economics 101

the market tumbled again yesterday thanks to more and more coming out about BEAR STEARNS and the meltdown going on in their portfolio. the reprecussions of the subprime real estate market touch so many things; pension funds being one. however an idiot or a small child could have seen this one coming. if you lend money to someone who has little or bad credit and then structure the loan so that the payments will go up in two years you have to expect that a large number of those people will default on their loans. they have bad credit for a reason. plus the fact that wages are flat so if someone gets a loan where their monthly payment is 1 thousand dollars a month to begin with but two years later the payment goes to 13 hundred per month their wages DID NOT GO UP 30% in the the two years. they barely could afford the grand per month but the extra 300 just buries them. ba da boom, ba da bing the loan goes bad. when the loan was made, on paper, it was a very profitable deal for the lender, what with them getting such a high rate of return on the loan when the higher interest kicks in after the two year period. the lender then sells part of the loan to someone else and once again, on paper, everyone is just going to make a killing on this deal because mr. and mrs. deadbeat will somehow find a way to make the new higher payments. and to think investment bankers who put all of this together make 6 to 8 figures per year for their brilliant expertise. duh.