Reinko

Subprime Root Cause Analysis

Back in 2004 I already understood there was some kind of problem in the making because of the vast amount of advertisements that said 'Bad credit no problem'.

But I never understood the giant size of the problem with that weird 'securization' and the role of the ratings companies.
Yet on the scale of advertizing you could see trouble ahead because one way or the other bad credit is indeed a problem.

The above article is a nice oversight of all that went wrong, it contains just one little error. Quote:

Had there been a higher rate of inflation that increased the salaries of the various debtors they might have been able to keep up with their payments and eventually refinance at a lower rate.

Unquote.

If there had been more inflation, in that case interest rates would go up so refi via lower rates would be impossible. Furthermore your salary only increases with some weird consumer basket of items (like vegetables, soup, meat and so on).
The higher cost of the mortgage would not be included in the inflation adjusted salaries, just like inflation on stock or bond markets is not found back on your paycheck.