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That was the mistake. It’s not much of a market when the government bails you out with tax payer money, to the detriment of everyone else. And then, they kept

That was the mistake. It’s not much of a market when the government bails you out with tax payer money, to the detriment of everyone else. And then, they kept making one mistake after another and another. And here we are.

jariel 7y ago
The alternative was the total destruction of the economy :), so it's not just some normal 'gov. intervention' argument. Homeowners were bailed out indirectly by the type of banking 'bailout' that doesn't get talked about - the fact that the Fed was willing to accept garbage mortgages at face value as collateral for cash. A home with market value of $100K, mortgage at $200K - meaning a -$100K value ... was accepted at the Fed at '$200K' in return for cash. This wiped out the toxicity from bank balance sheets and allowed them to operate normally. The idea being in the future, when housing was re-inflated, the banks would eventually have to 'take back' those crap housing assets. Can you imagine if other businesses were allowed this kind of special facility? And it was not a small thing, it might be the biggest chunk of asset movements literally in the history of the world - it doubled the size of the Fed's balance sheet very quickly. The USD used to be backed by TBills, i.e. the US government ability to pay. Now, the USD is backed 1/2 by crap mortgages. Can you imagine any other country getting away with this? If Greece did this, the currency would crash and they'd be devastated. This is the power of supposed 'trust'.
- blackrock 7y ago
  The problems are multi fold. Speculators, flippers, subprime ARM borrowers drove the cost of housing up. Housing was seen as an investment, not as a place to live in. After the crash, the Fed reduced the interest rate to historical lows, and allowed lots of housing to be bought up by corporations, or groups of individual investors. When a bunch of investors join forces, they can easily buy practically any property. You and I as an individual, cannot. Our salaries don’t bring home enough money. On top of which, what about the young millennials that want to start a family? They were devastated after the 2008 meltdown with massive layoffs. Then they are priced out from housing now, with the historical highs. And they have massive student loans, and some have mediocre jobs to pay back those loans. So they’re smacked on both ends. Now, we have a social problem. Families are delayed. People delayed marriage. Couples delayed making children. The women in their 20s got older, and delay childbirth into their 30s, if they even have children. And the risks of genetic defects goes up. Now, the responsible people that you want to procreate and have children, are not bearing children. As a society, those in power and authority, and those with the financial wealth, just gave this a collective shrug: “Not my problem. Every man for himself.” Then they kept making more mistakes. Low interests fuels investors speculation. Housing is not being built. Home sale prices begin rising rapidly. Rents go up to match. QE Infinity keeps fueling this massive bubble. Those millennials again, that society needs to buy a house, and to begin building stable communities, had their salaries eaten up by rising rents. And now here we are. The starting price for a home is now $700,000. How does a young couple afford to start a family, when a starter home is that high? I don’t know. Nobody cares. Everyone is out for themselves. In retrospect, the better solution was to not bail out the homeowners, since they were speculating anyway. And to kill the notion of seeing housing as an investment vehicle, thereby making potential investors shy away from buying properties. This could’ve normalized the housing market, and allow those that should be in a home, to have a home that they can own. But I don’t see this ever happening. The masses are now slaves to paying off a massive $700,000 mortgage that they will work over 30 years of their life to pay off. We will need a revolution to change this.
  - jariel 7y ago
    So I agree with all of that except for the 'it would have been better to not bailout those home owners'. That would have led to existential destruction of the economy from which recovery would have taken decades. So - the bailouts, immoral as they may be - were a better options. But yes - interest rates should probably be nudged a little higher, and mortgages should be of much higher quality etc.. One trick would be to get rid of mortgage interest as a deduction. That's crazy. Of all the things we are making tax-deductible? Mortgage interest? Wow.

jariel 7y ago

The alternative was the total destruction of the economy :), so it's not just some normal 'gov. intervention' argument. Homeowners were bailed out indirectly by the type of banking 'bailout' that doesn't get talked about - the fact that the Fed was willing to accept garbage mortgages at face value as collateral for cash. A home with market value of $100K, mortgage at $200K - meaning a -$100K value ... was accepted at the Fed at '$200K' in return for cash. This wiped out the toxicity from bank balance sheets and allowed them to operate normally. The idea being in the future, when housing was re-inflated, the banks would eventually have to 'take back' those crap housing assets. Can you imagine if other businesses were allowed this kind of special facility? And it was not a small thing, it might be the biggest chunk of asset movements literally in the history of the world - it doubled the size of the Fed's balance sheet very quickly. The USD used to be backed by TBills, i.e. the US government ability to pay. Now, the USD is backed 1/2 by crap mortgages. Can you imagine any other country getting away with this? If Greece did this, the currency would crash and they'd be devastated. This is the power of supposed 'trust'.

blackrock 7y ago
The problems are multi fold. Speculators, flippers, subprime ARM borrowers drove the cost of housing up. Housing was seen as an investment, not as a place to live in. After the crash, the Fed reduced the interest rate to historical lows, and allowed lots of housing to be bought up by corporations, or groups of individual investors. When a bunch of investors join forces, they can easily buy practically any property. You and I as an individual, cannot. Our salaries don’t bring home enough money. On top of which, what about the young millennials that want to start a family? They were devastated after the 2008 meltdown with massive layoffs. Then they are priced out from housing now, with the historical highs. And they have massive student loans, and some have mediocre jobs to pay back those loans. So they’re smacked on both ends. Now, we have a social problem. Families are delayed. People delayed marriage. Couples delayed making children. The women in their 20s got older, and delay childbirth into their 30s, if they even have children. And the risks of genetic defects goes up. Now, the responsible people that you want to procreate and have children, are not bearing children. As a society, those in power and authority, and those with the financial wealth, just gave this a collective shrug: “Not my problem. Every man for himself.” Then they kept making more mistakes. Low interests fuels investors speculation. Housing is not being built. Home sale prices begin rising rapidly. Rents go up to match. QE Infinity keeps fueling this massive bubble. Those millennials again, that society needs to buy a house, and to begin building stable communities, had their salaries eaten up by rising rents. And now here we are. The starting price for a home is now $700,000. How does a young couple afford to start a family, when a starter home is that high? I don’t know. Nobody cares. Everyone is out for themselves. In retrospect, the better solution was to not bail out the homeowners, since they were speculating anyway. And to kill the notion of seeing housing as an investment vehicle, thereby making potential investors shy away from buying properties. This could’ve normalized the housing market, and allow those that should be in a home, to have a home that they can own. But I don’t see this ever happening. The masses are now slaves to paying off a massive $700,000 mortgage that they will work over 30 years of their life to pay off. We will need a revolution to change this.
- jariel 7y ago
  So I agree with all of that except for the 'it would have been better to not bailout those home owners'. That would have led to existential destruction of the economy from which recovery would have taken decades. So - the bailouts, immoral as they may be - were a better options. But yes - interest rates should probably be nudged a little higher, and mortgages should be of much higher quality etc.. One trick would be to get rid of mortgage interest as a deduction. That's crazy. Of all the things we are making tax-deductible? Mortgage interest? Wow.