Federal Commission on the Financial Crisis

[KD in CA]

I imagine so.

 

People forget that a good chunk of "subprime" mortgages were taken out by middle class house flipping speculators. After all, there's no way property values would decline in Arizona, Florida or the Inland Empire.

 

 

Yup, My mother-in-law lives in a gated country club in the CA desert and when we visited last year every 3d house in the complex was on the market. A lot of people leveraged up to get a second home at such properties when the going was good.

 

Of course, more people might remember those folks share some of the blame if the politicians and media hadn't conveniently painted the entire mortgage brokerage business as 'predatory'.

[Chef Jim]

Shh, those are voters you're talking about.

 

To reinforce this point, about 5 years ago, my wife and I were considering moving into a different house. We went through the pre-approval exercise and got pre-approved for a 720,000 mortgage and was reassured that with our credit, we could get much more if we needed to.

 

I can tell you right now that I couldn't afford close to a 700K house, let alone more...but some bank stood ready to loan me the money.

 

That was the whole problem with the mortgage industry. They based your qualifications on your credit not your income.

 

Yup, My mother-in-law lives in a gated country club in the CA desert and when we visited last year every 3d house in the complex was on the market. A lot of people leveraged up to get a second home at such properties when the going was good.

 

Of course, more people might remember those folks share some of the blame if the politicians and media hadn't conveniently painted the entire mortgage brokerage business as 'predatory'.

 

Try a third and fourth home. In soCal people had so much equity (mine grew to $300k in four years and it was a small place) that they kept leveraging and buying more real estate. It was hard for them not to after seeing their primary rise so quickly. But no one (except for us outside the real estate industry) told them it couldn't be sustained. I couldn't believe that "professionals" inside real estate also believed the hype. It was the absolute perfect storm. I remember meeting with one of my rep's prospects who had three rental properties with an average of $300k equity in each. They turned us away, they weren't interested in financial planning. As we left the appointment I looked at my rep and said "if that were me I'd be putting for sale signs in front of all three of those places." Thinking of having $900k liquid gave me such a hard-on.

[Dave_In_Norfolk]

Ten Factors WSJ Editorial:

 

For those without WSJ subscription:

 

"Starting in the late 1990s, there was a broad credit bubble in the U.S. and Europe and a sustained housing bubble in the U.S. (factors 1 and 2). Excess liquidity, combined with rising house prices and an ineffectively regulated primary mortgage market, led to an increase in nontraditional mortgages (factor 3) that were in some cases deceptive, in many cases confusing, and often beyond borrowers' ability to pay.

 

However, the credit bubble, housing bubble, and the explosion of nontraditional mortgage products are not by themselves responsible for the crisis. Our country has experienced larger bubbles -- the dot-com bubble of the 1990s, for example -- that were not nearly as devastating as the housing bubble. Losses from the housing downturn were concentrated in highly leveraged financial institutions. Which raises the essential question: Why were these firms so exposed?

 

Failures in credit-rating and securitization transformed bad mortgages into toxic financial assets (factor 4). Securitizers lowered the credit quality of the mortgages they securitized, credit-rating agencies erroneously rated these securities as safe investments, and buyers failed to look behind the ratings and do their own due diligence. Managers of many large and midsize financial institutions amassed enormous concentrations of highly correlated housing risk (factor 5), and they amplified this risk by holding too little capital relative to the risks and funded these exposures with short-term debt (factor 6). They assumed such funds would always be available. Both turned out to be bad bets.

 

These risks within highly leveraged, short-funded financial firms with concentrated exposure to a collapsing asset class led to a cascade of firm failures. The losses spread in two ways. Some firms had large counterparty credit risk exposures, and the sudden and disorderly failure of one firm risked triggering losses elsewhere. We call this the risk of contagion (factor 7). In other cases, the problem was a common shock (factor 8). A number of firms had made similar bad bets on housing, and thus unconnected firms failed for the same reason and at roughly the same time.

 

A rapid succession of 10 firm failures, mergers and restructurings in September 2008 caused a financial shock and panic (factor 9). Confidence and trust in the financial system evaporated, as the health of almost every large and midsize financial institution in the U.S. and Europe was questioned. The financial shock and panic caused a severe contraction in the real economy (factor 10)."

Even the mouth piece of capitalism is admitting this to be a free market failure. Nice

 

Anything that doesn't explicitly call out the American homebuyer for being a complete !@#$wit is incomplete if not counterproductive. If the above is an accurate representation of the content of the report, it's compounding the problem of pretending that the American consumers are somehow disconnected from the financial industry and government policy.

Are you being sarcastic? Seriously? Maybe the government should roll up a newspaper and go around swatting those bad old home buyers?

[DC Tom]

Are you being sarcastic? Seriously? Maybe the government should roll up a newspaper and go around swatting those bad old home buyers?

 

Hey, look...the example that proves my point.

 

Moron.

[Peace]

Even the mouth piece of capitalism is admitting this to be a free market failure. Nice

 

 

Are you being sarcastic? Seriously? Maybe the government should roll up a newspaper and go around swatting those bad old home buyers?

 

No. No sarcasm at all. There is blame to go around but if you, Dave in Norfolk, take out a loan that you can't afford to pay back, it's your own stupid fault.

 

It's the bank's fault for thinking you can but it's your fault for being so careless with your money.