4 ms·

It's feature, not a bug. Remember the sub-prime mortgage crisis? People were made to buy homes they couldn't actually afford. It's the American way of doing c

It's feature, not a bug. Remember the sub-prime mortgage crisis? People were made to buy homes they couldn't actually afford. It's the American way of doing capitalism, and people should have gotten used to it by now.

pc86 9y ago
Nobody was made to buy a home they couldn't afford. They wanted it, and someone was willing to sell it to them at near-predatory rates. Nobody had a gun held to their head to sign a contract.
- benevol 9y ago
  You're right. I rather meant to say "people were manipulated into buying...". It's always the same, people don't understand because they lack education and some rich guy will take advantage of that. The movie "The Big Short" [0] sums it all up very well. [0] http://www.imdb.com/title/tt1596363 http://www.imdb.com/title/tt1596363
  - valuearb 9y ago
    No one was manipulated. Everyone was greedy. They read the news, they knew what the houses down the street sold for a few years before. They all thought they'd get rich flipping houses. Loan officers just facilitated what their customers already wanted.
    - johnminter 9y ago
      You have missed an important point. Those loan officers were paid a fee for the service and their institution sold off the loans that were derivatized. The patsy was down the line. They all got paid... Go back and review the news that came out. "The Big Short" is a decent summary. The trading manager at Bear Stearns who bought the derivatives got to walk out and keep his big bonuses. The share holders ate it. The rating institutions were complicit too - they knew the products were crap but knew the customers (lending institutions) would go to another one and so wrote the bogus ratings. See the players in the game got paid. The snooks got screwed. Bill Black, who prosecuted the Savings and Loan Crisis, and sent many fraudsters to jail reviewed the 2008 crash and was incensed at the lack of prosecution. The consumers saw what they wanted to see. Very few consumers perfomed due diligence. The old proverb tends to be true: "If something seens to be too good to be true... It probably is." Fraudsters have taken advantage of the gullible throughout human history. Our generation has no excuse: we have unparalleled access to information and most are too lazy to put the effort in to check these things out our to hire competent counsel who work for us not the seller. How many parents and students understand the debt they take on for college and the expected ROI???
      - valuearb 9y ago
        i understand how collateralization works, i used to invest in tranches. You are confusing the fact that MBS buyers didn't do their homework, with the fact that home buyers were greedy specifically because MBS financing enabled them to be.
  - Trundle 9y ago
    I'm surprised that you say that while referencing The Big Short because I thought it made it pretty clear that the people selling houses lacked education as well. There was the whole thing where the guy sees dudebros selling houses to strippers and was all "oh no its all true". I think one of the dudebros even said something like "I was working at the car wash two years ago and now I have a boat". Everyone else not knowing what was going on was the uniting theme of the main characters.
- yardie 9y ago
  Look nobody makes you buy anything. But RE is different in that the market isn't completely rational. Your options are rent, own, or sleep in your car. When I was out visiting a town in the Midwest you couldn't rent. There were no houses for rent. Even if a developer started a multi unit rental right now it would still be 6-9 months until it was rentable.
  - pbhjpbhj 9y ago
    >nobody makes you buy anything // But companies spend vast amounts of their revenue to manipulate you in to doing so, or perhaps you haven't heard of advertising?
- vonmoltke 9y ago
  Your absolutely right, but the loan issuers were facilitating people coming to those decisions. I remember when my wife and I bought our house just before the bottom fell out. The loan officer couldn't believe we were only getting pre-approved for a mortgage that was a maximum of 10% of our gross income. She tried (somewhat) to upsell our Max loan balance, but we stood firm.
- maxsilver 9y ago
  > Nobody was made to buy a home they couldn't afford. They wanted it I suppose, in the same way that no one forces me to buy drinking water, I just want it, so as not to die. If there is no affordable housing available (as is the case in most US markets today), you essentially are made to buy/rent an unaffordable home if at all possible. Because the alternative is homelessness, which isn't really an alternative. Obviously, sometimes people purposely overspend on housing because of lifestyle inflation. But I don't think that's a majority -- many people are overspending on housing because housing is a fundamental human need and they have literally zero alternatives to overspending. It's more common than most people will admit.
  - guntars 9y ago
    There's plenty of affordable housing around, it's just not in places people want to live. Some markets require you to shell out 50% of your income on housing, but it's not like people have no choice. They do it because overall it's worth it to them. If they didn't, there wouldn't be enough takers.
  - will4274 9y ago
    The difference here is that many of the people caught in the mortgage crisis could afford homes, they just couldn't afford the really nice homes that they bought. People who's finances would reasonably put them in a $250,000 home were instead buying $750,000 homes on the idea that the price would only go up and the loans were cheap.
lithos 9y ago
Car loans are actually getting featured on Bloomberg for having similar risk last month. Though there were assurances that the same thing wouldn't happen since loan issuers were reining themselves in, that cars were far more liquid than a house, and easier to seize on a failed loan. Of course if it's already in the news, it's too late to act.
- valuearb 9y ago
  Car loans also aren't federally insured and guaranteed, and unlike the housing bubble, the federal government isn't pressuring car loan companies to make shaky loans to bad credit risk customers. This is almost entirely a free market, and so it's bubble will be smaller and the consequences will be visited almost exclusively to those who made the bad loans.
valuearb 9y ago
You have it backwards. Buyers demanded the ability to buy homes they couldn't afford, the government required Fannie Mae, Freddie Mac and banks to finance them and the US Government guaranteed some of the loans. The buyer behavior was rational, at least on the surface, because homes almost always appreciate over long periods and were appreciating like crazy during the bubble. We are pattern matching monkeys, all of us, and it's only the few who can see the bigger picture during those times. Many didn't want to miss out on the big payday buying $300k homes and flipping them for $500k a few years later. All bubbles accelerate bad decisions/behavior and it's really difficult (if not impossible) to legislate incentive driven behavior away. It's obviously possible to not legislate bad market incentives, but we flunked that one to.
- pnutjam 9y ago
  Your wrong, people with money were looking for "safe" places to park their money and make interest. Savings accounts suck, thus all these financial products were born.
  - valuearb 9y ago
    Saving some accounts don't suck, they are excellent at what they do. Which is providing a very secure place for your money that is quickly accessible and even pays a small amount of interest. There's obviously higher return investments, but they provide those returns by taking more risk, and more variance.
- ubernostrum 9y ago
  This is an interesting spin, in that it absolves a mortgage industry which did everything short of drag people in off the street and hold guns to their heads to try to issue more loans. Omitting that, when a major source of the massive drive to issue loans was the popularity of mortgage-backed securities as an investment vehicle and the incredible demand for such securities, is... well, it does make one question your understanding of the problem, or if you do understand it perhaps the motives behind your choice of framing.

pc86 9y ago

Nobody was made to buy a home they couldn't afford. They wanted it, and someone was willing to sell it to them at near-predatory rates. Nobody had a gun held to their head to sign a contract.

benevol 9y ago
You're right. I rather meant to say "people were manipulated into buying...". It's always the same, people don't understand because they lack education and some rich guy will take advantage of that. The movie "The Big Short" [0] sums it all up very well. [0] http://www.imdb.com/title/tt1596363 http://www.imdb.com/title/tt1596363
- valuearb 9y ago
  No one was manipulated. Everyone was greedy. They read the news, they knew what the houses down the street sold for a few years before. They all thought they'd get rich flipping houses. Loan officers just facilitated what their customers already wanted.
  - johnminter 9y ago
    You have missed an important point. Those loan officers were paid a fee for the service and their institution sold off the loans that were derivatized. The patsy was down the line. They all got paid... Go back and review the news that came out. "The Big Short" is a decent summary. The trading manager at Bear Stearns who bought the derivatives got to walk out and keep his big bonuses. The share holders ate it. The rating institutions were complicit too - they knew the products were crap but knew the customers (lending institutions) would go to another one and so wrote the bogus ratings. See the players in the game got paid. The snooks got screwed. Bill Black, who prosecuted the Savings and Loan Crisis, and sent many fraudsters to jail reviewed the 2008 crash and was incensed at the lack of prosecution. The consumers saw what they wanted to see. Very few consumers perfomed due diligence. The old proverb tends to be true: "If something seens to be too good to be true... It probably is." Fraudsters have taken advantage of the gullible throughout human history. Our generation has no excuse: we have unparalleled access to information and most are too lazy to put the effort in to check these things out our to hire competent counsel who work for us not the seller. How many parents and students understand the debt they take on for college and the expected ROI???
    - valuearb 9y ago
      i understand how collateralization works, i used to invest in tranches. You are confusing the fact that MBS buyers didn't do their homework, with the fact that home buyers were greedy specifically because MBS financing enabled them to be.
- Trundle 9y ago
  I'm surprised that you say that while referencing The Big Short because I thought it made it pretty clear that the people selling houses lacked education as well. There was the whole thing where the guy sees dudebros selling houses to strippers and was all "oh no its all true". I think one of the dudebros even said something like "I was working at the car wash two years ago and now I have a boat". Everyone else not knowing what was going on was the uniting theme of the main characters.
yardie 9y ago
Look nobody makes you buy anything. But RE is different in that the market isn't completely rational. Your options are rent, own, or sleep in your car. When I was out visiting a town in the Midwest you couldn't rent. There were no houses for rent. Even if a developer started a multi unit rental right now it would still be 6-9 months until it was rentable.
- pbhjpbhj 9y ago
  >nobody makes you buy anything // But companies spend vast amounts of their revenue to manipulate you in to doing so, or perhaps you haven't heard of advertising?
vonmoltke 9y ago
Your absolutely right, but the loan issuers were facilitating people coming to those decisions. I remember when my wife and I bought our house just before the bottom fell out. The loan officer couldn't believe we were only getting pre-approved for a mortgage that was a maximum of 10% of our gross income. She tried (somewhat) to upsell our Max loan balance, but we stood firm.
maxsilver 9y ago
> Nobody was made to buy a home they couldn't afford. They wanted it I suppose, in the same way that no one forces me to buy drinking water, I just want it, so as not to die. If there is no affordable housing available (as is the case in most US markets today), you essentially are made to buy/rent an unaffordable home if at all possible. Because the alternative is homelessness, which isn't really an alternative. Obviously, sometimes people purposely overspend on housing because of lifestyle inflation. But I don't think that's a majority -- many people are overspending on housing because housing is a fundamental human need and they have literally zero alternatives to overspending. It's more common than most people will admit.
- guntars 9y ago
  There's plenty of affordable housing around, it's just not in places people want to live. Some markets require you to shell out 50% of your income on housing, but it's not like people have no choice. They do it because overall it's worth it to them. If they didn't, there wouldn't be enough takers.
- will4274 9y ago
  The difference here is that many of the people caught in the mortgage crisis could afford homes, they just couldn't afford the really nice homes that they bought. People who's finances would reasonably put them in a $250,000 home were instead buying $750,000 homes on the idea that the price would only go up and the loans were cheap.

lithos 9y ago

Car loans are actually getting featured on Bloomberg for having similar risk last month. Though there were assurances that the same thing wouldn't happen since loan issuers were reining themselves in, that cars were far more liquid than a house, and easier to seize on a failed loan. Of course if it's already in the news, it's too late to act.

valuearb 9y ago
Car loans also aren't federally insured and guaranteed, and unlike the housing bubble, the federal government isn't pressuring car loan companies to make shaky loans to bad credit risk customers. This is almost entirely a free market, and so it's bubble will be smaller and the consequences will be visited almost exclusively to those who made the bad loans.

valuearb 9y ago

You have it backwards. Buyers demanded the ability to buy homes they couldn't afford, the government required Fannie Mae, Freddie Mac and banks to finance them and the US Government guaranteed some of the loans. The buyer behavior was rational, at least on the surface, because homes almost always appreciate over long periods and were appreciating like crazy during the bubble. We are pattern matching monkeys, all of us, and it's only the few who can see the bigger picture during those times. Many didn't want to miss out on the big payday buying $300k homes and flipping them for $500k a few years later. All bubbles accelerate bad decisions/behavior and it's really difficult (if not impossible) to legislate incentive driven behavior away. It's obviously possible to not legislate bad market incentives, but we flunked that one to.

pnutjam 9y ago
Your wrong, people with money were looking for "safe" places to park their money and make interest. Savings accounts suck, thus all these financial products were born.
- valuearb 9y ago
  Saving some accounts don't suck, they are excellent at what they do. Which is providing a very secure place for your money that is quickly accessible and even pays a small amount of interest. There's obviously higher return investments, but they provide those returns by taking more risk, and more variance.
ubernostrum 9y ago
This is an interesting spin, in that it absolves a mortgage industry which did everything short of drag people in off the street and hold guns to their heads to try to issue more loans. Omitting that, when a major source of the massive drive to issue loans was the popularity of mortgage-backed securities as an investment vehicle and the incredible demand for such securities, is... well, it does make one question your understanding of the problem, or if you do understand it perhaps the motives behind your choice of framing.