Sunday, September 28, 2008
Many home owners used interest only loans to buy their house. If they are only paying the interest only, doesn't that just make them a renter? If a borrower defaults, then the bank becomes a real-estate agent. A bank is not in business to sell real estate. In Econ 1o1 economists like to say that you should produce in the area of your comparative advantage and specialize. In competitive market theory, venture capitalists will sniff profits like a rat smells cheese and enter the market to grab profits. Since there's easy exit with nearly costless sale of assets, the easy credit naturally attracted some seedy characters like Fast Freddy in the cartoon.