5 ms·
You are treating it as a big brain. It's split many ways. There are many banks, they don't behave as a mass. Some will lend because they want / need the income.
by branchless 11y ago
You are treating it as a big brain. It's split many ways. There are many banks, they don't behave as a mass. Some will lend because they want / need the income.
Secondly most lending decisions are made by employees. Their interests are not aligned with the long-term health of the bank. They want their bonus. Who cares if it blows up in 10 years time?
We've seen this in 2008. Banks behaved insanely.
Finally if banks were playing the long game together why pump up land prices until they are backed into a corner? Better to drip to maintain throughput.
- mtviewdave 11y ago>We've seen this in 2008. Banks behaved insanely. It's not 2008 anymore. Things have changed substantially. Banks became much more risk-adverse in the wake of the burst of the housing bubble and subsequent economic crisis. The era in which loan officers are incentivized to skip risk evaluation has passed. My point was not that there's some grand conspiracy among banks. Merely that any loan that uses real estate as collateral will be riskier if real estate prices are declining, than if real estate prices are increasing. That means that construction loans are going to be harder to get when prices are decreasing. Which suggests that the ability to use construction loans to lower the absolute price of housing is self-limiting.
- branchless 11y agoI agree there is a -ve feedback loop in there.