued surge in the levels of student loan debt. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record of $1.64 trillion. Student […]

READ MORE →

Comments are closed.

Call Now