Planet Money

"Bailing out banks, one toxic asset at a time"

This article is about two men named Albert and Raj that go through towns, or villages, and buy houses that are in foreclosure or "underwater." houses that are "underwater" mean that the house is worth less than the mortgage for the house. The article also talks about how this process works. It works like this:

1. Banks give out mortgages to people who have stopped paying.

2. Then to get rid of the mortgages that the people don't pay they sell them for discounts to large investment funds like Hedge Funds. Banks sell mortgages thousands at a time to investment funds.

3. Most of the mortgages investment funds don't like to keep so they make the price higher than what they bought them for and sell them to people like Albert and Raj.

some information:
1. Hedge Funds can buy mortgages for $.30 of a dollar so if the bank sold it for $100,000 they get it for $30,000. Then sell them again for about $.40 on a dollar.

2. People like Albert and Raj won't even know if there is someone living in the house or not before they buy their mortgages. They just care about whether the home is in foreclosure, how high the interest rate is on the home, the value of the home, what the neighborhood is like (even though they have no intentions on living there), and if the home has a for sale sign by the driveway or on the front lawn.

Is this evil?
This article connects to what I know about the Great Depression because during the early state of the Great Depression it was the stocks that had dropped and people lost a lot of money. In the Article that I have read I had an understanding that if I wanted relate it to the Great Depression by replacing the stock market with mortgage investments and that when the stock market was rising in sales, before the Great Depression, it would be considered as right now in our country where people are buying mortgages of houses that are going into foreclosure and making money. Today in our country this business of buying mortgages of houses going into foreclosure hasn't hit a depression because of all the thousands of houses going into foreclosure but I would definitely say that the people that live in the houses going into foreclosure are going through a Great Depression.






Bailing out Banks