What do see as the fault for the the present day credit crisis?

Question

Automation and resultant loss of jobs from that automation?

Subprime mortgage crisis?

Do you thing automation is gradually eating away at earning's potentials except for the really affluents mostly?

I mean, can't man pretty much do away with most jobs over time through automation?

Answer 1

Greed

Answer 2

For many years the basic fundamentals of lending money were set in stone. They were tried and tested and had been working just fine for a long time.

However some bright spark decided that lending money to people who could not afford it, and increasing the LVR % (loan to value ratio) greatly increasing the risk or exposure to the financier, was a brilliant idea.

They figured that the high cost of funding for this type of lending would be sufficient to cover the losses created from the delinquencies bound to occur and the subsequent repossesions. These clients would pay much more by way of interest and fees and this increased profit would cover the losses the financiers expected from a higher rate of repossession and quick sales.

Unfortunately like many things that look good on paper there was very little evidence that it would be viable in the long term.

However the prospect of a quick buck (or a few billion of them) blinded many to this.

Pretty soon any f***y, Freddie or Flop, was a mortgage broker, banks were doling out money left right and centre and 100% lending on low doc or no doc loans was rife.

We all know how the unfortunate saga ended.

Cheers

david

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