Giant Pool Of Money Essay Example

that were enjoying large returns did not anticipate an end.

In some cases they leveraged themselves 20 to 1 and once things started to unravel they could not eve their current mortgage holdings so they were forced out of business.

The Investors (The Giant Pool of Money) that were buying COO's also were Ignoring the historical ups and downs of the housing market. They continued to Invest additional money, pushing lenders to make riskier loans in order to meet their demand. Mike Francis an employee of Morgan Stanley stated "It was unbelievable, I mean, we almost couldn't produce enough to keep the appetite of our investors happy. More people wanted bonds than we could actually produce.

The confirmation trap bias is also apparent In this news story. The parties Involved seemed to feed off of any Information that further supported their actions. Borrowers would look to each other for reassurance that the housing market would remain strong. They saw prices soaring and when offered unrealistic loans by pushy lenders they would agree. Whole neighborhoods would fall victim to this false sense of security. Banks also looked to each other for support, once one bank would offer a new type of loan, the others would quickly offer the same type.

According to Mike Garner "And once one errors buys them, usually all the rest follow suit. No bank wanted to miss out so they would believe that If one bank Is offering a loan than It was k and they should as well. Lenders also looked at recent foreclosure data to support these new loans. They would use complex computer programs to show that foreclosure rates

would be low and that their mortgage pools were solid investments. But we now know that they were using the wrong data and no one wanted to dig too deep because they were afraid at what they might find.

Alex Davidson summed it up nicely "A big part of deter, fooled themselves with this data. It was the triumph of data over common sense. The Giant Pool of Money was also receiving confirmation for their continued investments through inaccurate credit ratings. The credit agencies were not using the correct data in their evaluations of these new mortgages. Investors believed the AAA ratings on these now known risky investments and didn't question the data because it supported what they wanted to hear. They looked at the projected returns and they Just could not buy enough of them.

In order to prevent the confirmation as from negatively impacting our decision making process we must have better knowledge of ourselves.

It is human nature to search for supporting information that backs up our beliefs and we must be able recognize this behavior. Being able to keep current opinions while also keeping an open mind to refuting evidence will allow us to make more informed decisions. This American Life report gives a great overview of the process that lead to the supreme mortgage crisis. It is easy to look back and say what were these people thinking but when you take a closer look at some of the eases involved involved the borrowers, the lenders and the investors are to blame.

The system Just seemed to lack the necessary checks and balances and finally spun out of control. In

the end the borrowers, the highly leveraged banks and the investors (Giant Pool of Money) all lost. By failing to recognize and adjust for these biases people continued down a very slippery slope. This story serves as a great example of how biases can have major large scale negative impacts in our world. Today, many people support increased bank regulations and more rules to protect homeowners.

Although these may help prevent similar occurrences in the future, I would prefer that the focus be put on transparency to the investors. The large Cod's were hiding a lot of "toxic waste" and very few if any investors would knowingly purchase such funds. Without buyers these funds would not have existed to the extent that they did and the NINA type mortgages would not have been offered to homeowners. There will always be individuals that will take advantage of a system but if investors know exactly what they are purchasing then they will not give opportunities for these issues to arise in the future.