Sub-prime losses

[Segilla]

I'm finding it difficult to understand where all the lost money has gone to.

[randyraven]

I sell you a house for $200K.
Nice area and property is valued as $200k because of rising house prices and demand.
Why demand ?
People can afford to buy ?
Why ?
Because banks will lend them the money.
Then they cant pay back loans.
Now lots of houses for sale.
Supply out strips demand.
House now worth $50K
Bank cant get money back.
Loans being written off.
This of course then goes up the food chain.

Take my word you have not seen nowt yet !!!!!!
Get into the cellar and bolt the door.

[randyraven]

Sorry ...where has the money gone ....To the people who sold the inflated priced houses and land.
And of course to the high commisioned loan sales people.
These guys are now long gone and retired on a beach somewhere.

[Androcles]

Wsasn't it also that in their efforts to lend more money, the banks started lending out higher percentages of income to people who werre probably pushing their luck borrowing in the first place. Then the banks, due to some clever guys who realised that if it is a dodgy loan, the best thing to do is to sell the loan on to some other organisation and lots of banks got into buying these "instruments" without realising that if things got bad the people could not pay them back - then as per what randyraven said.

When that happened, banks did not want to buy any more or lend to any other banks, so credit dries up. Hopefully lending will get more sensible in the future and house prices return to what they really should be if idiot banks were not trying to make stupid loans which were never going to work.

[johnny37]

Segilla - economics was not my best subject but I think in simple terms the American banks lent a lot of money (mainly on property) to people who could not afford to pay it back. The answer to your question is that the money has been spent, eg to buy a property or cars, etc, and the banks are never going to be able to get much of it back, because the value has fallen. The money is still in the system, it just does not belong to the bank any more. putting them into financial difficulties because the loans are not going to be repaid. .

[helpmetoo]

its not gone anywhere,

banks were greedy and lent money heavily to NINJAs (ni income, no job or assets), at escalating rates after initial fixed term periods,

they didnt care about the security on the loan as there was so much profit built in they could sell the loan in the secondary market,

a bank that sold these unsustainable debts will be relatively unaffected however many also bought these debts and resold again and on and on....

the banks concerned can fail and should be allowed to go under, a lesson learnt,

to create a false market is idiotic,

look up the 'dutch tulip bubble' and see how greedy people will lose the plot and invest in something worthless