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> caused by poor credit quality of some home buyers Small detail but the wording here implies a causation, that it was the home buyers who were the makers of t

> caused by poor credit quality of some home buyers Small detail but the wording here implies a causation, that it was the home buyers who were the makers of the crisis. Whereas we now have ample evidence that it was the real estate companies and mortgage lenders who when faced with free money, became predatorial of people who had no capacity or understanding of the financials of becoming a home owner. We can always argue that these were adults who have taken their decisions but again many of these people were promised pie in the sky and they believed it.

t_mann 4y ago
Yes, you're right, we should be careful with the wording here. I would also blame the system, where Physics PhDs were paid to put enough math in the product presentations to convince traders that the AAA ratings (for products with substantially higher returns than usual for such ratings) were justified. Of course, the resulting transactions earned all sides huge individual cash bonuses (large enough to allow them to achieve financial independence if they could keep the scheme rolling for just a few years, regardless of whether their employers would go bust), which may arguably have contributed to their willingness to turn a blind eye to common sense.
parkingrift 4y ago
At what point do you think individual adults should be responsible for their own decisions? “No capacity or understanding of the financials” makes it sound like these fully grown functioning adults had a learning disability. These people had access to the internet, books, libraries, financial services, and more. If these people were ignorant of the true costs it was willful ignorance.
- imtringued 4y ago
  > At what point do you think individual adults should be responsible for their own decisions? The problem is that those lenders weren't responsible, tax payers and defrauded home buyers were cleaning up their mess.
  - parkingrift 4y ago
    Defrauded home buyers? Come now. It isn't as if lenders were submitting fraudulent paperwork with fake rates and then sticking homebuyers with the "real" rate after the fact. Home buyers were willingly signing documents with plain English terms, and this was happening in the information age.
MrMan 4y ago
poisoning securitized assets with people who are bad credit risks definitely happened. no need to ascribe individual blame to the borrowers, the mortgage originators are licensed professionals.
chrisjc 4y ago
I don't disagree and think you're absolutely right for pointing this out, but I wouldn't claim (not that you did) that the bucket of those that were ill equipped to understand the financial responsibilities of owning a home is composed mostly of individuals with poor credit score that were taken advantage of by predatory actors. Of course there were many (if not most) individuals that were unfortunately taken advantage of in this manner. But anecdotally and for what it's worth, all of the people I know impacted by the crisis were educated, financially savvy and secure individuals. For them it wasn't a matter of owning a house or being homeless, no reason to lie on a mortgage application just to have a roof over their heads. They had good incomes and credit history. They could be approved without having to inflate applications or go with the ARM-heavy options. Instead they chose the interest-only, deluxe option. I recall having conversations with many of these individuals about how they could afford these amazing places (along with the new convertible BMW) and how they tried to convince me that the interest-only option combined with increasing equity and the historical trend of property prices, yada... was a wise financial decision. How property is an investment, and they plan to eventually use their equity to buy more property. So on and so on. I can't remember all of the details bc it didn't really seem to make sense and sounded way too risky and optimistic. What I do remember is being completely crushed hearing and seeing all of this and knowing I was priced out of the market unless I took on a similarly risky position. I accepted the idea that I would never be able to afford a house. I was even more upset when I saw the way that most of these individuals were "bailed out". Sure they lost their homes, but at least they weren't financially ruined. They have since improved their credit-worthiness and seemingly made better financial decisions, but my point is financially healthy individuals who knew better contributed to this crisis as well. They knew that the income they put on the application was inflated. They knew that the interest rates could change in the future and only paying interest was risky. They knew that a smaller, less expensive house was good enough. They knew that also buying that luxury car was exposing them even more.

t_mann 4y ago

Yes, you're right, we should be careful with the wording here. I would also blame the system, where Physics PhDs were paid to put enough math in the product presentations to convince traders that the AAA ratings (for products with substantially higher returns than usual for such ratings) were justified. Of course, the resulting transactions earned all sides huge individual cash bonuses (large enough to allow them to achieve financial independence if they could keep the scheme rolling for just a few years, regardless of whether their employers would go bust), which may arguably have contributed to their willingness to turn a blind eye to common sense.

parkingrift 4y ago

At what point do you think individual adults should be responsible for their own decisions? “No capacity or understanding of the financials” makes it sound like these fully grown functioning adults had a learning disability. These people had access to the internet, books, libraries, financial services, and more. If these people were ignorant of the true costs it was willful ignorance.

imtringued 4y ago
> At what point do you think individual adults should be responsible for their own decisions? The problem is that those lenders weren't responsible, tax payers and defrauded home buyers were cleaning up their mess.
- parkingrift 4y ago
  Defrauded home buyers? Come now. It isn't as if lenders were submitting fraudulent paperwork with fake rates and then sticking homebuyers with the "real" rate after the fact. Home buyers were willingly signing documents with plain English terms, and this was happening in the information age.

MrMan 4y ago

poisoning securitized assets with people who are bad credit risks definitely happened. no need to ascribe individual blame to the borrowers, the mortgage originators are licensed professionals.

chrisjc 4y ago

I don't disagree and think you're absolutely right for pointing this out, but I wouldn't claim (not that you did) that the bucket of those that were ill equipped to understand the financial responsibilities of owning a home is composed mostly of individuals with poor credit score that were taken advantage of by predatory actors. Of course there were many (if not most) individuals that were unfortunately taken advantage of in this manner. But anecdotally and for what it's worth, all of the people I know impacted by the crisis were educated, financially savvy and secure individuals. For them it wasn't a matter of owning a house or being homeless, no reason to lie on a mortgage application just to have a roof over their heads. They had good incomes and credit history. They could be approved without having to inflate applications or go with the ARM-heavy options. Instead they chose the interest-only, deluxe option. I recall having conversations with many of these individuals about how they could afford these amazing places (along with the new convertible BMW) and how they tried to convince me that the interest-only option combined with increasing equity and the historical trend of property prices, yada... was a wise financial decision. How property is an investment, and they plan to eventually use their equity to buy more property. So on and so on. I can't remember all of the details bc it didn't really seem to make sense and sounded way too risky and optimistic. What I do remember is being completely crushed hearing and seeing all of this and knowing I was priced out of the market unless I took on a similarly risky position. I accepted the idea that I would never be able to afford a house. I was even more upset when I saw the way that most of these individuals were "bailed out". Sure they lost their homes, but at least they weren't financially ruined. They have since improved their credit-worthiness and seemingly made better financial decisions, but my point is financially healthy individuals who knew better contributed to this crisis as well. They knew that the income they put on the application was inflated. They knew that the interest rates could change in the future and only paying interest was risky. They knew that a smaller, less expensive house was good enough. They knew that also buying that luxury car was exposing them even more.