The trillion dollar scandal that made online gambling illegal

I'm going to go a little off topic here, but trust me, I'm going somewhere with this.

Most of you have been affected by the downturn in the economy over the past five months. Even if you were not directly affected, I'm sure you know someone who has either lost their house, lost all their equity in their house, or has lost a significant amount of money in their savings. What I'm talking about is the American sub-prime housing fiasco, which is quickly becoming a worldwide financial concern.

For those who are not financial junkies like myself, let me give the brief version of what has happened in the financial markets in recent years. As usual, it has a lot to do with greed, subterfuge, and a lack of foresight.

In 2003, banks and financial institutions realized that the only way to keep the housing bubble inflated was to keep people buying homes. The problem was that most of the eligible market had already been serviced in the previous few years and the market was threatening to dry up.

Luckily, they identified a huge untapped market of potential home buyers: people who could not afford homes. These people would never get a bank loan under normal circumstances, but these were not normal circumstances because the banks had a great plan. They would just hope that the good times would never end.

Taking all of the best parts of "historically low interest rates" and combining that with the traditional "low payments for three years" with just a dash of "don't worry, we'll figure that out when it happens", they created a new financial tool called the subprime mortgage. This deal allowed home buyers to pay only two percent interest on the first few years of a mortgage with the interest rate jumping to a variable rate afterwards.

It's amazing they never thought of this before. All they had to do was figure out a way to convince people with poor credit to lock themselves into longterm financial quagmires. So it was like shooting fish in a barrel.

Suddenly, people who would normally have been renting were able to buy a starter home. People who should have been in the $200,000 market were buying $400,000 homes. And the wannabes started buying McMansions when they should have been living comfortably in a house half the size. These loans started to get extremely popular because when the friends of these new home owners stopped by for a visit, they were amazed by the grandeur and the low payment so the friends got into the market too and bought using subprime rates. And so on and so on.

What wasn't explained to these people (or what they conveniently ignored) was that your mortgage payment - for the first few years anyway - mainly consists of paying down your interest. And if the current rates are "historically low", then they can only go up. Once they passed the subprime phase of their mortgage, they were going to be on the hook for mortgage payments that were up to 50 percent higher than they had been paying before. If they were having trouble coming up with $1,500 per month, how were they going to find another $600?

Now, you might ask why the banks would take on such risk. Good question.

Answer: They didn't care because somebody had figured out a way to make even more money off the situation.

Enter the wolves. Wall Street saw this this situation and went to work selling snowballs to the Eskimos. They started pooling all these subprime loans together and selling them off to banks and other financial institutions. The idea was that as long as the real estate market was thriving, there would always be value in holding these securities. But the real estate market could only keep thriving because of these ridiculous loans.

See the circle?

In essence, it was a glorified pyramid scheme perpetrated by Wall Street and kept hidden by low interest rates. And nobody cared because it was one of those gr

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Posted by nigel
6 years ago

he assholes i like to gamble
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Posted by Hebodk
6 years ago

Hi I would like to know how you bet on sports in the states? I'm from scandinavia and would like to travel to the states and watch some baseball and basketball. If you wanna gamble on sports - witch options do you got? Do you have betting offices / bookmakershops like in Great Britian or are gambling only legal in Las Vegas, Nevada? I have heard about the online gambling closed down in the States.
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Posted by goodpal
6 years ago

Excellent article. This is the clearest explanation I've read so far about this whole subprime mess.
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Posted by puritianb
6 years ago

This was one of the best explanation ever of how something bad can happen, even though you have the old saying of, "If it ain't broke, then don't go fixing it". Well they fixed it, now its broke!
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Posted by Rizzo
6 years ago

Great insight Paul. Rizz
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Posted by Richman
6 years ago

Well, based on the bill that was introduced yesterday, maybe they have seen the light somewhat. Great article Paul. And Frist defines sleaze.
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Posted by plavers04
6 years ago

Frist's former family business, which Frist owned stock in, was also involed in the biggest health care fraud in history. They had to pay a $1.7 billion dollar fine.
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Posted by wasabitobiko
6 years ago

Frist has to be the biggest idiot in the entire village.. He's the same jackass who happens to be an M.D. who stated on national tv that you can contract HIV through sweat and tears.. How do these idiots get elected?
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Posted by thasarg
6 years ago

Frist is a shady character so say the least....he's under investigation by the SEC for insider trading...
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Posted by jlgarciaiii22
6 years ago

Nicely Done.....
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Posted by mypixwin
6 years ago

Well done Paul,,,,,,,,,,, kinda makes you wonder why we even bother voting,,, as the years go by i'm more and more convinced that our leaders are not a bit smarter or harder working than your average drunk at your local tavern.
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Posted by asloper6001
6 years ago

Good theory.
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Posted by plavers
6 years ago

Well, if the DOJ or SEC stayed out of your house and let you spend your money as your see fit, you could take either the SEC or the DOJ at pinnacle and saved yourself 60% on the juice. So in the bigger scheme of things, issues like this affect your ability to make money betting on sports. Most wiseguys I know had their income cut in half by the loss of pinny and not being able to access Betfair. The extra costs in servicing the players also come at the expense of bonuses. Beating the books is hard enough. This Ideological right wing movement to restrict your rights have cost sports bettors 50% of the bankroll every year. That's something that affects you.
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Posted by 9Fishcake9
6 years ago

Uhhh So...who do I bet on ? the DOJ or take the SEC +8.5 ?
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Top Response

Posted by 9Fishcake9
6 years ago

"Uhhh So...who do I bet on ? the DOJ or take the SEC +8.5 ?"