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I feel like the problem is, there are no easy answers. The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the on

I feel like the problem is, there are no easy answers. The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the only thing that could bring down the ship was a system-wide failure. And until that happened, things were great. People were buying houses. This was great for politicians, great for the middle class, great for businesses. Politicians wanted this to continue, so they pushed for easier access to borrowing. Banks/Wall Street wanted this to continue, so they were lax about loaning standards. People wanted this to continue because home values were soaring, and they were able to "afford" nicer and nicer places. Digging into it further, mid-level people in the banks, the ones responsible for handing out these 0-down mortgages, were pushing mortgages out the door as fast as they could. The model kept showing home prices soaring, and this mid-level mortgage official wanted his bonus. The home-buyer wanted that $750k house on his $70k/yr salary, because if he could only hold onto it for 5 years, it'd be worth $1.5m. Politicians wanted this to continue because they were raking in taxes on it. And for years, this grew outrageously. Until suddenly the one thing that could bring the whole industry to its knees happened: a country-wide slowdown on buying houses. Suddenly home prices stagnated, mortgage rates rose and bam, everyone is fucked. Banks are stuck with loans that were given to people on the ragged edge of what they could "afford". People were stuck with mortgages that they could barely afford the interest on. Politicians were stuck with constituents who suddenly were shocked that they weren't able to afford the lifestyle they wanted. Who's at fault? A little bit of everyone. Banks loaned money to people who couldn't afford a bump in the road. Should they have told people "nope, you can't afford that house"? Maybe. But at the same time, should a person have taken on the responsibility of a house they couldn't afford? Politicians, who are in charge of setting the rules of the game--should they have told the banks not to make loans? After all, their constituents were demanding it. Why shouldn't they have access to a booming housing market? Should the government have stepped in to tell people what financial risks to take? It's a really, really tricky situation. And honestly, everyone is a bit to blame. Picking out a few CEOs to toss in jail seems arbitrary. What about the loan officer who wanted his bonus for a new pool? He's probably a middle-class person just like the majority of people in this. He wins because he pushed a mortgage, the client "wins" in the short term because he gets a crazy nice home. Do we prosecute all of the mid-level people at the banks too?

pessimizer 13y ago
>The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the only thing that could bring down the ship was a system-wide failure. They weren't meant to diversify risk, they were meant to obscure risk. >The home-buyer wanted that $750k house on his $70k/yr salary The homebuyer always wanted this. The difference is that during this time, they were given this, and allowed to leverage the value of a piece of property that would always rise and never fall in value in order to pay for it. >Until suddenly the one thing that could bring the whole industry to its knees happened: a country-wide slowdown on buying houses. Or rather a country-wide slowdown of the rate of increase in buying houses, which was an inevitability. >Who's at fault? 1) The people who kept swaps from being regulated as insurance. 2) The ratings agencies. 3) The people who took away the wall between investment banking and deposit banking. 4) Black-Scholes, 5) Everybody who saw that the housing bubble was stupid, and made money from it anyway by selling it as sustainable. 6) General American innumeracy. There are easy answers.
- JonFish85 13y ago
  Not really, especially from a legal standpoint (not a lawyer!). > The homebuyer always wanted this. The difference is that during this time, they were given this, and allowed to leverage the value of a piece of property that would always rise and never fall in value in order to pay for it. Why was this? I'd argue that it's because the whole system wanted that to be true: politicians wanted people to be buying bigger and nicer houses. People wanted access to a nicer house than they can technically afford. Companies wanted to push mortgages out, then slice them up to try to minimize risk. The entire system from top to bottom wanted this. > Everybody who saw that the housing bubble was stupid, and made money from it anyway by selling it as sustainable. Just like the dot-com bubble, it's really who got left holding the bag. Many, many people made money off of it. Many middle class families also! People who sold a house when home prices were soaring. People who locked in low rates. Everyone knew that the home market wasn't going to grow forever, it was just a gamble as to how quickly the growth would slow, and how wide-spread defaults would be.
lifeisstillgood 13y ago
maybe - you see I own a home that according to the millionaire next door I cannot afford - the idea is to own a home that is 2.5 times annual salary. at the time I was in the top 5% of earners in the UK - and 2.5 would have given me a one bed flat in London for my family. A average salary of 25K would have a 62k purchase price. according to zoopla there are precisely no houses in all of London at that price and a grand total of 66 flats for sale. so for 50% of the 10 million people in London, prudence dictates that there are 66 available properties

pessimizer 13y ago

>The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the only thing that could bring down the ship was a system-wide failure. They weren't meant to diversify risk, they were meant to obscure risk. >The home-buyer wanted that $750k house on his $70k/yr salary The homebuyer always wanted this. The difference is that during this time, they were given this, and allowed to leverage the value of a piece of property that would always rise and never fall in value in order to pay for it. >Until suddenly the one thing that could bring the whole industry to its knees happened: a country-wide slowdown on buying houses. Or rather a country-wide slowdown of the rate of increase in buying houses, which was an inevitability. >Who's at fault? 1) The people who kept swaps from being regulated as insurance. 2) The ratings agencies. 3) The people who took away the wall between investment banking and deposit banking. 4) Black-Scholes, 5) Everybody who saw that the housing bubble was stupid, and made money from it anyway by selling it as sustainable. 6) General American innumeracy. There are easy answers.

JonFish85 13y ago
Not really, especially from a legal standpoint (not a lawyer!). > The homebuyer always wanted this. The difference is that during this time, they were given this, and allowed to leverage the value of a piece of property that would always rise and never fall in value in order to pay for it. Why was this? I'd argue that it's because the whole system wanted that to be true: politicians wanted people to be buying bigger and nicer houses. People wanted access to a nicer house than they can technically afford. Companies wanted to push mortgages out, then slice them up to try to minimize risk. The entire system from top to bottom wanted this. > Everybody who saw that the housing bubble was stupid, and made money from it anyway by selling it as sustainable. Just like the dot-com bubble, it's really who got left holding the bag. Many, many people made money off of it. Many middle class families also! People who sold a house when home prices were soaring. People who locked in low rates. Everyone knew that the home market wasn't going to grow forever, it was just a gamble as to how quickly the growth would slow, and how wide-spread defaults would be.

lifeisstillgood 13y ago

maybe - you see I own a home that according to the millionaire next door I cannot afford - the idea is to own a home that is 2.5 times annual salary. at the time I was in the top 5% of earners in the UK - and 2.5 would have given me a one bed flat in London for my family. A average salary of 25K would have a 62k purchase price. according to zoopla there are precisely no houses in all of London at that price and a grand total of 66 flats for sale. so for 50% of the 10 million people in London, prudence dictates that there are 66 available properties