Fannie Mae has stopped buying New Century mortgages too. Thus, the second-largest subprime mortgage company has self-destructed, leaving thousands in financial peril. One hopes that those who apparently just made shit up as their Ponzi scheme collapsed will spend the next several years in court or prison.
In a slight bit of poetic justice, all that stock that insiders bought cheap via stock options is now worth exactly zero.
It’s been obvious for some time to anyone watching the mortgage business that the subprime market was beyond risky and doomed to eventual failure. Yet government regulators looked the other way while mortgages that stood no chance of ever being repaid were funded as brokers and investment bankers took big profits.
Why was this not stopped long ago, before it blew up, before people, mostly poor, got hurt? Answer: Because that would have interfered with a financial elite making exorbitant profits, that’s why.
In a saner, more equitable financial system, the real estate market would have been watched more carefully. Managed growth rather than rampant speculation would have been the rule. Mortgages would have been allowed only to those who could actually repay them, not to anyone who could fog a mirror. Then we wouldn’t have had the boom-bust cycle that we’re seeing now, where a few got wealthier and millions got screwed.