Some believe that the majority of the blame for the financial crisis falls on irresponsible home-owners who defaulted on their loans. That they were uneducated in believing they could take a sub-prime mortgage and get away with it. First of all, the fine print of some housing loans would baffle most of us, so I doubt that it is a result of being uneducated. Yet some people were living beyond their means in houses they could not afford, true. Nevertheless, the amount of home-owners that got behind on their mortgages last year was 7% as reported in a TIME magazine article titled "One Bad Bond":
"Just 7% of all borrowers are behind on their loans, yet hundreds of billions of dollars of mortgage bonds are nearly worthless."
What is really scary is the Collateralized Debt Obligations, or CDO's, based called Mortgage-backed Securities that were sold amongst banks and investors, leaving the last people in this game of "hot potato" with bonds which account for approximately $8.5 trillion. The total U.S. debt is about $14 trillion and now we have created a new market of Nuclear bonds in which huge bonds like Goldmann Sachs' ABACUS 2007-AC1 and others' Jupiter High-grade V are now worth 0.40 cents on the dollar.
What has become of these risky bets you ask? Remember TARP, yeah the government bought them. And who is to answer? Currently Goldmann Sachs is being investigated for fraud in the creation and sale of ABACUS 2007-AC1, but even if convicted the American people will not get their money back. We can only hope Congress decides to regulate activities like this in the future.
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