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Was the real estate itself part of the bubble? I thought there was lots of trading of mortgage-backed assets that went on the ridiculous assumption that house p
by Tycho 16y ago
Was the real estate itself part of the bubble? I thought there was lots of trading of mortgage-backed assets that went on the ridiculous assumption that house prices would continue to rise indefinitely, then when they stopped rising the derived (high-volume) trading was exposed as irresponsible. So the bubble would be in credit-default-swaps or whatever you call them, not in actual property.
Someone who knows what they're talking about explain please!
- wrs 16y agoYes, the bubble was in real estate. "People believe the value of X will rise indefinitely" is pretty much the definition of "there's a bubble in X". A lot of dumb things, not just selling exotic derivatives, were done based on the assumption that house prices could not fall. For example, people used crazy leverage to buy houses, figuring its value had to go up. Now they are underwater on their zero-down adjustable mortgages.