Monday, April 14, 2008

An Economy Built On Lies (Gary North)

Gary North on our shaky economy, built on a mountain of lies:

In this report, I am going to present an astounding document. You have not heard of it. It is at the heart of the current residential real estate crisis. It has to do with liar loans.

By now, the term "liar loans" is common. Prospective house buyers provided false information to representatives of loan-initiating firms.

The loan-initiating firms knew that there were people who did this, but they winked at the practice. Their well-compensated job was to pass on the paperwork to a government-created agency, either Fannie Mae or Freddie Mac, who then sold scientifically diversified packages of statistically safe mortgages to investors.

Some of these investors were hedge funds. They in turn borrowed money from investment banks at up to 32-to-1 leverage (Carlyle Capital) to buy even more packages of statistically safe mortgages.

Everyone was happy until reality caught up with the lying borrowers, whose meager incomes did not allow them to keep paying their monthly mortgages.

The dominoes started to topple in August, 2007. The experts were caught flat-footed.

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