“The damage has been done.”
What damage, and who caused it? What do you propose should have been done and when?
Demand for homes was increased by flooding the market with sub-prime capital.
The increase in demand inflated prices. No surprises there, Supply and Demand - Economics 101.
Sup-prime capital has now been vaporized. No one on Wall Street will touch new sub-prime securities.
Prices remain at or near their inflated highs but, without sub-prime financing, there are relatively few buyers who can qualify to buy at these high prices.
Many existing homeowners/mortgagees (especially those who bought using sub-prime financing) are now unable to refi because:
A: Their homes are no longer appreciating and creating sufficient equity to meet tightened lender guidelines.
B: Sub-prime financing is gone.
Not being able to refi means they’ll no longer be able to rollover their credit card debt via home-equity.
The consumer spending that has been generated by home-equity will decrease.
Who caused it? Greedy people like Ambassador to the Netherlands Roland Arnall who is the owner of Ameriquest and who should be held criminally responsible.
The internet is full of allegations made by former Ameriquest employees, including former Ameriquest CEO Wayne Lee, who allege systematic criminal conduct was going on at Ameriquest - going all the way to the top, with Arnall allegedly blocking Lee's attempts to implement reforms.
At the very least, President Bush should ask Roland Arnall to resign his ambassadorship.
Why don't we see any arrests being reported? Well, for one thing, probably because Ameriquest loves to settle these little problems out of court.
But more importantly, maybe it's because Federal investigative resources have been committed to preventing terrorism since 9/11 and, if the predators in the sub-prime market didn't deliberately take advantage of the situation, the focus on preventing terrorism certainly created an environment in which they were able to operate pretty much without interference.
How do you prevent this in the future?
Well, for one thing, checks should be put in place by the SEC to ensure that, when these loans are securitized, the FICO score on the loan docs for each loan sold to Wall Street is the same as the FICO score returned for that loan by the FICO reporting agencies.
See, if the FICO scores reported to Wall Street investors are BS, then the values of the resulting mortgage backed securities, valued using those FICO scores, are BS too. That's probably not a good thing - Unless you happen be lucky enough to own derivatives that are betting on those securities going south.
Fun game these revolutionary geniuses cooked up, isn't it?