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No it wasn't. It was caused by lenders being able to lend money that wasn't theirs, facilitated by complex financial instruments. If you're a bank and you're

by philk 16y ago

No it wasn't. It was caused by lenders being able to lend money that wasn't theirs, facilitated by complex financial instruments. If you're a bank and you're lending your own money you've got an incentive to make sure the loans can be repaid. If you're a bank and you can instead take the loans you've made, parcel the debt up in a complicated financial instrument, sell it off to others and take an essentially risk free commission then you've got an incentive to loan money to anyone who can hold a pen and sign a document. This means you're going to lend a lot more money and this is what caused the bubble. It's not because women were forcing their husbands to borrow, it's because financial wrangling shifted the risks from the lenders to third parties further down the line.

yummyfajitas 16y ago
The problem with your theory is that many banks kept the riskiest tranches of loans for themselves while selling the safer tranches to others. They would only have done this if they believed the underlying mortgages were still good. Regardless, none of this would have been possible if housing consumers didn't become housing speculators. Realtors ran commercials encouraging women to browbeat their husband into buying houses they couldn't afford (http://www.youtube.com/watch?v=Ubsd-tWYmZw http://www.youtube.com/watch?v=Ubsd-tWYmZw). Bush and Barney Frank encouraged commercial banks to lower lending standards. Speculators followed the crowd and suffered for their folly. The bubble would have existed without speculators, though it probably would not have been as large.
- demallien 16y ago
  The problem with your theory is that many banks kept the riskiest tranches of loans for themselves while selling the safer tranches to others. They would only have done this if they believed the underlying mortgages were still good. Actually, that doesn't necessarily create any problems for Phil's point of view. That tranche of highly risky loans had to be kept by the banks - it was because this high risk stuff had been taken out of the pool that the rest of the pool looked so appealing to investors. However, the calculations to determine what percentage of loans needs to be in the high-risk tranche was very difficult to evaluate, especially if you were the investor seeking to buy the "safe" tranches, and not the bank that had originally sold the loan.

by philk 16y ago

yummyfajitas 16y ago

The problem with your theory is that many banks kept the riskiest tranches of loans for themselves while selling the safer tranches to others. They would only have done this if they believed the underlying mortgages were still good. Regardless, none of this would have been possible if housing consumers didn't become housing speculators. Realtors ran commercials encouraging women to browbeat their husband into buying houses they couldn't afford (http://www.youtube.com/watch?v=Ubsd-tWYmZw http://www.youtube.com/watch?v=Ubsd-tWYmZw). Bush and Barney Frank encouraged commercial banks to lower lending standards. Speculators followed the crowd and suffered for their folly. The bubble would have existed without speculators, though it probably would not have been as large.

demallien 16y ago
The problem with your theory is that many banks kept the riskiest tranches of loans for themselves while selling the safer tranches to others. They would only have done this if they believed the underlying mortgages were still good. Actually, that doesn't necessarily create any problems for Phil's point of view. That tranche of highly risky loans had to be kept by the banks - it was because this high risk stuff had been taken out of the pool that the rest of the pool looked so appealing to investors. However, the calculations to determine what percentage of loans needs to be in the high-risk tranche was very difficult to evaluate, especially if you were the investor seeking to buy the "safe" tranches, and not the bank that had originally sold the loan.