In message o.uk, Dave
Liquorice writes:
On Thu, 24 Sep 2009 21:27:49 +0100, J. P. Gilliver (John) wrote:

Or as happened in the sub-prime mortgage market in the US lending
more than the asset was ever going to be worth. That was the root
cause of the problem and the house of cards has collapsed when
these,
effectively unsecured, loans became bad what 2, 3 years ago.

More than it was ever going to be worth - in how long?

The time period isn't particularly relevant, the fact the loan is for
more than the asset value is bad and nothing more than a gamble. You
can't know if some one is going to default in 1 month, 1 year, 10
years or never.

And remember this was the sub-prime market, loaning money to people
who didn't have much income and/or poor credit histories. A much
higher risk of default from the outset.

The time period _is_ relevant: if the lender thinks the value of the
asset will have increased by enough to cover the admin. costs (less what
the poor schmuck has actually managed to pay) by the time they sell the
repossessed asset, then they think they were covered. So lending more
than it's worth _now_ isn't as mad as it sounds - _if_ you think it's on
a steady upward rise in value.

Not that I condone such activity! IMO, falling property prices are, of
themselves, a good thing, even though I own one and would thus lose
(out) [but then I favoured the poll tax as fairer, though I'd have been
far worse off under it]; it's just the effect on the general economy
that makes them (falling property prices) less desirable. And that's
(endlessly) debatable, too.
--
J. P. Gilliver. UMRA: 1960/1985 MB++G.5AL-IS-P--Ch++(p)Ar@T0H+Sh0!:`)DNAf
** http://www.soft255.demon.co.uk/G6JPG-PC/JPGminPC.htm for ludicrously
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