There are those who say that Carter's and Clinton's emphasis on home
ownership by the underserving (my word) was the root cause of the whole
bubble, and some aspect may indeed be right. As I said before, in TX for
example the housing bubble was less, because of TX banking rules. Of
course, in LV it was speculation and gambling that caught up with people,
like someone I know there.
Similar I said, not identical, and I don't know why the 2007 bubble
wasn't caught earlier. I have personally been lucky to buy my homes when
I did, 1980 and 1998.
I agree Obama could have been stronger, but then he'd been a bully, most
Now, let's not conflate the housing bubble with tax and war policies.
They are separate. Unfortunately they are bad in a synergistic way,
meaning that the effects are more than just additive. The way to cure
them (IMO) would be to reverse loose banking rules and tighten them
again, and to reduce defense spending and emphasize technology to better
our economy and lives, rather than destroy them with more and deadlier
weapons, with the collateral damage of soldiers' lives destroyed. Mind
you, I favor Taliban punished, of whatever flavor.
There is no root cause. Like most every major cataclysm there are many
parents. Greed all through the homebuilding mortgage process, repeal of
Glass Steagal (BTW; low double digit dissenters in the House and on a
freaking voice vote in the Senate. BTW2: If you look at the current
people on both sides piling on about GS repeal, Barney Frank is the ONLY
one (not Reid, not Pelosi, etc) who actually voted against it). There
were a couple of other major changes in the laws other people point to,
all passed by large bipartisan majorities.
The S&L came about in three waves. The first was when inflation took
off and S&L started closing because the law said they could only do long
term mortgages while getting short term money. So, when inflation hit,
they had to pay 10% or above for savings accounts while having a huge
percentage of their mortgages at 5% or less.
In order to address that situation Congress (Dem at the time),
decided to let S&Ls do more than just home loans and other things to
diversify their income streams. They also decided to do some messing
with the tax codes making "investment" in commercial real estate more
attractive.. at least from a tax standpoint...
So, this expanded the S&Ls and others into commercial real estate.
Wave two came about when the tax codes were changed to retroactively
take away these tax breaks. Many of the commercial buildings were put up
mainly for tax purposes so what little underpinning they had was taken
out when the tax laws were changed. This was also great timing on the
part of Congress as they did this about the time of a recession and the
collapse of the TX oil fields. (This change just hastened a bubble that
was gonna pop anyway).
To address this, the regulators got into a bunch of deals with
healthy S&Ls to take over the unhealthy ones. The healthy ones did not
want to become unhealthy because of an inflow of lousy debt to their
balance sheets, so they came up with the concept of regulatory goodwill,
which is way too intricate to get into here.
This went along well for quite awhile as bad S&Ls were folded into
good S&Ls with very little monetary input from the government. Then
Congress took umbrage at this and outlawed the concept of regulatory
goodwill. Quite literally overnight, a large number of perfectly solvent
S&Ls became insolvent and were taken over. This was the largest wave.
That this was illegal was shown over the next 5 or 6 years as the
S&Ls who relied on regulatory goodwill (part of the contracts with the
regulators) won case after after case getting damages of at least $10
billion for breach of contract from the Feds.
America is at that awkward stage. It's too late
to work within the system, but too early to shoot
Again, you're wandering off. You said:
" I just find it curious that people who say they favor individual
responsibilities say it is all (or almost all) the Feds fault."
That was in direct response to my post where I said the
Fed is a very big one that should be added to the list of those
for the real estate crisis and recession. That sure seems to
imply that I said it's all or almost all the Feds fault.
So, if you're not referring to me, who are you referring to?
No one here said anything close. And in the media, over the
last 4 years, I've heard almost no blame pointed at the Fed.
He has been a bully, when it's suited his purpose and what he
chose to focus on. Witness Healthcare. There he was a bully,
yet still tossed the whole thing off on Congress and showed
no interest in the details of what was in it.
That's precisely the problem though. The Democrats, which
you identify with, are blaming the whole recession on the policies
of Bush. They are running on that right now. His tax polices,
which were approved by Congress, had nothing to do with
the real estate crisis and recession. Neither did the wars.
In fact, Obama was in favor of keeping the Bush tax rates.
After he was against it. Now he's against it again.
> The way to cure
Punish the Taliban is exactly what Bush did, yet here you
are bitching about war. What would you do, send a cake
to the Taliban and Al Qaeda. And again, you're muddling
together things that have no relation. The wars had nothing
to do with the speculative bubble in real estate.
As for emphasizing the "technology to better our economy
and lives", who the hell do you want to do that? Harry Reid?
Pelosi? Some govt bureacrat? The way you do that is
by not taxing people to death to waste money on stuff
that Congress and govt does not understand.
Your suggestions have a name, or at least a description: The government
decides which industries to favor. We see that now with everything from
Solyndra to tax credits for hybrid vehicles.
Someone should ask Japan how it worked out when the government picked
winners and losers.
And to add to that, as long as the prices went up, whether you screwed
up or not, no one cared in the industry. They knew what's going on.
It's only when prices go down, then the finger pointing begins.
Well, the problems were manyfold, but yes as long as a Ponzi scheme or a
bubble in the economy keeps getting more money in than out, nothing is
wrong. It only goes wrong when that's not so anymore, and both Ponzi
schemes and bubbles will (eventually) burst.
So what were the problems?
Overemphasizing that people who didn't qualify using the old rules (20%
down, income to cover costs of owneship, some proof of responsible
finances), should also be able to purchase. Now, perhaps some of those
should or shouldn't. Artists, self-employed, etc may have difficulty to
qualify. I don't know what the exact rules should be, what % of total
mortgages a bank should devote to them, etc. It is noteworthy that some
states had rules that prevented some of this, I think TX was one.
In an environment of flippers, appraisers were easily fooled/conspired to
overestimate values and hence mortgage values. Balloon mortgages and
teaser rates are especially dangerous. Bankers should be rewarded by the
quality of the mortgages, not the number or amounts.
Securitization of mortgages was done haphazardly to say the least, and
there were instances of willfull fraud (top emphasize the criminality).
SO what is the current news item that banks are giving auto loans to
subprime customers? The next bubblet?
Buying a house with less than 20% down isn't something new.
We had 10% down mortgages, for example, going back at least
to the 80's. I do think it's fair to say that the percentage of
issued with less than 20% down, with no income verification, with
low initial rates, etc had been rising for a long time.
As for overemphasizing that people who can't meet more
strict standards should get homes, who do you think is
to blame for that? If anything, don't the Democrats say
everyone is entitled to what they want, be it contraceptives,
healthcare or a house, and the govt not only should not
stand in the way, but has to make it all possible?
With the CRA, banks were being forced to make loans
in minority neighborhoods and if they didn't they were
supposed to be redlining racists, subject to stiff penalties.
Part of the problem is that you shouldn't have to know. The bank
or lender should know that. It's part of their business. But, we
have govt creations, ie Fannie and Freddie, where lenders can make
the loans and then pass them off to them. Even worse, Fannie and
Freddie in turn bundle those loans and some investor in Oshkosh or
Germany winds up owning them. They know nothing about the house
in Las Vegas, or what it's worth. And wall street came up with all
kinds of new derivatives to make that process possible. Derivatives
that it turns out were so complicated, few really understood them or
the risks. It's a different environment from 1950 when you went and
got a mortgage from the local bank and they continued to hold it.
No question there were some appraisers out there that
were grossly inflating appraisals. But the bigger part of it is
that the bubble justifies the appraisals. Going back to Las Vegas,
it's not the appraisers job to say "Look, $750K for that 4 bedroom
house seems high to me because it was only worth half that
10 years ago and you can keep building houses here in the
desert forever." It was his job to look at comparable sales
and since other houses were selling for around that, then
he appraises it at $750K.
They can be, but they also serve a purpose. Say a person has
a job with a company and they know they will be in their present
location for only 5 years, then moving or maybe retiring. They have
good credit, other assets, etc. So,
if they can get a mortgage with a low rate that lasts for that
period, it's a good thing for them. On the other hand, if you're
already on shakey financial ground and get a mortgage where
you can just barely keep up, that's clearly a bad thing.
It would seem to me they should be rewareded for both.
A banker isn't much good if they sit on their ass and
issue 10 sound mortgages. You want the banker that
can issue 500 sound mortgages.
That's the problem. There is always going to be the next bubble.
It's a product of free economies going back centuries. And a
related problem is that those in favor of big govt think that just
one more set of regulations is going to prevent it. We had
regulations and regulators in place. Look at the Fed. They got
off without any blame and it's their job to regulate interest rates
so that they don't create inflation or wreck the economy.
Their focus was on overall inflation. That remained very low,
so they kept interest rates very low. They ignored the housing
bubble that was feeding. They also ignored the stock market
bubble of 1999. We had Greenspan make a speech about
irrational exuberance, but they did nothing. They could have
raised the margin requirments.. And we were just lucky that
bubble didn't bring everything down with it when it collapsed.
So, do we need a lot of new regulations? Or do we just
need to give a kick in the ass to the ones we already have?
Yep. Drive down a street in the "disadvantaged" neighborhood of your town
(doors locked). On any given block, you'll see a pawn shop, a pay-day loan
office, a bodega, and a Bank of American branch.
Does anyone actually believe BOA or Wells Fargo or Chase put a branch where
the only passer-bys were hookers or crack dealers because it was profitable
to do so? Isn't it more likely that they were "encouraged" by the FDIC, the
Comptroller of the Currency, or some other government factotum?
I read what you wrote, and agree!! As for whether we need "new"
regulations? Perhaps not, but we need to enforce the letter as well as
the spirit of the law. There shouldn't be redlining, but then, there
shouldn't be generalizations either. However, the generalizations often
were generated on a hint or basis of fact. Use your own preferred
characterizations of Dems and Reps. GRIN!!
I think the actual situation was when the balloon payment kicked in, after,
say, five years of trivial payments, the homeowner noticed that the value of
his house increased dramatically during the period. He then re-finances the
house - at the higher price - with ANOTHER five year incentive mortgage.
This scheme worked until virtually everybody in the country had a house! It
was then that demand fell, and with it home prices.
And the excuse that:
"that job is beneath me"
is one form of proof of that.
I know an engineer who got off the boat as a new (refugee) immigrant on
Thursday, and by Monday was working at a meat-packing factory unloading salt
from a train.
Took him 2 years to learn enough English so that he could qualify for his PE
Within 5 years, he had started his own Consulting firm, which he sold about
20 years later for a bucketful of money.
Lessee. Young (illegal immigrants perhaps) people are scared away from a
state where laws were enacted to do just that. Openings for menial jobs
aren't filled because "that job is beneath me" according to the
unemployed. Hmm. What if menial jobs would pay better, have benefits,
and security? Yes, I know - it's supply and demand. IMO, changing the
"sweatshop" mentality might just help to get those unemployed working.
It WILL entail some inflation, which might be good so we caan pay of our
debts to China etc with cheaper dollars, just as we have always done.
Woe to the CD holders ...
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