What is money

This is a video that actually tells us how money was created

Renewable energy

It might be quite intriguing that why renewable energy is not that prevalent and why we have not achieved much in that field ...Lets ponder upon and put some light on where we are right now and where can we be in another 10 years.. I am right now collecting data for analysis and will try to come up with some news that can make it easier to understand for a layman... I encourage readers to come up with information that could add more light to this topic..

Mortgage crisis

What is the mortgage crisis ? Why is there so much hype because of this.. How does this affect our economy.

This piece of information is collected from wikipedia :

The subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the global banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. The crisis began with the bursting of the US housing bubble^[3][4] and high default rates on "subprime" and other adjustable rate mortgages (ARM) made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. Loan incentives and a long-term trend of rising housing prices encouraged borrowers to assume mortgages, believing they would be able to refinance at more favorable terms later. However, once housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as ARM interest rates reset higher. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.^[5]

The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $435 billion as of July 17, 2008^[6][7]. Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined. Stock markets in many countries declined significantly.

The widespread dispersion of credit risk and the unclear effect on financial institutions caused lenders to reduce lending activity or to make loans at higher interest rates. Similarly, the ability of corporations to obtain funds through the issuance of commercial paper was affected. This aspect of the crisis is consistent with a credit crunch. The liquidity concerns drove central banks around the world to take action to provide funds to member banks to encourage the lending of funds to worthy borrowers and to re-invigorate the commercial paper markets.

The subprime crisis also places downward pressure on economic growth, because fewer or more expensive loans decrease investment by businesses and consumer spending, which drive the economy. A separate but related dynamic is the downturn in the housing market, where a surplus inventory of homes has resulted in a significant decline in new home construction and housing prices in many areas. This also places downward pressure on growth.^[8] With interest rates on a large number of subprime and other ARM due to adjust upward during the 2008 period, U.S. legislators, the U.S. Treasury Department, and financial institutions are taking action. A systematic program to limit or defer interest rate adjustments was implemented to reduce the effect. In addition, lenders and borrowers facing defaults have been encouraged to cooperate to enable borrowers to stay in their homes. Banks have sought and received over $250 billion in additional funds from investors to offset losses.^[9] The risks to the broader economy created by the financial market crisis and housing market downturn were primary factors in several decisions by the U.S. Federal reserve to cut interest rates and the economic stimulus package passed by Congress and signed by President George W. Bush on February 13, 2008.^[10][11][12] Both actions are designed to stimulate economic growth and inspire confidence in the financial markets.

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Okay this definition might be really overwhelming for some people. In simple terms it can be explained as " people loan out large sums of money for buying a house/ apartment and they are not able to pay back.. Now the question arises why are they not able to repay and how does the bank give money to some one who cannot pay the money back. This where the scammer's come into the. To my understanding there are 2 type of scammers one is the real estate brokers and small loan agents and the other is the local gang and the public. Lets take an example if a couple wants to buy a house and they have a poor credit history , the bank normally doesn't give them a loan to get an apartment / house. But these people go to the nearby lenders and try to get a loan. The local lenders pressurize the bank and they acquire a loan . Down the line the couple defaults the loan payment due to other reasons and now the house comes for acquisition and when the house is out for sale there is a case that the lending firm could make more money if the land price has appreciated and they are able to sell it at a better price...But most cases the price drops causing a loss of few tens of thousands of dollars. In another case there are some scammers who just raise the value if the house by a few thousands and sell it out to buyers who are less experienced. If the new buyers are not able to pay the mortgage then the bank comes into scenario and are rattled to see that the house had been bogus deal and they lose thousands of dollars. This scenario has caused serious losses to the banks these days..

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A few examples of scammers collected from money.cnn.com

Confessions of a Subprime Lender: 3 Bad Loans

by Les Christie
Thursday, July 17, 2008provided by

In his new book, author and ex-lender Richard Bitner owns up to some of his worst mistakes, offering an inside look at how his firm issued bad mortgages.

NEW YORK (CNNMoney.com) -- Richard Bitner opened his own mortgage shop in 2000, and had the good fortune to bail out of the business in 2005, before the housing crisis hit.

He saw the shoddy lending practices that got us into this crisis first hand, and has chronicled them in his book, "Confessions of a Subprime Lender." By the time he quit, said Bitner, "Lending practices had gone from borderline questionable to almost ludicrous."

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He and his two partners ran Dallas-based Kellner Mortgage Investment, a small subprime lender that issued about $250 million in loans annually. The firm worked through independent mortgage brokers, and then sold the loans it closed to investors or to larger lenders, such as Countrywide Financial, which was recently bought by Bank of America.

Bitner, like so many other subprime lenders, was drawn to the field by the fat profits it promised - these loans paid three to five times more than prime loans. But, says the 41 year-old married father of two, he also took pride in the idea that he was helping people with damaged credit become homeowners.

Still, things eventually got out of control.

The Last Straw

One of Bitner's last clients, which he says was turning point for him, was Johnny Cutter and his wife Patti, from South Carolina. The deal illustrated what had become the fundamental problem with subprime lending: Nobody was bothering to determine whether borrowers could actually afford to make their payments. And so the Cutters, like millions of others, became a foreclosure waiting to happen.

"What really got to me," said Bitner, "is that we [usually] put people in positions to not fail. This loan didn't fit that."

The Cutters wanted a loan to buy a newly built, 1,800 square-foot house, but had been turned down for a mortgage twice because of bad credit. After that, they scrimped for three years and saved enough for a 5% down payment.

But, they still had only $2,200 in combined net monthly income, poor credit and employment histories, almost zero savings and no history of even paying rent. Their mortgage payment, property taxes and insurance came to $1,500, leaving them just $700 a month for all other expenses.

Patti fell ill right after the closing and the couple never made a single payment. Since the Cutters defaulted immediately, Kellner Mortgage was contractually obligated to buy the loan back from the investor it was sold to. That was a huge expense for the small lender.

When Bitner reviewed the loan to find out where his company went wrong he was shocked to see that, technically, no mistakes were made.

Neither the borrower nor the mortgage broker did anything dishonest or fraudulent to obtain the loan. The home's appraised value was correct, and the income stated on the application was accurate.

But the fact was that the Cutters simply didn't have enough income to handle this mortgage - the loan never would have been approved a few years earlier.

Their debt-to-income ratio was 54%, way higher than the 36% that most mortgage lenders recommend. But Kellner Mortgage made the loan because the firm knew that loose investor guidelines meant that the mortgage could be resold, at a profit of course.

"We were ultimately driven by the investor guidelines," said Bitner. "If it fit we closed the loan. It was an indication of how far the industry was willing to go."

In the end, the Cutter deal cost Kellner Mortgage $90,000.

Richard Bitner

Pump and Dump

In another highly regrettable deal, Bitner's company was simply scammed.

A criminal crew found a house, bought it for $140,000, and then resold it to a straw buyer for way more than it was worth - $220,000. To get a mortgage, the buyer used an appraisal for an entirely different, and much more valuable, property.

"The broker, buyer, appraiser, and realtor all conspired to perpetrate this fraud," said Bitner. Indeed, just about all the documentation was falsified.

The group collected the $220,000, and, minus their $140,000 outlay, disappeared with $80,000.

Kellner Mortgage wasn't aware of any problem until the investor that bought the loan set about investigating when it went unpaid. The investor sent Kellner a letter detailing the ruse and demanding that Bitner's firm make good on the loan.

Said Bitner, "You read through this letter and you see that the income statement was phony and the appraisal was on another house and you say to yourself, 'Am I a moron?'"

That cost the company about $100,000.

The Whole Truth

Of course, brokers dying to make deals also played a big role in pushing bad loans. Often they withheld or misrepresented information lenders needed to accurately assess a loan's risk.

"With so much money involved, people were willing to fudge to make deals work," Bitner said.

The Robinson's broker was a perfect example. The couple, who were divorcing, wanted to refinance their home, which had increased in value, and to take out $25,000 of that added home equity as cash. The plan was that Mrs. Robinson would keep the house and Mr. Robinson would get the cash.

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Although the Robinson's told their broker about their split, the broker chose to not inform Kellner Mortgage of that detail, which would have been a deal breaker. Mrs. Robinson could never qualify for the mortgage based on her income alone, and indeed she defaulted soon after the loan went through, costing Bitner's company $75,000.

While dishonesty was rampant, the mortgage brokerage industry also suffered from plain incompetence. Many of the new brokers flooding the industry just knew the basics.

Bitner said his loan coordinator at Kellner, Annie Nguyen, once told him, "I had a loan officer ask me if we really needed an appraisal before closing. I thought he was joking."

Clearly, he wasn't.

The lack of professionalism, the crazy loans, the finagle factor and the open fraud finally drove Bitner from the business. Although he escaped the worst of the mortgage meltdown, the company he founded did not; it folded in early 2007.

You can find it memorialized on the Implode-O-Meter, an online list of mortgage lenders that have shut down since late 2006. Look for number 44.

This is my first blog and I am new to blogging. This blog has been created just for seeing the co-relations I see in life . I am putting in information from various news sources and trying to analyze how things work around us.