Posts Tagged ‘mortgage’

Sign of a mortgage centre in East London

In 2007, when the so-called subprime mortgage market was collapsing, the natural question was, “what is a subprime mortgage?”

I discovered that it used to refer to what it sensibly means. Namely, mortgages with an interest rate lower than the prime lending rate.

Since then, the definition has changed to refer to mortgages of subprime quality. However, “subprime” is highly misleading, in that anything less than the best quality is subprime.

In the case of bonds, a triple-A credit rating is prime. Anything less than that, by definition, is subprime. However, there is a significant difference between AAA bonds, and BB and lower-grade bonds, to the extent that the latter are called “junk bonds.” Yet, according to the strict definition of subprime, AA+ and BB+ bonds are “investment grade.”

Banksters love twisting the meaning of words. Like their Federal Reserve System, which isn’t federal, doesn’t have any of its own reserves, and was called a system to obscure the fact that it’s a private central bank.

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New York stock market index

When I applied for a pre-approved mortgage at the height of the financial crisis in early 2009, the bank asked for the current market value of my assets.

At the same time, many U.S. banks were marking their assets to model, meaning they could decide what to value them at based on a model they created.

While the very banks that marked their assets up based on pre-crash levels  to sell mortgages to customers on the basis of having the collateral, they expected something different from their customers. Namely, the current market value of their assets, which were mostly highly depreciated relative to a year prior.

The world’s richest man as of the end of 2010, Warren Buffett, before he turned his back on his principles, wrote in 2002:

In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.

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