Moishe Alexander’s Blog

Posts Tagged ‘Subprime Crisis

Moishe Alexander has found that Federal authorities have accused Wall Street’s premier firm Goldman Sachs of perpetrating major fraud during the mortgage boom which prefaced the recent crash. This would mark a critical moment in the effort to reveal scams in one of the worst financial crisises in decades.

The fraud charges against this industry leader allege that the company broke numerous laws when it sold an intricate housing-related investment that was obvious would fail, costing $1-billion in losses.

The scam charges are the most serious blasting to date of the firm’s behavior in the leading up years to the most recent financial crisis, and since they arrive just as lawmakers are deciding on how to change the way the banking system operates, they could also drastically change the debate now happening in Washington.

News of the lawsuit, filed by the SEC, sent the firm’s shares diving almost 13% and destroyed $12.4-billion of its market value. Other bank’s shares, such as Citi and Bank of America, also paid a price as investors freaked out about the possibility of increased investigations and stronger regulation of the market.
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There are various real estate “experts” who can be called upon and mountains of information to be viewed to cover the topics of home prices, trends and statistics as they relate to the art of buying a home.

But looking at a home purchase as being important is only a small part of the real reason why buying a home is such a monumentous decision. The fact is, buying a home is a big decision because we go so deeply in debt to finance the house of our dreams!

Canadians have now borrowed several times their annual Gross National Product (the value of all goods and services produced in the country in a given year) and many more times the Gross National Income (the total wages and salaries paid to Canadians in a given year) in the form of mortgages.

The consequences of non-payment of this debt creates a great deal of personal financial problems, which some contend are part and parcel of many other social problems in our society.

In other words, it is not the purchase itself, but the debt incurred to purchase a home and our level of comfort with incurring that amount of debt that is the really important factor in buying a home. Debt deserves our understanding and respect.

The subprime mortgage crisis is an ongoing financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.

Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages.[1] When U.S. house prices began to decline in 2006-07, refinancing became more difficult and as adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and USA government sponsored enterprises, tightening credit around the world.