I'm not sure this qualifies as a diary entry, but I want to pose a question that I ask my friends and no one seems to be quite sure about it. Most people offer some kind of convoluted response, but I still don't quite understand. Knowing how intelligent and educated so many of you KOS readers are, I thought I'd try my question here. It is about economics, so here goes..........
Many people want to claim that the banking crisis is being caused by people failing to pay their mortgages, thereby creating a negative cash flow among the banks (or something to that effect). It seems that most of these people being foreclosed on are being victimized by their adjustable mortgage rates going through the ceiling so they can no longer meet the increased montly payments. Most of these people were able to make the payments before the interest rates adjusted.
So, why don't they freeze the interest rates and not allow them to adjust upward?
This would not only allow more people to keep their homes, but it would keep a cash flow moving through the banks. Why does this seem so simple to me and I never hear it discussed as an option?
Would anyone like to shed some light on this? I would appreciate a good explanation if anybody has one.
Thanks.