Why your government is responsible for this mess

[sailaway21]

Here's as well written a summation of why the government is responsible for the housing mess that created the world-wide economic mess. A lot of misconceptions are cleared up in one short article. You can quibble around the edges about Wall Street, the mortgage industry, and speculation but the bottom line was that government tilled the soil to produce the harvest we've got now. A well written piece.
The American Spectator : The True Origins of This Financial Crisis

[sck5]

let me guess - 10 yrs. later its all Clinton's fault!!! Or maybe the Congressional dems. Or maybe Obama pre-messed up. or .... or ..... But Bush had nothing to do with it!!!!!!

[PBzeer]

News Flash - Bush was part of the Government. Nobody on this side of the aisle tries to say he doesn't share part of the blame. It's only your side of the aisle sck, that tries to blame it ALL on Bush. It's not the past 8 years of "failed economic policy" that got us here, it's the past 80 years of increased government meddling.

Of course, in your usual fashion, you totally overlook, ignore, or whatever, the whole point of government interference with sound business practices, in the pursuit of some societal or political goal.

[bubb2]

The change, The People are P O about government. Thats change I believe in!!!!!!

[midlifesailor]

I worked at one of the GSE's mentioned and have some insight into how the secondary mortgage market developed over the last 15 years or so. Our situation is one of the road to hell being paved with good intentions. Governmental policy, with the intent of helping those at the low end of the financial spectrum become home owners, unintentionally opened the doors of greed for millions of Americans to walk through. It is not those the relaxed standards where intened to help that brought the markets to their knees.

It was the releasing of the genie from the bottle, for QUALIFIED buyers. The former limits of income loan amount were dropped so why buy the townhouse that would meet the old ratio when you could just sign your name and have the 4000 sq. ft single family with the pool? Just look at how housing changed in that decade. Why are families smaller and houses bigger? The fancy ARM rates and extended terms let people buy bigger and bigger bozes to live in and keep the payments where they could handle them. Besides rates can only go down while home prices can only go up --- What a deal!!! We'll just refi in a few years and get an even better deal! The problem gets bigger and bigger over a decade, until the house of cards comes down. There are no low income families in my imediate neighborhood yet there are a few forclosure signs because people bought more house than they could afford. I personally know how easy it would have been since we "qualified" for over twice the house I felt we could afford based on the "old fashioned" qualifying ratio's. I stuck to my guns and as a result we were able to keep our house when I was laid off and took a much lower paying postion while I transitioned into a new industry.

There was nothing wrong with the concept of relaxing standards, so some low income families could become home owners and that alone is not what took the market down. Helping hardworking folk without credit histories become home owners is a noble goal and is in line with American ideals and there are many obstacles faced by those climbing from the lowest economic levels. However, there should have been strict limits on the amount that could be borrowed under these programs and they should never have been opened up to the mass market. The idea was to help the folks on the bottm rung not so everyone could keep up with the Jone's and buy a McMansion instead of the townhome their salary would support. Those are the loans that broke the market, not the low income buyers the relaxed standards were intended for.

[sck5]

"It's only your side of the aisle sck, that tries to blame it ALL on Bush"

really? who told you that? there is plenty of blame to go around from Bush (He WAS the prez, you have to admit and DID appoint the regulators for the last 8 years) to Greenspan to the spineless dems in congress and their opponents on the other side. PB you are so one sided you seem to attribute that characteristic to everyone you dont like. I will try harder to add happy faces whenever I am trying on humor. I may not be very good at it but bear with me, I havent quit my day job yet to be a comedian (and my wife tells me I shouldnt)

But I guess if the leaders of your party are Rush Limbaugh and Sara Palin I can relax on the humor front. There will be plenty out there to go around.

(which makes me think - dont you think people are way too afraid to make fun of Obama? They CRITICIZE but they dont make fun of him the way they did Bush and Clinton and Bush before him and Reagan etc..... maybe they are afraid of being tagged as politically incorrect or something)

[noreault]

This article does a great job of detailing the lending side of the problem. Public policy tried to drive up home ownership. As it has for decades. What was different was the availability of money. The Fed kept money supply high, it needed to find a place to go. So there was great pressure to loan money. If the money supply is limited, then there is some natural restriction. Then derivatives, CDO and the rest, convinced everyone that risk had disappeared. So risky loans were OK as the risk was understood and distributed to those who could handle it. It wasn't and they couldn't.

IMHO, both better government policy and regulation is needed.

[hellosailor]

Let's not forget the 70's, when "thrift institutions" aka S&Ls and "banks" were two separate businesses, before deregulation. Small local S&Ls had more reason to look carefully at mortgages and potential for defaults, and they didn't bundle 'em up and resell 'em as equities.

[sailaway21]

Originally Posted by sck5

let me guess - 10 yrs. later its all Clinton's fault!!! Or maybe the Congressional dems. Or maybe Obama pre-messed up. or .... or ..... But Bush had nothing to do with it!!!!!!

You're not required to comment on things you haven't bothered to read. You might even consider implementing that as a new policy. You'll look better, you'll feel better, and I'll be better able to resist the urge to inquire about Thalidomide.

[sailaway21]

Originally Posted by midlifesailor

I worked at one of the GSE's mentioned and have some insight into how the secondary mortgage market developed over the last 15 years or so. Our situation is one of the road to hell being paved with good intentions. Governmental policy, with the intent of helping those at the low end of the financial spectrum become home owners, unintentionally opened the doors of greed for millions of Americans to walk through. It is not those the relaxed standards where intened to help that brought the markets to their knees.

It was the releasing of the genie from the bottle, for QUALIFIED buyers. The former limits of income loan amount were dropped so why buy the townhouse that would meet the old ratio when you could just sign your name and have the 4000 sq. ft single family with the pool? Just look at how housing changed in that decade. Why are families smaller and houses bigger? The fancy ARM rates and extended terms let people buy bigger and bigger bozes to live in and keep the payments where they could handle them. Besides rates can only go down while home prices can only go up --- What a deal!!! We'll just refi in a few years and get an even better deal! The problem gets bigger and bigger over a decade, until the house of cards comes down. There are no low income families in my imediate neighborhood yet there are a few forclosure signs because people bought more house than they could afford. I personally know how easy it would have been since we "qualified" for over twice the house I felt we could afford based on the "old fashioned" qualifying ratio's. I stuck to my guns and as a result we were able to keep our house when I was laid off and took a much lower paying postion while I transitioned into a new industry.

There was nothing wrong with the concept of relaxing standards, so some low income families could become home owners and that alone is not what took the market down. Helping hardworking folk without credit histories become home owners is a noble goal and is in line with American ideals and there are many obstacles faced by those climbing from the lowest economic levels. However, there should have been strict limits on the amount that could be borrowed under these programs and they should never have been opened up to the mass market. The idea was to help the folks on the bottm rung not so everyone could keep up with the Jone's and buy a McMansion instead of the townhome their salary would support. Those are the loans that broke the market, not the low income buyers the relaxed standards were intended for.

Thanks for your insight, midlife. I'm afraid though that you said it best when you said that, the road to hell is paved with good intentions. We some times think that these expressions were invented with our generation instead of being age old proverbs.

The idea is always to help the poor and those less fortunate. Aside from being a uniquely human ideal, whereas the poor and less fortunate in the animal knigdom just get eaten, it strikes at what gives each of us dignity, meaning, and worth to our lives.

If this impulse is so beneficial to us as individuals, imagine how much good we could do and how enriched we'd be if we did similar things as a country? That's where the wheels come off. If I lend my neighbor $50, he'll generally pay me back as soon as he can. He knows me and he has to live next to me. If the government lends him the money it quickly becomes a situation where he doesn't have the money to repay them and, besides, the government has lots of money..let 'em wait.

The only way people, throughout history, have ever appreciated anything is by the earning of it. You cannot give them anything for free and expect it to come out well in the end. That's how we ended up with generational welfare. In the case of home mortgages the hubris of the government was so great that they never considered that a goodly percentage of the poor either do not want to own a house or should not own a house, with renting being a more viable solution. The government presupposed that home ownership, in and of itself, was a good thing. Where'd they get that idea? Probably from the middle class bureaucracy that makes up the majority of government and firmly believes it to be true. Not everyone shares their vision of the American dream. Government should not be in the dreams delivered business.

The rest of your points are spot on. Of course the middle class was going to take advantage of the situation; contrary to popular belief they're not stupid and, if banks are lending money at historically low rates under extremely favorable terms, they'd be foolish to not take advantage of that fact, correct? That not all had the sense they were born with, or engaged in willful suspension of disbelief, should come as no surprise. Millions get fooled annually be deals that look too good to be true, and are. You'd normally rely on the bank to qualify those dreamers back down to reality but, with the promise of Uncle Sam behind everything, well, where was the downside? And brokers get paid to write loans.

So you're entirely correct that one little unrestrained impulse by government to "do good" led to a whole cacophony of unintended results. One would think that the politicians would have had more than enough experience in that area to not make such a mistake. But they felt so good about it. When they get such impulses, they should drive over to the poor side of town and start handing out more than a few one hundred dollar bills of their own. They could then benefit from driving by in a few months to do an informal survey to see who spent the money on paint for the house or braces for the kid.