Quote:
Originally Posted by Fire
It's the government that will have to bail out the banks and mortgages if the crap hits the fan. They have good reason to meddle. The reason Canada came through the recession in good shape compared to other countries is because of better regulation of the banks.
I would normally agree that less government the better but in this case I like having my money guaranteed not to go poof if bank goes bankrupt.
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Sure, except this isn't exactly the kind of risk that caused the financial crisis. It wasn't just low rates in that instance, it was the fact that the mortgages were to people who ought not to have had mortgages in the first place. Things like 'NINJA' mortgages, No Income No Job. The rates escalated in many cases as well, so that was another factor. Then the banks turned around and packaged up these mortgages and magically got them AAA rated despite them being poorer quality, and resold them as such.
There were other activities that the banks were engaging in as well, writing derivative contracts and debt swaps and the like. This was where the risks started to get way out of hand as contracts were 'insured' between institutions and underlying values were questionable at best. Almost none of this has to do with banks competing on tenths of percent of interest rates though.