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mortgage market



Mortgage lenders in UK and US used to be mutual and specialist. Building societies in the UK and thrifts - savings and loan associations. They bore the risks themselves, and did not pass it on for the sake of bonuses.

It has taken 60 years of 'innovation' to destroy the solid dependability of that system. Main changes were in the eighties and over the years since the late nineties. Chief among those leading the charge to the financial casino are Ronald Reagan. Margaret Thatcher, Gordon Brown and that master of overassessment, Alan Greenspan.

Now lenders have become able to sell the right to receive the payments on the mortgages they issue with securitisation. The result is 'mortgage backed securities' (MBS) and collateralised debt obligations (CDO).

A majority of US mortgages are now held by mortgage pools ( MBS and CDOs). Some $6.6trn of the $10.6trn of USA residential mortgages (at mid-2008); around $3.4 trillion are in traditional depository institutions, who are now affected by the sharp drop in valuations.

Investors in MBS and CDOs bear several types of risks, which have a variety of consequences. This has a major deleterious effect on markets, of course.

While the major part of the problem is in US activities in finding yet smarter ways of appearing to generate business, the UK was not slow in finding imaginative new ways to offer mortgages. Northern Rock Bank collapsed because it had offered mortgages of 125% of valuation - mostly to people not well placed to repay.

Others offered various mortgages with inherent dangers. It were almost as though there were a mass madness; or as though everyone was drugged with euphoria.



Joseph Harris - Debt Control Man, Author of Control Your Debt Crisis on Your Own Terms

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