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> There’s no systemic meltdown coming this time around, because there hasn’t been the same level of lending excesses and because many of the biggest banks pulle
by yuan43 4y ago
> There’s no systemic meltdown coming this time around, because there hasn’t been the same level of lending excesses and because many of the biggest banks pulled back from mortgages after the financial crisis. ...
This is the consensus view. Funny thing is, this is exactly the kind of thing people were yammering on about with respect to "subprime" in 2007. Contained. Don't worry about it. A few weak players will go under, but there is no systemic risk.
Now, maybe that's true this time. Or not. What is certain is that the mortgage industry went through a metamorphosis since the GFC, and most of the players are now not banks.
> “The nonbanks are poorly capitalized,” said Nancy Wallace, chair of the real estate group at Berkeley Haas, the business school at University of California, Berkeley. “When the mortgage market tanks they are in trouble.”
> In 2004, only about a third of the top 20 lenders for refinancings were independent firms. Last year, two-thirds of the top 20 were non-bank lenders, according to LendingPatterns.com, which analyzes the industry for mortgage lenders. Since 2016, banks have seen their share of the market shrink to about a third from about half, according to news and data provider Inside Mortgage Finance.
So what happens when the major source of debt fueling the ongoing housing debacle comes from "poorly capitalized" non-banks? The obvious answer is that the gravy train careens into a ditch. Less capital means fewer loans. Fewer loans mean house prices are no longer supported by debt. Given that they stopped being supported by incomes a long time ago, there's nothing left to prop the thing up.
So it will certainly be different this time around. Every financial crisis is different in its own way.
- paulpauper 4y agoSo it will certainly be different this time around. Every financial crisis is different in its own way. But financial crisis are rare despite all the media attention they get. Just two major crisis in the past 100 years: 1929 and 2008. There were some smaller ones but nothing compared to those two. So it's more probable that this too will not become a full-blown crisis.
- petewailes 4y agoYou're missing 37-38, 45, 53, 58, 73, 81 and 90, and that's just the ones I can't think of off the top of my head. I'm sure there's probably double that number I can't remember, because they don't intersect with my areas of professional study. 29 was huge (way bigger than 08), but many of those others were in the ballpark of 08 or larger. As far as I'm aware, it's unlikely we'll ever see another as large as 29, but 08 sized? I'd expect another within 30-50 years of it.
- whiddershins 4y agoI don't agree with this characterization. I would suggest 'A Short History of Financial Euphoria' by Kenneth Galbraith. His thesis is bubbles happen like clockwork. I agree with you that they do vary in magnitude.
- itake 4y ago> Given that they stopped being supported by incomes a long time ago How large of a mortgage you can take is directly supported by your income. Certainly, debt lets people can afford more with less, but the income supports the debt, which supports the housing prices.
- shaburn 4y agoThis is more a financial signal of a real estate debacle created by the federal government and federal reserve. Literally the only way to "save" the market will be back to low rates as soon the spending and money printing move through the system and thus cool inflation.
- al_mandi 4y agoI don't believe in economic "consensus". Just a few months ago, they were talking about how inflation was "transitory" until it wasn't.
- cco 4y agoYa know the funny thing is, when you start to scratch at the surface of the main drivers of "inflation" over the past year, you start to find a lot of non-competitive markets, that is to say, price gouging. My current reading is that the "consensus" wasn't wrong per se, just maybe naive? So far as I can tell, "true" inflation was minor and relatively transitory. What wasn't is problems like collusion amongst a small handful of market owners and other consequences of extreme consolidation like one factory for formula going down erasing 40% of formula production over night. That's my take right now at least.
- vineyardmike 4y ago> Fewer loans mean house prices are no longer supported by debt. Given that they stopped being supported by incomes a long time ago, there's nothing left to prop the thing up. As anecdata, I was looking at a mortgage in SF recently (didn’t end up with one) and non-bank lenders offered me 2-3X the debt that a bank would offer, including rocket mortgage, which told me I could take out debt where the monthly payment was ~100% of my post-tax income (and 5% down). This was with no co-signer. I do have strong income and income growth potential (SWE in SF) but yikes I laughed at the guy on the phone when he told me the numbers because it was unreal. Anyways I don’t have a mortgage and I really hope the availability debt to people absolutely crashes and takes housing prices with it.