You can just imagine the conversation. The approaching-retirement couple are assured by the financial planner/banker that, even if the worst case scenario occured – the mortgages (surely one of the most secure investments) went into default – the investment was still backed by the property. So yes, it is a conservative investment.
It sounds good to the couple (it would sound good to me!) so they hand over most of their nest egg and the funds are then lent out ultimately to people who don’t have the best credit, but want to buy a home.
Everyone wins. The people who need a mortage but don’t qualify through the usual lenders get a home. The investors make a reasonable rate of return, with the property to back it up. It’s all good.
Except the worst case scenario indeed happens. Over and over again. And next thing you know you’ve lost a massive part of your life savings.
Now what? Who pays?
According to the globe and mail, Canadian banks have agreed to lend billions of dollars in a plan to staunch the blood, in exchange for a legal bill that disallows any lawsuits against them.
Readers: what is your opinion? At the end of the day, is this an investment risk like any other? Should the investors bear the brunt, and the responsibility, of this debacle? Or should they be allowed to sue the banks and institutions that sold them the product?