- Not all British banks are evil?
- It is a good argument to show that the whole purpose of bundling together many mortgages to sell to others, is to reduce the effect of the number of defaulters. This relatively small number of defaulters on their mortgage payments makes the bundle more attractive to potential buyers and keeps the price high.
The unstated assumption is that the great majority will not default. This has been largely true in Britain. But it is not true in America. There some bundled mortgages were largely for mortgagees on low, or very low, incomes. They defaulted in large numbers. This created a panic, where even the relatively safe bundles fell in price. All this did have a knock-on effect in Britain.
Fundamentally, the charge is that banks were not being responsible to their original mortgagees by selling on these mortgages in bundles to the highest bidder. The banks may well have avoided a loss created by the falling value of the mortgages they gave to their customers. But the loss did not entirely disappear. The last holder of the bundle may will have bought at a very low price; but this still could produce a loss.
All this produces an incentive to evict defaulting mortgagees and sell the property to the highest bidder, and so recoup some of the loss. So, who ultimately suffers most? It is the original mortgagee. In the coming year all tax payers may also have to pay more as well.
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