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What caused the past, and current housing bubbles


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2014 Jan 6, 10:18am   31,263 views  93 comments

by tovarichpeter   ➕follow (6)   💰tip   ignore  

http://www.cepr.net/index.php/blogs/beat-the-press/peter-wallisons-housing-bubble

Wallison wants to blame the bubble on government policy of promoting homeownership. There certainly has been a problem of a housing policy that is far too tilted toward homeownership, but this does not explain the bubble.

#housing

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1   indigenous   2014 Jan 6, 10:32am  

Not sure about all of what they are saying here, (watching the game)

But you bet Barney and Chris are complicit in the CRA as was Clinton and Carter.

But no matter what dumb fuck idea these assholes come up with it doesn't mean anything unless you can get it financed. Which is where Greenspan comes in. If you had to blame it on one person it would be him.

If you ask me all 3 of them should have to spend their retirement enduring whatever AF can dream up.

2   Heraclitusstudent   2014 Jan 6, 10:46am  

indigenous says

But you bet Barney and Chris are complicit in the CRA as was Clinton and Carter.

... and Bush :

"I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. "
(Bush 2002)

"And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers. "
(Bush 2002)

"Across our Nation, every citizen, regardless of race, creed, color, or place of birth, should have the opportunity to become a homeowner. Homeownership represents a pathway to pride and prosperity for many families, encourages values of responsibility and sacrifice, creates stability for neighborhoods and communities, and generates economic growth that helps strengthen the entire Nation."
(Bush 2003)

5   ttsmyf   2014 Jan 6, 11:24am  

The enabling 'cause' is deception by omission, see here:
http://patrick.net/?p=1230886

6   indigenous   2014 Jan 6, 11:30am  

Heraclitusstudent says

ndigenous says

But you bet Barney and Chris are complicit in the CRA as was Clinton and Carter.

... and Bush :

Fair enough but if anyone was to blame it was the 3 I mentioned.

7   JodyChunder   2014 Jan 6, 11:50am  

tovarichpeter says

What caused the past, and current housing bubbles

There is overwhelming data that shows how nearly 90% of the sub-prime mortgages in '06 were issued by private lenders. GSEs were concerned with the loss of market share to these private lenders; IOW, Fannie and Freddie were scrambling after profits -- not trying to meet low-income lending targets. This alone puts a pretty serious hole in the paddle of any shit-stirrers and their tired-ass'd, jive-ass'd CRA memes. Just how debunked must a myth be before even somewhat sound minds are finally willing to accept that it's plain old noise?

8   indigenous   2014 Jan 6, 1:06pm  

JodyChunder says

tovarichpeter says

What caused the past, and current housing bubbles

There is overwhelming data that shows how nearly 90% of the sub-prime mortgages in '06 were issued by private lenders. GSEs were concerned with the loss of market share to these private lenders; IOW, Fannie and Freddie were scrambling after profits -- not trying to meet low-income lending targets. This alone puts a pretty serious hole in the paddle of any shit-stirrers and their tired-ass'd, jive-ass'd CRA memes. Just how debunked must a myth be before even somewhat sound minds are finally willing to accept that it's plain old noise?

Overwhelming my ass.

I have read that the entirety of the sub prime was centered around 12 or so banks, who's exposure was around 60 billion on assets of 20 trillion.

Any way the only way that this fiasco was able to come about was the CRA, the evidence is overwhelming. Of course to see this you would have to actually LOOK at the facts. Instead of regurgitating progressive blather.

9   ELC   2014 Jan 7, 7:52pm  

Heraclitusstudent says

by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. "

(Bush 2002)

"Beware of white man bearing gifts." (Chief Sitting Bull 1889)

10   tatupu70   2014 Jan 7, 8:38pm  

indigenous says

Overwhelming my ass.

I have read that the entirety of the sub prime was centered around 12 or so banks, who's exposure was around 60 billion on assets of 20 trillion.

Any way the only way that this fiasco was able to come about was the CRA, the evidence is overwhelming. Of course to see this you would have to actually LOOK at the facts. Instead of regurgitating progressive blather.

Jody is 100% correct. It has been proven that CRA loans defaulted at a rate LESS than non-CRA loans during the bubble. So, the FACT is, CRA help lessen the effect of the housing bubble.

I've come to realize that indigenous is among the most disingenous posters on here.

11   Y   2014 Jan 7, 10:25pm  

Under most conditions, soap.

tovarichpeter says

What caused the past, and current housing bubbles

12   Y   2014 Jan 7, 10:27pm  

yeah, do you work for "fred"??

Bellingham Bill says

http://research.stlouisfed.org/fred2/graph/?g=qFE

any questions?

13   Y   2014 Jan 7, 10:28pm  

Project much?

indigenous says

Overwhelming my ass.

14   Y   2014 Jan 7, 10:29pm  

Looks like Mr Bull's advice was ignored...

ELC says

Heraclitusstudent says

by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. "


(Bush 2002)

"Beware of white man bearing gifts." (Chief Sitting Bull 1889)

15   indigenous   2014 Jan 8, 12:04am  

tatupu70 says

Jody is 100% correct. It has been proven that CRA loans defaulted at a rate LESS than non-CRA loans during the bubble. So, the FACT is, CRA help lessen the effect of the housing bubble.

APOCALYPSEFUCKisShostikovitch says

You may have the concentrations in the ballpark - but look again and see how many of the lending institutions were banks subjects to federal examination and the CRA. The sub-prime and ALT-A crapfests were largely products of nonbank lenders of the likes of Countrywide and AmeriQuest, skanky shithouse operations that were subject to none of the regulatory rigors of chartered banks. The bubble of the naughts was marked by the rise of non-bank lenders. Racketeers like Mozilo enjoyed running their scams with not a tenth of the over-sight of a federal chartered bank.

Ok I learnt something here. I have espoused to Thomas Sowell's theory on this subject which in his view was that the CRA caused the bubble by forcing banks to lend to unqualified borrowers. But looking at your references the numbers don't back that idea up.

So what did cause the bubble?

I have been reading Austrian Economics for a few years. So I went to their explanation on what caused the bubble. It comes down to the ABC (Austrian Business Cycle). I read up on this for a few hours and this article is the most concise that I could find. The author is very credible.

http://mises.org/daily/2936

In context though you do have to consider that economics cannot be older than the economy, right? Which means not more than a few hundred years.

In Austrian thinking the ups and downs in the economy are an organic part of the process that are very important. Other schools believe that the economy should remain even, this does not work, and is at the core of the problem.

16   thomaswong.1986   2014 Jan 8, 1:56am  

JodyChunder says

Fannie and Freddie were scrambling after profits -- not trying to meet low-income lending targets. This alone puts a pretty serious hole in the paddle of any shit-stirrers and their tired-ass'd, jive-ass'd CRA memes.

The GSEs pretty much blew up with the accounting irregularities as they covered up losses a few years earlier.. since they carried implied backing of the US Govt they carried lower rates, also AAA ratings.

http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm

Both Brendsel and Raines have been deposed in the wake of multibillion-dollar accounting scandals. Brendsel fell in 2003, after government regulators accused Freddie Mac of understating billions in profits in an effort to smooth earnings. More recently the Securities and Exchange Commission ruled that Fannie Mae--the larger and more important of the two companies--had violated accounting rules, overstating profits by an estimated $9 billion since 2001, which represents almost 40% of its total earnings during that period.

17   indigenous   2014 Jan 8, 2:04am  

APOCALYPSEFUCKisShostikovitch says

But the short answer is Abandonment of Underwriting Quality. (Still, bank-writen notes in any guise were SOLID GOLD compared to the toxic waste of subprime and alleged ALT-A being emitted by the skanky mortgage companies.)

I don't care what dumb ass ideas anyone comes up with if they can't finance it it doesn't matter. Which is what you are saying and agrees with what I saw but the point is that money was made available through the FED. Country wide was able to pass the paper off to Fanny and Freddy which was back by the FED.

This is called the Cantillion effect or ABC and is the core problem. The problem is that too much money injected into the market place creates overinvestment in things that do not create goods that have value. Which is the case with the housing bubble.

You are talking about a symptom of the above but NOT the cause. Same goes for Stocks, Bonds, Student Loans, many Capital Goods, the Trade Deficit.

This is not a religious notion.

http://wiki.mises.org/wiki/Richard_Cantillon

What really sucks is that until the market is allowed to clear this stagnation will continue probably for a very long time.

18   dublin hillz   2014 Jan 8, 2:12am  

If someone doesn't have 20% down, they should not be allowed to buy a primary residence. It should have been the case back then and should be the case today. No exceptions.

19   thomaswong.1986   2014 Jan 8, 2:15am  

Heraclitusstudent says

ndigenous says

But you bet Barney and Chris are complicit in the CRA as was Clinton and Carter.

... and Bush :

It was odd by the dems standard the gop was seeking regulations over the GSE while dems were actually deregulating much of GSE activity.

http://www.youtube.com/embed/LPSDnGMzIdo

20   tatupu70   2014 Jan 8, 2:18am  

thomaswong.1986 says

It was odd by the dems standard the gop was seeking regulations over the GSE while dems were actually deregulating much of GSE activity.

And if the GSE's were the problem, then you might have a point.

21   thomaswong.1986   2014 Jan 8, 2:24am  

False reporting of subprime purchases[edit]

Estimates of subprime loan purchases by Fannie and Freddie have ranged from zero to trillions of dollars. For example, in 2008 Economist Paul Krugman erroneously claimed that Fannie and Freddie "didn't do any subprime lending, because they can't; the definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income." [54]
Economist Russell Roberts[55] cited a June 2008 Washington Post article which stated that "[f]rom 2004 to 2006, the two [GSEs] purchased $434 billion in securities backed by subprime loans, creating a market for more such lending."[56] Furthermore, a 2004 HUD report admitted that while trading securities that were backed by subprime mortgages was something that the GSEs officially disavowed, they nevertheless participated in the market.[57] Both Fannie and Freddie reported some of their subprime purchases in their annual reports for 2004, 2005, 2006, and 2007.

However, the full extent of GSE subprime purchases was not known until after the financial crisis of 2007/08. In December 2011 the Securities and Exchange Commission charged 6 ex-executives of Fannie and Freddie with Securities Fraud, and the SEC alleged that their companies held, in reality, over $2 trillion in subprime loans as of June 2008 (a month before Krugman made his exonerating statement).

tatupu70 says

It has been proven that CRA loans defaulted at a rate LESS than non-CRA loans during the bubble. So, the FACT is, CRA help lessen the effect of the housing bubble.

22   control point   2014 Jan 8, 2:25am  

indigenous says

Country wide was able to pass the paper off to Fanny and Freddy which was back
by the FED.

This is the problem with most of your analysis - everything must funnel back to the FED in some way, shape, or form.

What if this is wrong? Stop looking for explanations that lead you to where you want to go (blaming the Fed) and look at the data - think for yourself. Don't read what others have wrote always - they might be wrong after all.

Basically you have a misalignment of incentive. As AF notes - the incentive (profit) for the Countrywides of the world was big profits by taking short-term risks - and passing off the long-term risks to someone else.

The government set up rules under which the GSEs would operate - conforming loans and all that. Guys like Mozillo found loopholes and skirted the rules to take an advantage.

Regardless of who set up the rules, if you allow one entity, whose incentive was to generate as much paper as possible, to underwrite that risk and "fudge" the facts to make the risk seem lower and to conform to the rules without penalty - therefore playing risk arbitrage - he is going to do it.

Private banks and investors could (and did) buy up all kinds of paper from these guys based upon a faulty credit rating. All government intervention did was possibly make the interest rate on this paper lower. But make no mistake - private entities were misjudging risk too. If the investors were willing to buy the debt at 5% they would have bought it at 7% too.

The free market failed here because all parties did not have equal information. GSEs/banks/investors were not fully aware of the true credit rating of the debt. The other side was fully aware of its quality - and was why they were dumping it. This created an arbitrage opportunity for Angelo Mozilo and his ilk.

The FED and GSEs didn't come up with subprime, Alt-A, NINJA, 120% financing, piggyback, etc. These products were invented by the private market.

23   thomaswong.1986   2014 Jan 8, 2:28am  

dublin hillz says

If someone doesn't have 20% down, they should not be allowed to buy a primary residence. It should have been the case back then and should be the case today. No exceptions.

http://en.wikipedia.org/wiki/Government_policies_and_the_subprime_mortgage_crisis#False_reporting_of_subprime_purchases

Cheerleading for subprime

When Fannie or Freddie bought subprime loans they were taking a chance because, as noted by Paul Krugman, "a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income." [54]

As noted, the SEC has alleged that Fannie and Freddie both ignored the law with regard to the purchase of subprime loans. However, some loans were so clearly lacking in quality that Fannie and Freddie wouldn't take a chance on buying them. Nevertheless, the two GSEs promoted the subprime loans that they could not buy. For example: "In 1997, Matt Miller, a Director of Single-Family Affordable Lending at Freddie Mac, addressed private lenders at an Affordable Housing Symposium. He said that Freddie could usually find a way to buy and securitize their affordable housing loans 'through the use of Loan Prospector research and creative credit enhancements … (emphasis added).' Then, Mr. Miller added: 'But what can you do if after all this analysis the product you are holding is not up to the standards of the conventional secondary market?' Matt Miller had a solution: Freddie would work with "several firms" in an effort to find buyers for these [subprime] loans." .[63]

The GSEs had a pioneering role in expanding the use of subprime loans: In 1999, Franklin Raines first put Fannie Mae into subprimes, following up on earlier Fannie Mae efforts in the 1990s, which reduced mortgage down payment requirements. At this time, subprimes represented a tiny fraction of the overall mortgage market.[64] In 2003, after the use of subprimes had been greatly expanded, and numerous private lenders had begun issuing subprime loans as a competitive response to Fannie and Freddie, the GSE's still controlled nearly 50% of all subprime lending. From 2003 forward, private lenders increased their share of subprime lending, and later issued many of the riskiest loans. However, attempts to defend Fannie Mae and Freddie Mac for their role in the crisis, by citing their declining market share in subprimes after 2003, ignore the fact that the GSE's had largely created this market, and even worked closely with some of the worst private lending offenders, such as Countrywide. In 2005, one out of every four loans purchased by Fannie Mae came from Countrywide.[65] Fannie Mae and Freddie Mac essentially paved the subprime highway, down which many others later followed.

24   thomaswong.1986   2014 Jan 8, 2:33am  

indigenous says

What really sucks is that until the market is allowed to clear this stagnation will continue probably for a very long time.

But thats not what the Govt wants.. for the sake of the poor. So let the pain drag on for years to come.

25   CL   2014 Jan 8, 2:45am  

APOCALYPSEFUCKisShostikovitch says

indigenous says

I have read that the entirety of the sub prime was centered around 12 or so banks, who's exposure was around 60 billion on assets of 20 trillion.

You may have the concentrations in the ballpark - but look again and see how many of the lending institutions were banks subjects to federal examination and the CRA. The sub-prime and ALT-A crapfests were largely products of nonbank lenders of the likes of Countrywide and AmeriQuest, skanky shithouse operations that were subject to none of the regulatory rigors of chartered banks. The bubble of the naughts was marked by the rise of non-bank lenders. Racketeers like Mozilo enjoyed running their scams with not a tenth of the over-sight of a federal chartered bank.

Are you feeling okay? There were only a few jokes in there, and you seem extraordinarily erudite. :)

26   indigenous   2014 Jan 8, 2:46am  

control point says

Private banks and investors could (and did) buy up all kinds of paper from these guys based upon a faulty credit rating. All government intervention did was possibly make the interest rate on this paper lower. But make no mistake - private entities were misjudging risk too. If the investors were willing to buy the debt at 5% they would have bought it at 7% too.

I checked (glanced) that the majority of the loans countrywide passed were bought by Freddy and Fannie. It appears you are equating all of the buyers of the paper as equal in the volume of purchases?

Again it does not matter what dumb ass idea anyone comes up with if they cannot finance it.

And again the enabler was the FED. If you bothered to read any of the links I made you will see that this is fact based.

27   thomaswong.1986   2014 Jan 8, 2:51am  

thomaswong.1986 says

The GSEs had a pioneering role in expanding the use of subprime loans: In 1999, Franklin Raines first put Fannie Mae into subprimes, following up on earlier Fannie Mae efforts in the 1990s, which reduced mortgage down payment requirements. At this time, subprimes represented a tiny fraction of the overall mortgage market

Thank Billy Bob Clinton..

Flashback 1999: Fannie Mae Eases Credit To Aid Mortgage Lending(Bailout-Bill Clinton's Real Legacy)
New York Times ^ | September 30, 1999

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

28   indigenous   2014 Jan 8, 2:51am  

CL says

Are you feeling okay? There were only a few jokes in there, and you seem extraordinarily erudite. :)

Why do liberals hate erudite?

29   tatupu70   2014 Jan 8, 3:03am  

indigenous says

And again the enabler was the FED. If you bothered to read any of the links I made you will see that this is fact based.

The Fed did not require banks to abandon their underwriting standards. The Fed did not force them to make subprime loans. Or liar loans.

The banks did it to make money. They made huge fees on those loans. Capitalism at its best....

30   indigenous   2014 Jan 8, 3:28am  

tatupu70 says

indigenous says

And again the enabler was the FED. If you bothered to read any of the links I made you will see that this is fact based.

The Fed did not require banks to abandon their underwriting standards. The Fed did not force them to make subprime loans. Or liar loans.

The banks did it to make money. They made huge fees on those loans. Capitalism at its best....

Regulation is an extension of the rule of law, I object to too much regulation.

Clearly there wasn't enough with Fanny and Freddy, again the core problem was the FED. I know this strikes at the heart of your religion but my job is to learn you stuff.

31   ELC   2014 Jan 8, 3:40am  

SoftShell says

Looks like Mr Bull's advice was ignored...

ELC says

Heraclitusstudent says

by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. "

(Bush 2002)

"Beware of white man bearing gifts." (Chief Sitting Bull 1889)

Even Indians aren't exempt from Federal income tax.

32   HEY YOU   2014 Jan 8, 3:51am  

"What caused the past, and current housing bubbles"

Dumbass ,follow the herd buyers overpaying for overpriced shacks.

This lovely home has an listing price of ONLY $450,000 but you will surely get it if you offer $535.000. There is an investment property that would be great for landlording with a listing price of $125,000. The seller might accept $165,500. The profit on this rental could help you pay for your overpriced residence.

Why do you hate the truth?

33   thomaswong.1986   2014 Jan 8, 3:57am  

HEY YOU says

Dumbass ,follow the herd buyers overpaying for overpriced shacks.

Seems many with an interest in RE would dispute it was the Public..
therefore they keep pointing to the Banks and Wall Street...

They just dont want to levy any blame on the buying public..

34   Analyzer   2014 Jan 8, 4:01am  

Quote of the day people... in regards to QE:
“We still don’t have well-developed macro models that incorporate a realistic financial sector,” said William Dudley, president of the New York Federal Reserve, at the American Economic Association’s 2014 annual meeting. “We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions — is it the effect of the purchases on the portfolios of private investors or, alternatively, is the major channel one of signaling?”

35   thomaswong.1986   2014 Jan 8, 4:02am  

APOCALYPSEFUCKisShostikovitch says

control point says

The government set up rules under which the GSEs would operate - conforming loans and all that. Guys like Mozillo found loopholes and skirted the rules to take an advantage

GSEs were no angels... heck they were more criminals than Mozillo could ever be... the Dems did alot of block and tackling over regulation..
its all on video...

http://www.youtube.com/embed/NQXbT5ZMYaY

36   CL   2014 Jan 8, 4:17am  

indigenous says

Why do liberals hate erudite?

That was re: Apocalypsefuck, not you.

APOCALYPSEFUCKisShostikovitch says

t's worth pointing out that HUD/HEO could have stepped in at any time and disciplined Fannie and Freddie and instructed the agencies to reject all but conventional notes regardless of spurious, opportunistic interpretations of rules - but they looked the other way, even in the knowledge of the skunkiness of the non-banks' paper. As doctrinaire as the Reagan Administration could be, when Ed Grey and the FHLBB of SF pointed out the damage Garn-St. Germain had wrought, they turned around and re-regulated the S&Ls and held the losses to under a trillion. They had their, ahem, ideas but they weren't so enthralled by them to become strangers to reason and fact. The administration owned up to calamity and formed the RTC (under Bush I, I believe) to sell off the fruits of this mistake to the public at a discount to correct a market anomaly deregulation had introduced by auctioning off the foreclosed homes.

And he did it again! I'm not complaining; it's just an interesting facet of an otherwise colorful personality here.

37   indigenous   2014 Jan 8, 6:01am  

APOCALYPSEFUCKisShostikovitch says

Right, if only the Democrats had not abused and shouted down the Godly counsel of noble Republicans, ever stalwart advocates of financial regulation, if only Barney Frank had not given himself over to teen boys and male prostitutes and invented the CRA, every American would have had their choice of high paying jobs, homes paid for and a tidy investment income ready for their Golden Years. If only.

That is a two street, if only the Koch brothers, BP oil, the frackers, Hewlett Packard, Michael Milken had not...

38   thomaswong.1986   2014 Jan 8, 6:16am  

APOCALYPSEFUCKisShostikovitch says

Right, if only the Democrats had not abused and shouted down the Godly counsel of noble Republicans, ever stalwart advocates of financial regulation, if only Barney Frank had not given himself over to teen boys and male prostitutes and invented the CRA, every American would have had their choice of high paying jobs, homes paid for and a tidy investment income ready for their Golden Years. If only.

Barney Frank also invented the Glory Holes...

39   CL   2014 Jan 8, 6:37am  

thomaswong.1986 says

Barney Frank also invented the Glory Holes...

At least it gave you something to do on your way to work.

40   Y   2014 Jan 8, 1:09pm  

Keynesian economics dictate zero bond growth in a low interest high value housing market.
One would be wise to move nest eggs into precious metals, the bulwark against infaltion.

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