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Sunday, August 12, 2007

Economic Term of the Week

This week's vocabulary lesson is NINJA loan, as in No Income, No Job, [no] Assets. These are the loans where the mortgage lender does not care whether the borrower has income, a job, or assets--or, at least, doesn't ask.

Of course, like a real ninja, the Ninja loan is an assassin. It kills your mortgage business. And possibly the world economy.


At 1:40 PM, Blogger Paul said...

It will be interesting to see how this all plays out economically and politically. Essentially this is a mortgage bubble built on the greed of "lenders" who didn't care whether people could really afford the loans, because these so-called lenders' goal was to close a loan, collect a fee, and sell the loan to someone else. In effect many banks became loan finders, closers and sellers rather loan lenders, and as long as they could find a sucker in the global economy (i.e. global hedge funds) to buy a NINJA loan why should they care if someone could actually afford it or not? Now that they can't find lenders to buy their risky loans, the game is over.

As for politics, If it turns out this mortgage loan mess kills the economy, then we shouldn't forget that Bush built the central plank of his economic platform around private home ownership; in almost every economic speech I remember him giving over the years, he always touted this fact. Furthermore, just about every economic article I read over the last 6 years always pointed out how home ownership was the biggest thing fueling the economy. Now we are beginning to learn that much of this home ownership and economical activity was built around smoke-and-mirror loans.

Is it reasonable to ask if there is a connection to Bush's policy? I think so. Remember how the bubble that brought Wall Street to its knees early in Bush's presidency was pinned on the "smoke and mirrors greed" of the Clinton years? One thing about the so-called greed of the Clinton years is that it led only to some busted portfolios and newly established business closings. Most of these weren't big established businesses and the techies in these companies found other jobs pretty fast; so it wasn't a big deal for most ordinary Americans and one of the reasons why the recovery came so fast. This mortgage problem, however, even if it doesn't take down the entire economy, is gonna hurt a lot of ordinary folks, many of them belonging to the middle class who took out ridiculous home equity loans at variable interest rates for up to 135% of the value of their house, which they may now lose.

At 1:57 PM, Blogger Paul said...

One correction. I should have said that the central plank of Bush's economic policy was tax cuts. Of course those too were paid for by borrowing money that cannot be paid back without significant pain, if ever.


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