Armed Polite Society
Main Forums => Politics => Topic started by: roo_ster on January 16, 2011, 11:22:34 PM
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http://www.businessinsider.com/federal-reserve-housing-bubble-2005-2011-1#
"New minutes released today show Fed members were fully aware of the growing housing bubble in the U.S. in June of 2005."
Plus, see where current Fed Chairman Benny Boy was in 2005.
No real excuses to be made. Our political class is likely the crappiest political class in the USA's history.
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I think anyone with a brain knew about the housing bubble. Prices were rising too high, people were buying more than they could afford, because banks allowed them to.
I know I was saying "this market ain't gonna stay like this. Some of these people are gonna be screwed"
On a side note, my friend is trying to short sale his condo and get out of his loan, because he has a wife and kid now and needs more space. He owes 300k, it's worth just over 200k
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I think anyone with a brain knew about the housing bubble. Prices were rising too high, people were buying more than they could afford, because banks allowed them to.
I know I was saying "this market ain't gonna stay like this. Some of these people are gonna be screwed"
On a side note, my friend is trying to short sale his condo and get out of his loan, because he has a wife and kid now and needs more space. He owes 300k, it's worth just over 200k
Beat me to it... At one time even earlier than that I had 11 HVAC permits open on new construction. I was wondering where all the people were coming from that were going to buy these houses.
PS,,, now, right now, I have none. I have stuff coming though. Things seem to be picking up. Most of us have worked past the whole credit card fiasco for which we can thank my old friend Chris Dodd. I was just looking at my IRAs that I had to rob to quench all the sudden and MAJOR increases in CC rates. I want to go stuff it in his face. Maybe crumple it up and make him eat it. Oops, did I say that out loud? :O
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Of course the geniuses at the big banks kept loaning out money on homes that were bound to crash in value anyway. So much for the "free market".
I blame the banks who generated the paper for loans on homes that are now worth half the mortgage. Likewise, I blame the credit card companies for increasing rates. It doesn't take much looking to come to the view that the free market sometimes incentivizes abusive and unproductive behaviour on the parts of financial institutions.
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Remember, Dodd was head of the banking commitee through all that. Don't forget the cushy mortgages he got from the banks either. Your Fed at work. ;)
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Of course the geniuses at the big banks kept loaning out money on homes that were bound to crash in value anyway. So much for the "free market".
I blame the banks who generated the paper for loans on homes that are now worth half the mortgage. Likewise, I blame the credit card companies for increasing rates. It doesn't take much looking to come to the view that the free market sometimes incentivizes abusive and unproductive behaviour on the parts of financial institutions.
You mean my wife and I should have gone with the 300+K our mortgage lender approved us for and bought way more house than we could afford, instead of buying what we could comfortably afford? Darn those mean ol' banks for offering me more money than I could afford to borrow. And you mean I should have used a fancy ARM or even interest-only loan to do it, knowing there was a risk that the rate (and therefore the monthly payment) could go up?
(For those with the broken sarcasm detectors, the above was sarcasm. For those with functioning sarcasm detectors, sorry if they're smoking now.)
Seriously. There is some personal responsibility at work with the housing bubble. Do you really think you should be buying a 400K+ house with a 50K/year job??? I mean, yeah, I know that's what the lender said you were pre-approved (or pre-qualified) for, but seriously, there comes a point where you have to sit back and say, "Gee, can I really afford a $2,500/month mortgage payment???" Even if that's not what you were paying when you first bought it because you used an ARM, or worse, and interest-only mortgage, you have to know that it's a very real possibility that the payment is going to go up, and up significantly.
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What's getting lost in all of this are the threats to the banks by government that if they didn't make the bad loans, they'd be prosecuted. Once that box was opened, human nature took over. I just can't seem to understand people who refuse to understand that it was the government that got the ball rolling.
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Your fed at work.
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What's getting lost in all of this are the threats to the banks by government that if they didn't make the bad loans, they'd be prosecuted. Once that box was opened, human nature took over. I just can't seem to understand people who refuse to understand that it was the government that got the ball rolling.
That's the crux of the issue. The gummint decided that NOT allowing people to borrow a lot more money than they could ever hope to repay was "discriminatory," to they forced the banks to issue mortgages to people who were totally unprepared to handle the debt load.
But even this is nothing new. When he graduated from college back in the 1960s my younger brother went to work for Firestone Tire & Rubber Company in their management training program. His first couple of assignments were as office and credit manager for a couple of the Firestone tire and auto service stores nearby. He often ranted about the fact that, under the prevailing rules, he would NOT be allowed to grant our parents any credit ... because they always paid cash for what they bought, so they had no "credit history," yet if somebody came in who was in hock up to his/her eyebrows and wanted to drop another few thousand on tires and wheels (an amount any dimwit could see was going to push them well past their ability to pay their debts) he HAD to approve the credit.
Needless to say, he didn't last long with Firestone.
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There were people who were warning of a problem (the late Senator Moynihan, President Bush, and others) but they were either ignored or shouted down.
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How do you expect the FedGov to take advantage of a crisis if they don't let the crisis happen in the first place?.... =|
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Right, if it ain't broke break it so we can fix it. ;)
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I thought it was only the wacko Austrian economists on Lew Rockwell etc that were warning about the housing bubble ??? ;/
I remember right here on APS that the "wackos" were getting shouted down by the know-it-alls saying "the economy has never been better" and "this will never end" [barf]
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What's getting lost in all of this are the threats to the banks by government that if they didn't make the bad loans, they'd be prosecuted. Once that box was opened, human nature took over. I just can't seem to understand people who refuse to understand that it was the government that got the ball rolling.
+1 X 10²
Me too on that!
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I think anyone with a brain knew about the housing bubble. Prices were rising too high, people were buying more than they could afford, because banks allowed them to.
I know I was saying "this market ain't gonna stay like this. Some of these people are gonna be screwed"
I got in a HUGE fight with my girlfriend back in 2006 over this very issue. We were house-shopping, and between the two of us we were doing dang well for income... DINKs to the max.
Come across some 3000+sq-ft monstrosity with 6 bedrooms, home offices, living room, family room, sitting room, dining room, billiards room (pet giraffe room, lion feeding room, elephant exercise track in the backyard, etc ;/ ) and it was $425K.
It was me, her, and two mid-sized dogs. WAY too much house. And the price tag was terrifying. It was a lot of house, but it was in the northwest sticks of the Phoenix metro area and a hell of a commute for her (half-a-hell of a commute for me).
I put my foot down on it, and I limited all of our searches from that point to houses under $300k. I thought that was the limit I was willing to finance considering the beginnings of a down-trend in market prices, and a gut feeling that it was all going to swoosh down the drain pretty soon anyways.
I think that's one of the things that tore that relationship apart, but I'm glad I put my foot down in the long run. I now have a great house for only $160k financed, the mortgage payment isn't any worse than rent for a nice 2 bedroom apartment with attached garage, and I'm not terribly worried about the liquidity of the house.
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Yeah, I could have qualified for way more than $110K back in 2003 ;)
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don't forget the bankers that sold people(yes i'm calling it indentured servitude) into ARMs, under the pretense of low interest rates. knowing the rates would at least double, and the sheep were illiterate or close enough to it not to understand the adjustable part of the mortgage.
even with barney's threats the banks could have said "the payment is going to be (insert real payment amount here)" and prevented the crash.
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I'm probably repeating myself when I recall that, in the early 90's, I qualified for about $300,000. I wouldn't go over $100,000, and I'm glad I didn't. When I had to close my business I was still able to make the mortgage payments. On a $300,000 mortgage that wouldn't have been possible.
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Of course the geniuses at the big banks kept loaning out money on homes that were bound to crash in value anyway. So much for the "free market"....It doesn't take much looking to come to the view that the free market sometimes incentivizes abusive and unproductive behaviour on the parts of financial institutions.
You have to keep looking past the short term, there, bubba. No one ever claimed that a free market worked perfectly, just that it corrects itself and allows idiots and bad actors to reap their due. Also, you can't ascribe to the free market what is due to government intervention. But we all know you're just lying about that part. Whatever.
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You have to remember that the gravy train was a win/win for everyone. The banks got to invent all those wonderful voodoo loans, the mortgage insurance companies got paid, .gov/.state/.county got their taxes and fees. All the realestate agents and brokers got their % and the loan officers got their bonus. Not to mention the sellers who sold at the height of the market. My uncle bought his house in Simi Valley Ca. in the 1960's. He sold it 2005 at top of the market.
On the flip side of this, my wife and I are looking for a little farm to move to. The extremely low prices has made that dream affordable.
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What's this nonsense of a free market in home loans? Where do you get that? The real estate bubble was a creation of a cartel consisting of the legislature, quasi-governmental agencies, private banks, investment houses, and all with a wink and nod from so-called regulatory agencies. The real estate bubble is an example of institutional corruption some of the founding fathers saw when the constitution was being debated. A free market has nothing to do with the failure we see.
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I find it amusing that after all those years of government striving for "affordable housing", doing all the wrong things to keep housing affordable, it was the market that finally delivered cheap houses. Granted, the delivery was nothing like what the Franks and Dodds of the world were hoping for, but still, voila, affordable houses.
And now that we have real affordable housing, they're doing everything they can to push housing prices back up.
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It would be nice if more people had jobs so that they could afford that affordable housing.
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When people I knew who dabbled in art started getting real estate licenses I knew The End was Near.
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Government programs do not explain why a bank would loan, say, $300,000 on an asset that was obviously going to be worth less than that in a few years' time. That happened with everyone's loans, not just government-promoted low income loans (which, btw, have a lower default rate than loans outside the auspices of the CRA).
There's no Government program that made it financially sensible to loan more money on an asset than the asset could possibly secure; the only possible explanation is either that the bankers were too dumb to realise it was a bubble, or they expected to be able to saddle someone else with the losses in the marketplace.
It's all well and good to say that the market corrects this, but when "correction" means ruining the entire financial system and impoverishing the country for the foreseeable future, it's time to reassess your chosen economic model. That is precisely what was going to happen were it not for government intervention into the mortgage/security scam, which, again, had nothing to do with government-sponsored loans.
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Government programs do not explain why a bank would loan, say, $300,000 on an asset that was obviously going to be worth less than that in a few years' time. That happened with everyone's loans, not just government-promoted low income loans (which, btw, have a lower default rate than loans outside the auspices of the CRA).
There's no Government program that made it financially sensible to loan more money on an asset than the asset could possibly secure; the only possible explanation is either that the bankers were too dumb to realise it was a bubble, or they expected to be able to saddle someone else with the losses in the marketplace.
It's all well and good to say that the market corrects this, but when "correction" means ruining the entire financial system and impoverishing the country for the foreseeable future, it's time to reassess your chosen economic model. That is precisely what was going to happen were it not for government intervention into the mortgage/security scam, which, again, had nothing to do with government-sponsored loans.
You're not being in the USA and only getting some info via the MSM and a few web sites has skewed your understanding.
For instance, my house has appreciated since the housing slump. At roughly the same rate as before. The kicker is twofold: my house did not appreciate as much as the houses in the CA & FL & Vegas markets did before the bust and our neighborhood has very few home owning low-income minorities of the sort the CRA (& associated gov't programs) tried to "help."
The housing bust is mostly in CA, FL, Vegas and a few other markets. Not only that, foreclosures are concentrated in a a few zip codes in the effected states.
In my area, there are a few places where the housing values have slumped and it is predictable that they are in CRA-"helped" minority enclaves and McMansions at the edge of development, where one can drive 1/4 mile further and build new.
All causes lead back to gov't:
1. CRA & regulatory bullying
2. Capture/Corporatism with gov't (think Dodd & Bawney Fwank)
3. Fannie & Freddie
4. Risk evaluation of F&F bundled crap loans by entities pressured to rate them cheap
5. Land use regulation & construction regulation driving up cost to build locally
Accusing bankers & the market for this is like accusing Krupp & BMW for WWII. They had no power to make national policy and had no gov't goons to threaten violence if they did other than the gov't desired. They ended up instruments of gov't power & policy.
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Rooster, your latest post seems to contradict the point of the OP, which was that there was a housing bubble. Now you're claiming there wasn't really, it was just a few areas and CRA loans (which were never a large percentage of the market, and, incidentally, have lower default rates than other loans.)
I was in the United States for the crash, but yeah, the widespread crash in home values is not an MSM invention, as your OP plainly states. Neither is the percentage of homes which are now under water on their mortgages. All of those homes whose mortgages are under water represent loans where the banker lent more money than the security could support.
The idea that banks couldn't influence policy, but poor minority neighbourhoods could, is simply preposterous. It is so unreasonable as to be beyond discussion.
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...have lower default rates than other loans.)
Source?
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Source?
http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf (http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf)
Compared to other lenders in their assessment areas, CRA Banks were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio. Moreover, branch availability is a key element of CRA compliance, and foreclosure rates were lower in metropolitan areas with proportionately greater numbers of bank branches.
http://traigerlaw.com/publications/The_community_reinvestment_act_of_1977-not_guilty_1-26-09.pdf (http://traigerlaw.com/publications/The_community_reinvestment_act_of_1977-not_guilty_1-26-09.pdf)
Instead, our analysis of 2007 data indicates that the percentage of LMI applications that were originated by CRA-subject banks remained stable even in the climate of heightened scrutiny and wariness that prevailed. This finding contradicts the notion that compliance with the CRA is dependent on imprudent lending.
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Thank you.
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Government programs do not explain why a bank would loan,
Yes, actually, they do.
There's no Government program that made it financially sensible to loan more money on an asset than the asset could possibly secure
Yes, actually, there were, multiple of them.
That is precisely what was going to happen were it not for government intervention into the mortgage/security scam, which, again, had nothing to do with government-sponsored loans.
Yes, actually, it did have something to do with government intervention. Quite a large something, in fact.
We've been over this before. Your repetition of these same errors don't make them any more true.
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Rooster, your latest post seems to contradict the point of the OP, which was that there was a housing bubble. Now you're claiming there wasn't really, it was just a few areas and CRA loans (which were never a large percentage of the market, and, incidentally, have lower default rates than other loans.)
I was in the United States for the crash, but yeah, the widespread crash in home values is not an MSM invention, as your OP plainly states. Neither is the percentage of homes which are now under water on their mortgages. All of those homes whose mortgages are under water represent loans where the banker lent more money than the security could support.
The idea that banks couldn't influence policy, but poor minority neighbourhoods could, is simply preposterous. It is so unreasonable as to be beyond discussion.
Every time we discuss this and every time I have to say:
It's not just CRA. It's three government sponsored "corporations" that buy up bad mortgages: FNMA, GNMA, FHLBB.
A bank is more than willing to give out a bad loan when it knows some sucker will buy that bad loan.
Government doesn't have to force people to do things with regulation such as CRA. It can also just tell the banks, "Hey, we'll buy all those bad loans and give them government backing!"
And, lo and behold, lots of bad loans result.
There's a reason we're looking at over half a trillion dollars to bail out Fannie and Freddie. (But of course, let's just keep demonizing the banks for responding to incentives.)
Again, and again, and again, incentives matter.
(And looks like HTG said things more succinctly than I did.)
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I'd advise anyone reading shootinstudent's law firm studies to think critically before accepting what they say as correct or relevant. He's posted them before, but repetition doesn't improve truthiness.
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I knew that and was asking "Where is all this money coming from?" in 02. My house for tax purposes went to 185k and is now down to 64k? I paid, too much in 1989 when I bought this house for 49k.
And I'm not the sharpest knife in the drawer.
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Rooster, your latest post seems to contradict the point of the OP, which was that there was a housing bubble. Now you're claiming there wasn't really, it was just a few areas and CRA loans (which were never a large percentage of the market, and, incidentally, have lower default rates than other loans.)
I was in the United States for the crash, but yeah, the widespread crash in home values is not an MSM invention, as your OP plainly states. Neither is the percentage of homes which are now under water on their mortgages. All of those homes whose mortgages are under water represent loans where the banker lent more money than the security could support.
The idea that banks couldn't influence policy, but poor minority neighbourhoods could, is simply preposterous. It is so unreasonable as to be beyond discussion.
:facepalm:
DeSelby, the GOVERNMENT did the "arm-twisting," not the "poor minority neighborhoods." When Janet "Sterno" Reno threatens to come after you if you don't start making more loans, you pay attention.
All this "bad debt" or "empty debt" got bundled with other financial devices and passed around. Eventually, the house of cards all came down.
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The idea that banks couldn't influence policy, but poor minority neighbourhoods could, is simply preposterous. It is so unreasonable as to be beyond discussion.
This is priceless, the notion that bankers are all powerful and that it's inconceivable that politicians would use public policy to seek favor from poor people.
I think your remark, and the world view it embodies, sums up the overall error in judgment quite nicely.
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Rooster, your latest post seems to contradict the point of the OP, which was that there was a housing bubble.
Not contradictory, but elucidatory.
Not too complex to begin with, but I'll boil it down:
Places that had fewer folks who got high-risk loans had less of a bubble to burst.
In my case, not only was there no bubble of the neighborhood's housing prices, but land-use regulation is relatively easy, there is more land to build on, and the state's economy is doing better than 48 or 49 other states.
Localities that had the perfect storm of gov't interference in the many aspects of the housing market got to take it in the face, good & hard.
When newscasters with important hair state that, "Housing prices have fallen 26% since the housing bubble burst," that is across the nation as a whole. In my neighborhood, they are up 10-20%. In some neighborhoods in California, they are down 50+%. Some condo blocks that have even lost their condo association, they are down 75%-90%.
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One reason that there is talk of a "nationwide housing bubble" is becasue the newswhores all live on the coasts, where there really was a monster bubble. Places like Texas, Iowa, N Dakota...not so much. We just get to pay for the moral & financial incontinence of the coasts.