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Yeah, this time actually is different. The problem last time was the housing prices were driven by high-risk individuals getting large loans and then the crash
by ameister14 4y ago
Yeah, this time actually is different.
The problem last time was the housing prices were driven by high-risk individuals getting large loans and then the crash was due to them defaulting on said loans. There was a system of incentives for Mortgage Backed Securities where the swap was based on the value of the properties in question as well as the potential interest rate, so the prices continued to go up.
That's not happening right now.
- blurbleblurble 4y ago"High risk individuals"? The "risk level of the individual" is totally wrapped up in how well the economy is able to provide people with adequate amounts of income to pay off debt, and that's not something any individual can determine. If there are systematic shifts that make it much more difficult for individuals to keep paying their debt, those individuals will become "high risk individuals".
- ameister14 4y agoSure, if the entire economy collapses people will start to default on their loans. What happened in 2005-2008, though, was people defaulting on their loans caused the economy to collapse. So while a low-risk loan can become higher risk depending on circumstances, classifying an existing high-risk loan as low-risk to improve your bottom line is never a good idea.
- bequanna 4y agoWhy does the cause need to be the same? Every stock market bubble has somewhat different causes but always ends the same.
- ameister14 4y agoFor a few reasons. First, you can't predict when or how things will happen if you don't know why they are happening or what is actually going on. Second, you can't consistently solve problems you don't understand. Third, this might not actually be a bubble. You seem to be saying 'of course it is a bubble, high prices == bubble,' but that's just not true.