Why has no one used the term “Junk Bonds” when talking about the Housing Bubble Burst?

Question

From what I have read, a junk bond is:

http://en.wikipedia.org/wiki/Junk_Bonds

“The holder of any debt is subject to interest rate risk and credit risk. Interest rate risk refers to the risk of the market value of a bond changing in value due to changes in the structure or level of interest rates or credit spreads. The credit risk of a high yield bond refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments or files for bankruptcy, or the bond is restructured).”

Isn’t that what happened back in the 70’s & 80’s when all those Retirees lost their life savings?

What is happening TODAY sounds EXACTLY like what happened back THEN yet I have never heard anyone use the terms or the fact that we SHOULD have learned from what happened in the past.

What am I missing here?

I WANT ANSWERS.

THIS IS NOT A QUESTION THAT CAN'T BE ANSWERED!

DO NOT REPORT THIS AS SUCH!

Answer 1

Although the securitized investment vehicles could reasonably be called "junk bonds," the term is normally used for corporate debt obligations of sub-prime rating.  It's basically a naming convention.

Answer 2

I was around in the 50's and I've seen it all before. I have lived through many burst bubbles and it never affected me. I just tightened my belt and lived a normal life.

Every time the market falls, it is then a buying opportunity. Buying in at a lower level is always a good investment. As they say, "there's never an ill wind that doesn't blow someone some good".

Answer 3

The term "junk bonds" cannot be applied today because technically the current crisis is not about that kind of thing.

It is worse!

There has been a multi-levelled scam and the language has changed so that people like you and I are just not in on what's going down.

The banks and their ceo's are to be blamed for being so greedy.

Primarily, it pivots on the fact that they renamed "debt" as something else and sold that something else as an "investment" to other banks. Gradually as the "debtors" could not keep up with the amounts they were obliged to pay back- the chaos began.

It doesn't help that the US Federal Reserve is complicit in this rush to conceal the facts - the US is bankrupt and is printing money that looses it's value by the day.

David M. Walker, Comptroller General of the US and head of the Government Accountability Office, in his December 17, 2007, report to the US Congress on the financial statements of the US government noted that "the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007." In everyday language, the US government cannot pass an audit.

Moreover, the GAO report pointed out that the accrued liabilities of the federal government "totaled approximately $53 trillion as of September 30, 2007." No funds have been set aside against this mind boggling liability.

$53 trillion is $53,000 billion.

Frustrated by speaking to deaf ears, Walker recently resigned as head of the Government Accountability Office.

As of March 17, 2008, one Swiss franc is worth more than $1 dollar. In 1970, the exchange rate was 4.2 Swiss francs to the dollar. In 1970, $1 purchased 360 Japanese yen. Today $1 dollar purchases less than 100 yen.

I have tried to answer you. Hope this helps. But it is not a pleasant revelation.

Answer 4

I wasn't around in the 70's (or old enough to know in the 80's) so I can't say for sure . . . but from what I understand, our current situation doesn't seem nearly as bad as back then.

I actually think I have heard the term "junk bonds" used though.

The issue today seems to be based the timing of two things.  First, home values correcting themselves after years of unsustainable increases

Second, Adjustable Rate Mortgages kicking in with higher rates.

In the previous years of housing value increases, people with ARMs could just sell and take their profits when their Adjustable rate kicked in, or they could easily refinance because their home was worth much more then when they bought it.

Now, some people are in a situation where if they sell, they will still owe money on the loan (because their sale price would be less than the total amount they still owe).  For many this is not a problem because they planned properly, but for people who can't afford the new Interest rate or who can't refinance, or who can't afford to pay off the rest of their loan if they sell . . . then they are in trouble.

It is really not that bad though in my opinion--I think less than 5% of Mortgages are at risk of default currently.  The people who are suffering are the lenders (who lent money to high risk people) and the people who took out mortages that were too much for them to handle in the long term.  The people/comanies struggling now have no one to blame but themselves for making foolish decisions and taking on more risk than they could afford.