Decapitalization

A term used in the course of the subprime crisis: – Banks in the USA grant loans for house construction and house purchase to almost everyone (sub-prime addresses), because they take hardly any risk, – namely by placing the claims from the loans in a pool, transferring this to a special purpose entity, where the total of the amounts in the pool is divided up (repacked; tranched) and sold all over the world as securitized securities, as a result of which – the demand for residential real estate in the USA increases and the market value of the houses rises overall, causing many homeowners to take out an additional mortgage; In the USA, it is common to borrow up to one hundred percent of the market value of a house – in Germany, the limit is usually sixty percent – and – to spend the loan paid out on the purchase of consumer durables such as washing machines, refrigerators, and furniture and on travel; capital is thus converted into consumption. – As soon as the market value of the house falls below the mortgages on it, the homeowners move out and send the key to the creditor bank. – See Absence Capitalism, Defeasance, De-saving, Home Equity Loan, Jingle Mail, Luxury Consumption, Mortgage Equity Withdrawal, Ninja Loans, Panic Sales, Subprime Lending, Lemon Trade.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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