This exchange with someone who parcelled up auto sub-prime loan illustrates how the banks hoped to make money out of sub-prime:
“Who’s paying 16 percent for a car loan?” I asked. The current loan rate was then around 8 percent.
“Oh, people who have defaulted on loans in the past. That’s why they’re called subprime,” he informed me.
“But if they defaulted on loans at 8, how can they ever pay back a loan at 16 percent?” I asked.
“It doesn’t matter,” he confided. “As long as they pay for a while. With all that excess spread, we can make a ton. If they pay for three years, they will cure their credit and re-fi at a lower rate.” The tales of how the mortgage traders behaved shows just how out of control this world was:
The article and everything else you hear about this world does make you think that there is a great novel to be written about this.“
“Traders had a contest. Coming in at eight, they never left their desks all day, eating and drinking while working. Then, at three o’clock, they marched into the men’s room and stood at the wall opposite the urinals. Dropping their pants, they bet $100 on who could train his stream the longest on the urinals across the lavatory. As their hydraulic pressure waned, the three traders waddled, pants at their ankles, across the floor, desperately trying to keep their pee on target.”