Why has the American mortgage problem had such widespread consequences?

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One Response to “Why has the American mortgage problem had such widespread consequences?”

1. Aimee L on: 22 June 2009 at 6:17 am

   I’m not an expert by far, but it’s because it’s far reaching. Mortgages are sold to banks, who then in turn sell it to large companies, who then in turn sell stock based on the mortgages. When people default on their mortgages, no one gets paid. It seems like there are a lot of these stocks out there that people are buying that are made up than small more than a collection of rotten investments that aren’t paying off. Another thing is that companies have played games so long with their books and went monies/ asserts/debits around on the balance sheets to make it look excellent for them and then oops it comes to light that they should have left things where they belonged to start with so they could have addressed any problems.

   So people are not paying their mortgages, the problem is larger than they thought it would be, insurance can’t pay on the rising amount of mortgages that are defaulted and before they know it companies are in the red due to too many defaulted loans. If AIG closes, it insures most large banks and mortgage, then when people default on these terrible mortgages, companies will not be re-numerated in anyway, which will make them fold. Which means there will be less companies that CAN offer loans. And the companies that ARE still offering loans will want to make sure that the people will pay them back since the loans may/may not be insured, so they will only offer it to people with the BEST credit. So people with terrible credit can forget about those high interest loans.

   I’m far from an economist, but with the economy the way it is, it compels us all to be. So that we can know what impact these things will have on us.