Did the Government cause the current Housing/Mortgage Crisis? (employment, Putin, generations)

[Ludachris]

Originally Posted by backfist

I'd say the next industry to be deregulated with lightning speed will be the alternative energy industry. It's a new "market", the giants and barons are few, and it's ripe for Wall Street thugs looking for the next big score. All they need is Uncle Sam's blessing.

You're probably right.

[Tricky D]

Originally Posted by anifani821
Let's face it. Many people were irresponsible.

Be that as it may, can you blame people when the system encourages people to make a buck any which way you can as long as it is legal?
As far as I know exploiting other people’s ignorance is not illegal, especially when you state that everyone is responsible for his own decisions.
Besides the only way to make a profit is by exploiting the weakness of others.
Like the Mafia says: It's only business, nothing personal.


I guess the problem is that when an economical system allows people to buy houses (or any other commodity) they can't afford the current Housing/Mortgage Crisis will be the only end result.
( Ooohh new icons!) Somehow people still believe that anything is possible or that God will always provide.

My question now is did America suddenly become a socialist country since the American government is forced to clean up the mess?

[Niners fan]

I would assign the blame as follows:

1) The Federal Government - It extorted the banks to make loans to people who could not afford homes in an effort to increase home ownership among minorities and poor families. This extortion began under the Clinton administration but continued under Bush. It might be a noble ambition but forcing equality of result is generally a bad idea. The noted economist Thomas Sowell pointed out that minorities were not being discriminated against on home loans because their default rate was roughly the same as white homeowners. If they were being screened by tougher criteria then their default rate would be lower. Then on top of the extortion the Federal Government guaranteed these ridiculous loans. So the entity charged with ensuring that corporations didn't endanger the stability of the financial markets simply failed the public.

The Federal Government also should have reigned in the Fed and its constant cutting of interest rates.

2) The Federal Reserve Chairman - It is funny to hear Greenspan describe this crisis as if he were just a bystander over the last 15 years rather than the one who was driving the train. The Fed has been so concerned about a recession that it has artificially propped up the market and in so doing has just postponed the fall and ensured that it will be worse when it happens. Not only did Bush not speak out against Greenspan's philosophy but he appointed a Greenspan disciple in Bernanke.

3) Homeowners - To the extent that a particular homeowner was defrauded then I would give that person a break. However, I fear that we are so regulated in this country that consumers have become complacent about looking out for themselves. To those homeowners that took out an ARM and had no idea how they would afford the higher payment when it reset, I have little sympathy for them. To those who took out a ton of money to buy stuff, I have little sympathy for them. To those who bought a home with an interest only loan and figured they could sell the house in a couple of years and put a nice down payment on another home, well, your gamble lost. Take some personal responsibility, people.

4) Mortgage Companies - To the extent that they defrauded a particular homeowner I would hold them responsible. To the extent they made silly loans then I don't feel sorry for them. However, if a company is being threatened with a lawsuit by the Justice Department if they don't loan to more unqualified people then what is a company to do, especially if their competitors are caving? We know what corporations are. They exist to make money and in that sense they are very predictable. There is nothing wrong with trying to make a profit. It creates jobs and creates wealth which is the only way to truly fight poverty. Do I think a CEO should run a company into the ground and walk away with millions shortly before the crash? No.

It is encouraging to see so much of the public outraged about the bailout plans being touted. I wish I thought it would mean that the voters will clean house in November. Unfortunately, I would guess that most incumbents will be voted back into office.

[rlchurch]

Originally Posted by backfist

I'd say the next industry to be deregulated with lightning speed will be the alternative energy industry. It's a new "market", the giants and barons are few, and it's ripe for Wall Street thugs looking for the next big score. All they need is Uncle Sam's blessing.

The "alternate energy" market has never been "regulated" in any meaningful sense.

[saganista]

Originally Posted by Niners fan

I would assign the blame as follows:

An interesting albeit flawed version of history. Fannie Mae (the Federal National Mortgage Association) was created in 1938. Freddie Mac (the Federal Home Mortgage Corporation) was created in 1970. Bill Clinton was not President during either of those years. Expansion of home ownership opportunities has meanwhile been an objective of every admninistration since WWII.

No effort was ever made to force mortgage lending to unqualified borrowers. Plenty of pressure was put on mortgage lenders to end the discriminatory practice of refusing to lend to anyone in a particular neighborhood, regardless of their qualifications.

The Federal Reserve lowered its target interest rates in response to the deepening First Bush Recesssion and the effects of 9/11. When the stimulus that had been anticipated from the first round of Bushie tax cuts failed to materialize, further rate cuts became necessary in order to deal with the recession. This was proper monetary policy trying to make up for a deeply flawed fiscal policy.

Homeowners had no reason to expect that ARM's would reset in the way that they eventually did. The federal funds rate went from 1.00% in June of 2004 to 5.00% in June of 2006. What factors knowable at that time would have led 2002-2004 borrowers to anticipate that such a thing would happen?

Mortgage brokers may have indeed been guilty of deceptive practices with respect to borrowers, but the far larger fraud that they committed was perpetrated upon secondary market buyers, nearly all of whom were passed tainted securities. Indeed, these brokers did exist only to make money, and their behavior was no more craven or rapacious than might have been expected from those with such limited objectives.

Originally Posted by Niners fan

It is encouraging to see so much of the public outraged about the bailout plans being touted.

It is discouraging to see so many so completely misunderstand where we are and how we got here. We are either at or rapidly approaching the point at which none of anyone's philosophical niceties are going matter one iota. We need to keep the boat from going over the falls. We can sort out all the rest of it once we're in calmer waters.

[Niners fan]

Originally Posted by saganista

An interesting albeit flawed version of history. Fannie Mae (the Federal National Mortgage Association) was created in 1938. Freddie Mac (the Federal Home Mortgage Corporation) was created in 1970. Bill Clinton was not President during either of those years. Expansion of home ownership opportunities has meanwhile been an objective of every admninistration since WWII.

No effort was ever made to force mortgage lending to unqualified borrowers. Plenty of pressure was put on mortgage lenders to end the discriminatory practice of refusing to lend to anyone in a particular neighborhood, regardless of their qualifications.

This was posted on the first page of this thread but here it is again:

Bill Clinton's drive to increase homeownership went way too far - BusinessWeek

To me our current problem really has its genesis in 1994 when the Clinton administration pushed the design of "creative measures" to increase home ownership. Basically they lowered the standards for financing rather than aiming to help people meet the higher standards. Typically liberal way of thinking. Now some of those same liberals want to act like they (Congress) are the only ones who can save us. Now, this is not strictly a partisan issue. The Republicans have been standing by watching, or in some cases, notably Bush, have continued the same feel-good policies. This is a good example of why "experience" is often overrated in politics.

Originally Posted by saganista

The Federal Reserve lowered its target interest rates in response to the deepening First Bush Recesssion and the effects of 9/11. When the stimulus that had been anticipated from the first round of Bushie tax cuts failed to materialize, further rate cuts became necessary in order to deal with the recession. This was proper monetary policy trying to make up for a deeply flawed fiscal policy.

If the Fed had allowed the economy to take its course we likely would have had a mild recession (aka a market correction). That is better than artificially propping up the economy with rate cuts because at some point the correction is going to happen and now it will be worse than it would have been.

Originally Posted by saganista

Homeowners had no reason to expect that ARM's would reset in the way that they eventually did. The federal funds rate went from 1.00% in June of 2004 to 5.00% in June of 2006. What factors knowable at that time would have led 2002-2004 borrowers to anticipate that such a thing would happen?

It sucks to be them. I have a house I am trying to sell that now appraises for half of what it would have one year ago. It is likely not going to sell for what I paid for it four years ago. It sucks to be me then too. But the last thing I want to see is the government to bail out me or anyone else. We made decisions and it is not the responsibility or even the right of the government to secure my investments.

Originally Posted by saganista

Mortgage brokers may have indeed been guilty of deceptive practices with respect to borrowers, but the far larger fraud that they committed was perpetrated upon secondary market buyers, nearly all of whom were passed tainted securities. Indeed, these brokers did exist only to make money, and their behavior was no more craven or rapacious than might have been expected from those with such limited objectives.

Agreed. Fines and jail time would be fine with me.

Originally Posted by saganista

It is discouraging to see so many so completely misunderstand where we are and how we got here. We are either at or rapidly approaching the point at which none of anyone's philosophical niceties are going matter one iota. We need to keep the boat from going over the falls. We can sort out all the rest of it once we're in calmer waters.

You might be right. At the same time there is a danger of government becoming too involved and making things worse. Government has a history of making things worse. No collection of politicians are as wise as the invisible hand of the market. But, this is not to say the government doesn't have a job for minimal oversight. Adam Smith himself acknowledged that.

I am also concerned that if the government does too much to shield people and companies from the consequences of their choices that it will not discourage future reckless behavior. I knew several people who said several years ago that they were not worried about their mortgages because too many people had loans like theirs for the government not to intervene. The bailout of Chrysler was often cited in these conversations.

[aus10]

Originally Posted by saganista

Homeowners had no reason to expect that ARM's would reset in the way that they eventually did. The federal funds rate went from 1.00% in June of 2004 to 5.00% in June of 2006. What factors knowable at that time would have led 2002-2004 borrowers to anticipate that such a thing would happen?

I would like to know just how many of these ARM's did not have an adjustment and lifetime cap? Our first home loan (1984) was a 3-year ARM at 13.5%. But I knew that it had a 2% cap per adjustment, with a 5% lifetime cap. Granted, we are not talking about a mansion, we are talking about a home that cost less than our annual salary, but I knew that I could afford the payment even with a 5% increase. Didn't most folks take the two or three minutes if would have taken to ASK what happens if this goes up???

[AnalyzeThis]

What a lively debate and many different interesting opinions. Here is MY personal opinion. After the first year when housing values jumped 30%+ in many areas, WHY did the government NOT step in at that time? WHY not influence rates so that the higher rates would slow down a market which was raging uncontrollably??? Personally, I think it is because many financial leaders knew that without the housing, mortgage, construction industry we would have been in a recession at that time. Unemployment during those years was still increasing. Many other indicators of a slowing economy was prevelant absent the housing industry. So I believe it is too little too late. I am one of those homeowners that puchased a house way less than I could afford, have NO other debt, max out my retirement accounts, and still have my 6 month+ emergency fund and *I* am being affected by the bad decisions that was made by so many because there are people in my neighborhood foreclosing. We have to move because of a job relocation and now we are stuck "playing" in a lifeless housing market. So how will this $700 billion bail out plan help those responsible individuals that are hurting? And why did the government not intervene earlier when it was evident we were on the cusp of a crisis?

[AnalyzeThis]

Originally Posted by aus10

I would like to know just how many of these ARM's did not have an adjustment and lifetime cap? Our first home loan (1984) was a 3-year ARM at 13.5%. But I knew that it had a 2% cap per adjustment, with a 5% lifetime cap. Granted, we are not talking about a mansion, we are talking about a home that cost less than our annual salary, but I knew that I could afford the payment even with a 5% increase. Didn't most folks take the two or three minutes if would have taken to ASK what happens if this goes up???

Aus. When we purchased our home four years ago they tried to push an ARM on us. The lifetime cap of the arm was 12% So prime plus 12%. I can't even imagine.

[saganista]

Originally Posted by Niners fan

This was posted on the first page of this thread but here it is again:

I saw it the first time. There is only so much economic credibiltiy to be placed in the blog posting of a journalist with a BA in History.

Originally Posted by Niners fan

To me our current problem really has its genesis in 1994 when the Clinton administration pushed the design of "creative measures" to increase home ownership. Basically they lowered the standards for financing rather than aiming to help people meet the higher standards.

You leave out the context of the redlining legacy and the housing crunch of the early 1990's. You seize on use of the words "creative measures" in order to put on them a 2008 spin that didn't exist fifteen years ago. You ignore the fact that the relatively stringent conventional terms of the era precluded conventional financing to an economic class that had profitably participated in it over earlier decades, forcing them into the clutches of various predatory lending regimes. Your objective seems to be to recast history in order to shift blame away from those whose haphazard efforts led to the current crisis and onto to those whose measured efforts in an earlier era did not lead to any crisis at all.

Originally Posted by Niners fan

Typically liberal way of thinking. Now some of those same liberals want to act like they (Congress) are the only ones who can save us.

Actually, it seems those dangerous liberals Paulson and Bernanke are in that role. Congress, now in a bit of disarray after McCain's insistence on "helping out", is a relative latecomer to the matter.

Originally Posted by Niners fan

Now, this is not strictly a partisan issue. The Republicans have been standing by watching, or in some cases, notably Bush, have continued the same feel-good policies. This is a good example of why "experience" is often overrated in politics.

Right. What's the Sarah Palin Plan? What's your plan? The shame here is that none of the principal actors were bold enough to insist a year or more ago that as free-flowing credit is an on-going essential to the performance of every modern economy, getting assets that could not be marked to market off the books of major credit market players was the primary objective. Oh, we could maybe buy some of them. Well, we could perhaps issue some guarantees. What if we swapped some of them for Treasury securities? Too much talk and not enough show. And every day since, the problem has gotten worse and worse. Ready to talk about CDS's yet? That was all that took AIG down...part of the price for having waited around too long. But at least The Surge is working, I guess...

Originally Posted by Niners fan

If the Fed had allowed the economy to take its course we likely would have had a mild recession (aka a market correction).

We already had one mild recession that wasn't necessary, and we currently have a second more than mild one that has led us all to wonder what the odds of global economic collapse by the end of next month might be. Market correction? Markets are perfectly capable of settling into equilibria that impose disastrous social consequences, destroying the lives and life's work of hundreds of millions. Markets just don't care. From recent press reports, apparently some Republicans don't either.

Originally Posted by Niners fan

It sucks to be them.

Let them eat cake.

Originally Posted by Niners fan

I have a house I am trying to sell that now appraises for half of what it would have one year ago. It is likely not going to sell for what I paid for it four years ago. It sucks to be me then too. But the last thing I want to see is the government to bail out me or anyone else. We made decisions and it is not the responsibility or even the right of the government to secure my investments.

At the moment, no one cares about you individually. There is no need to barricade yourself inside your home as a defense against government lawyers invading and trying to hand you checks. What is of concern at the moment is now rapidly growing prospects that the credit crunch will incapacitate the global economy. We should probably try to head off that possibility.

Originally Posted by Niners fan

You might be right. At the same time there is a danger of government becoming too involved and making things worse. Government has a history of making things worse. No collection of politicians are as wise as the invisible hand of the market.

How wise was the "invisible hand" in 1797, 1807, 1819, 1837, 1857, 1873, 1893, 1907, 1918, or 1929? The hand has no intelligence, and it has no morality. It is up to actual people to provide those.

Originally Posted by Niners fan

But, this is not to say the government doesn't have a job for minimal oversight. Adam Smith himself acknowledged that.

Smith advocated neither a nightwatchman nor a laissez-faire economy. He deeply distrusted the business class. Whom do you suppose he would intend to stand guard against their various machinations today?

Originally Posted by Niners fan

I am also concerned that if the government does too much to shield people and companies from the consequences of their choices that it will not discourage future reckless behavior.

Reckless as in borrowing money when interest rates are low? As in purchasing rated securities that come with an implied government guaranty? And how much shielding is really too much when it is all that stands between you and losing your job, your home, your medical care, and all your retirement assets? Except for Social Security of course...you'd still have that.