October 31, 2011

Italian Subprime Follies

The Italian government is designing measures to boost the economy. Amid the measures announced there is a still vague resolution trying to boost young people mortgages with a full guarantee, it seems they are thinking to give triple-A ratings to mortgages contracted by young people with temporary or occasional jobs if they want to apply for a first house mortgage, government will back up all claims acting as a guarantee to such mortgages which normally would never be approved by banks.
Does it sound familiar? Well if details will be confirmed it could be another subprime bubble in the making allowing banks to recapitalize their shattered finances with interests on loans that have a high probability of default given the precarious financial status of the borrowers but that nonetheless as in the subprime crisis will be wrapped of a sovereign guarantee.
It will certainly boost a vast range of fraudulent activities and insane speculations which will allow banks to recapitalize themselves and developers to get rid of empty estates for a while until the bubble will explode with the same consequences we have witnessed in 2008 during the subprime crisis.

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