I heard a rumour recently that banks were artificially pumping up house prices by using a shell company. The company contacts the defaultor on the mortgage, and offers to buy their property for an over inflated price. The bank gets the money, and if the house devalues, it will be off their balance sheet.
They have form, as this article regarding Northern Rock from the Telegraph proves.
“Other examples of a more cavalier approach to management also began to emerge. In March last year, he and other executives decided to book an extra £39m profit by selling an “insurance policy” – known technically as an interest rate swap – which was meant to protect the bank against rising interest rates and which could have lessened the effects of the worldwide credit crunch. In June, the bank set up a subsidiary called Kielder Property Management to buy its customers’ repossessed homes, potentially profiting from their woes. Others in the industry shied away from such practices.”
Makes you wonder where all the money from Quantitive Easing has been going doesn’t it? Also, wasn’t this the same type of thing that Enron were doing prior to their collapse.
Like I said, all a rumour…