Sub prime has sent the world the financial world into a tailspin

   
In the worst money bubble bust since the dot com bust in 1991 ruthless loan brokers fed by greedy investors convinced gullible people to take loans they could not pay back..
This is the way it worked.

 
Many lower income families were convinced to take loans to buy their dream homes. They had been traditionally turned down by regular banks and were easy prey for modern legal loan sharks. The brokers themselves would get fat bonuses from the banks the money was coming from. The Banks were eager to lend out money at as much as 16% per year and hedge funds invested people’s money in bonds the banks sold on the basis of these loans. Then the greed hit the fan. Many of these loans increased by more than 50% after 3 or 4 years. This increase was not emphasized at the time of the loan making people unaware as to the higher price of the future loan. Even those who did know that the premiums were to go way up after three years were assured that since the worth of the house would go up it was all worth it. As people continued to buy houses at a feverish pitch the bubble burst when it became clear that houses were overpriced. When that happened the borrowers could not keep up with payments and defaulted on their loans.

The banks foreclosed on the homes and the prime bust was on.

All this spiraled backward as the bank lost money, the hedge funds went down, the banks stocks and all other stocks went down. People around the world who had money invested in Wall Street lost billions of dollars. Some say the banks that wanted to make huge profits and encouraged the giving’s of these loans deserve whatever they get. The problem is the entire world economies is suffering because of this and most think this is just the beginning of the meltdown.

The upside to all this is the banks will start to make money again as they lend out money to buy repossessed homes that former borrowers have defaulted on. The main damage has been done as many investors will be wary of lending out their money fueling recession and limiting growth.

Some class action suits will be brought against some of these prime lenders its not clear where they will get money to pay if they are found to have been practicing unethical loan practices.