patrick.net

There are multiple factors but I blame Alan Greenspans attempts to cease the DOT COM bubble burst of the late 90's. My thoughts are that the root culprit is Graham-Leachy act which removed all stop gaps for creative financing in attempt to extend loans out to lower income middle class families. Alan Greenspan apparently put forth all of this in attempt to thwart the DOT com bust of the late 90's.... it backfired and now we are the benefactors of his failed fiscal policies.

"Go Republican policy, down with regulation, let businesses run the way they want....then put the Dems in office to sell the taxpayers on paying for the failed policies."

Here are the facts behind the causes of the recession and housing bubble.

Subprime lending as a cause
Further information: Subprime mortgage crisis
Based on the assumption that subprime lending precipitated the crisis, some have argued that the Clinton Administration may be partially to blame, while others have pointed to the passage of the Gramm-Leach-Bliley Act by the 106th Congress, and over-leveraging by banks and investors eager to achieve high returns on capital.

Some believe the roots of the crisis can be traced directly to subprime lending by Fannie Mae and Freddie Mac, which are government sponsored entities. The New York Times published an article that reported the Clinton Administration pushed for subprime lending: "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" (NYT, 30 September 1999).

In 1995, the administration also tinkered with Carter's Community Reinvestment Act of 1977 by regulating and strengthening the anti-redlining procedures. It is felt by many that this was done to help boost a stagnated home ownership figure that had hovered around 65% for many years. The result was a push by the administration for greater investment, by financial institutions, into riskier loans. In a 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 it was shown that $467 billion of mortgage credit poured out of CRA-covered lenders into low- and mid-level income borrowers and neighborhoods. (See "The Community Reinvestment Act After Financial Modernization," April 2000.)

[edit] Government activities as a cause
In 1992, the 102nd Congress under the George H. W. Bush administration weakened regulation of Fannie Mae and Freddie Mac with the goal of making available more money for the issuance of home loans. The Washington Post wrote: "Congress also wanted to free up money for Fannie Mae and Freddie Mac to buy mortgage loans and specified that the pair would be required to keep a much smaller share of their funds on hand than other financial institutions. Whereas banks that held $100 could spend $90 buying mortgage loans, Fannie Mae and Freddie Mac could spend $97.50 buying loans. Finally, Congress ordered that the companies be required to keep more capital as a cushion against losses if they invested in riskier securities. But the rule was never set during the Clinton administration, which came to office that winter, and was only put in place nine years later."[43]

Others have pointed to deregulation efforts as contributing to the collapse. In 1999, the 106th Congress passed the Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act of 1933. This repeal has been criticized by some for having contributed to the proliferation of the complex and opaque financial instruments which are at the heart of the crisis. However, some economists object to singling out the repeal of Glass-Steagall for criticism. Brad DeLong, a former advisor to President Clinton and economist at the University of California, Berkeley and Tyler Cowen of George Mason University have both argued that the Gramm-Leach-Bliley Act softened the impact of the crisis by allowing for mergers and acquisitions of collapsing banks as the crisis unfolded in late 2008.[44]

[edit] Over-leveraging, credit default swaps and collateralized debt obligations as causes
Another probable cause of the crisis—and a factor that unquestionably amplified its magnitude—was widespread miscalculation by banks and investors of the level of risk inherent in the unregulated Collateralized debt obligation and Credit Default Swap markets. Under this theory, banks and investors systematized the risk by taking advantage of low interest rates to borrow tremendous sums of money that they could only pay back if the housing market continued to increase in value.

According to an article published in Wired, the risk was further systematized by the use of David X. Li's Gaussian copula model function to rapidly price Collateralized debt obligations based on the price of related Credit Default Swaps.[45] Because it was highly tractable, it rapidly came to be used by a huge percentage of CDO and CDS investors, issuers, and rating agencies.[45] According to one wired.com article: "Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril...Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees."[45]

The pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. It has been estimated that the "from late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds...[o]ut of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi."[46] The average recovery rate for high quality CDOs has been approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO's has been approximately five cents for every dollar. These massive, practically unthinkable, losses have dramatically impacted the balance sheets of banks across the globe, leaving them with very little capital to continue operations.[46]

[edit] Credit creation as a cause
The Austrian School of Economics proposes that the crisis is an excellent example of the Austrian Business Cycle Theory, in which credit created through the policies of central banking gives rise to an artificial boom, which is inevitably followed by a bust. This perspective argues that the monetary policy of central banks creates excessive quantities of cheap credit by setting interest rates below where they would be set by a free market. This easy availability of credit inspires a bundle of malinvestments, particularly on long term projects such as housing and capital assets, and also spurs a consumption boom as incentives to save are diminished. Thus an unsustainable boom arises, characterized by malinvestments and overconsumption.

But the created credit is not backed by any real savings nor is in response to any change in the real economy, hence, there are physically not enough resources to finance either the malinvestments or the consumption rate indefinitely. The bust occurs when investors collectively realize their mistake. This happens usually some time after interest rates rise again. The liquidation of the malinvestments and the consequent reduction in consumption throw the economy into a recession, whose severity mirrors the scale of the boom's excesses.

The Austrian School argues that the conditions previous to the crisis of the late 2000s correspond exactly to the scenario described above. The central bank of the United States, led by Federal Reserve Chairman Alan Greenspan, kept interest rates very low for a long period of time to blunt the recession of the early 2000s. The resulting malinvestment and overconsumption of investors and consumers prompted the development of a housing bubble that ultimately burst, precipitating the financial crisis. This crisis, together with sudden and necessary deleveraging and cutbacks by consumers, businesses and banks, led to the recession. Austrian Economists argue further that while they probably affected the nature and severity of the crisis, factors such as a lack of regulation, the Community Reinvestment Act, and entities such as Fannie Mae and Freddie Mac are insufficient by themselves to explain it.[47]

Austrian economists[who?] argue that the history of the yield curve from 2000 through 2007 illustrates the role that credit creation by the Federal Reserve may have played in the on-set of the financial crisis in 2007 and 2008. The yield curve (also known as the term structure of interest rates) is the shape formed by a graph showing US Treasury Bill or Bond interest rates on the vertical axis and time to maturity on the horizontal axis. When short-term interest rates are lower than long-term interest rates the yield curve is said to be “positively sloped”. When short-term interest rates are higher than long-term interest rates the yield curve is said to be “inverted”. When long term and short term interest rates are equal the yield curve is said to be “flat”. The yield curve is believed by some to be a strong predictor of recession (when inverted) and inflation (when positively sloped). However, the yield curve is believed to act on the real economy with a lag of 1 to 3 years.

A positively sloped yield curve allows Primary Dealers (such as large investment banks) in the Federal Reserve system to fund themselves with cheap short term money while lending out at higher long-term rates. This strategy is profitable so long as the yield curve remains positively sloped. However, it creates a liquidity risk if the yield curve were to become inverted and banks would have to refund themselves at expensive short term rates while losing money on longer term loans.

The narrowing of the yield curve from 2004 and the inversion of the yield curve during 2007 resulted (with the expected 1 to 3 year delay) in a bursting of the housing bubble and a wild gyration of commodities prices as moneys flowed out of assets like housing or stocks and sought safe haven in commodities. The price of oil rose to over $140 dollars per barrel in 2008 before plunging as the financial crisis began to take hold in late 2008.

Other observers have doubted the role that the yield curve plays in controlling the business cycle. In a May 24, 2006 story CNN Money reported: “…in recent comments, Fed Chairman Ben Bernanke repeated the view expressed by his predecessor Alan Greenspan that an inverted yield curve is no longer a good indicator of a recession ahead.”[citation needed]

[edit] Oil prices
Economist James D. Hamilton has argued that the increase in oil prices in the period of 2007 through 2009 was a significant cause of the recession. He evaluated several different approaches to estimating the impact of oil price shocks on the economy, including some methods that had previously shown a decline in the relationship between oil price shocks and the overall economy. All of these methods "support a common conclusion; had there been no increase in oil prices between 2007:Q3 and 2008:Q2, the US economy would not have been in a recession over the period 2007:Q4 through 2008:Q3."[48] Hamilton's own model, a time-series econometric forecast based on data up to 2003, showed that the decline in GDP could have been successfully predicted to almost its full extent given knowledge of the price of oil. The results imply that oil prices were entirely responsible for the recession; however, Hamilton himself acknowledged that this was probably not the case but maintained that it showed that oil price increases made a significant contribution to the downturn in economic growth.[49]

I would also say the real estate agents are at fault also. They have been consistently using the multiple offer method to raise the listing price of the homes i have been looking at here recently...each and everytime I refuse to submit a counter offer.

We will wait until next years SALES prices come out before we buy a house...LOL

What about Mexicans and people from other states dont you like?

I have had a tuff time getting the "sales" amount .... any good on-line short cuts?

Congratulations, everyone.
Wait for the forth quarter results. They are going to be even better.
What's even nicer - the total dollar amount of defaulted mortgages, which increases much faster than the number of cases.
Also the increase in the number of bankruptcies is very promising, it indicates that a lot of home-debtors were lured into preferring bankruptcy over foreclosure, that's temporary for sure. When this trend reverses we'll see a powerful implosion in housing markets and PRICES!

Wowza.. 76% change in foreclosures since q3 08 in Oregon. 176% in AL!

Yeah, some of the theories floating around a Portland Housing blog I visit is that the fact that Portland has had a lot of participation in the Alt-A department and since those folks have deeper pockets via 401K's, IRA's, relatives, other investments that these guys might be dipping into those 'saving' to save the house but at some point it's going to make more sense to walk away from the house before everything else is drained.

Yeah, this party is just getting started, IMHO.

What would they rent for?

OK, I lived for 6 years in the 92612 zip and was there recently.

We actually were going to rent a place in that neighborhood (Alcorn) and they are old, redone for the most part, but older 1970's construction. That neighborhood, along with Rainbow Ridge TH were the first to be built in Turtle Rock which gives you an idea of how old they are.

In 2003 we were paying $1850/mo for a 3/2 with attached 2-car in Turtlerock Meadows TH across from TR Park. This same unit/area is currently renting for $2100-2700/mo, depending.

For your home listed above, my educated guess is that you're looking at $2500-$3k/mo rent. Reason being, its proximity to UHS and UCI.

~Misstrial

What does this have to do with the housing crash forum?

I would love to invest in something, putting it in the market is riskier than gambling these days.

Anyone cacth front line last week? "The Warning" it about Brooksley Born the head of the CFTC warning that the derivatives market was a scam. She was silenced in a Congressional hearing on her findings, and six weeks latter the derivatives market collapsed. All of the folks that maliciously silenced her and told her and congress point blank that suckers are suckers and deserved to be robbed, if they can't see something is too good to be true and invest in those sucker bets. They saw it a great money maker and economy builder, robbing from hard working people investing in complicated markets they don't understand.

I guess that is why Greenspan sabotaged the Tech market it interfered with the financial market, which they had full control over. The tech market was a force out of their control, just the companies and the day traders investing in them. Banks had to watch billions being made and lost for the sidelines. (Unrelated I know, but I always wondered what was Greenspans motive for bringing down the tech industry as a whole, instead of just policing the scammers that over valued bogus companies. )

My point is there is no way I would invest in this market unless you a great understanding of the Fundamentally Challenged forces that are driving this market. It is not supply nor demand, nor is it fiscal profits.

I would invest in a private venture though, that has a good model and a plan.

My husband calls this his "we're gonna buy for cash" dance. In fact he does a little dance.
We don't have as much disposable income as you, (evidently) so it would be more like 2018 for us.

GMAC my mortgage holder (

Sorry all, I had a great one. The post (above) didn't go through. I don't have the heart to type it again. Have a Good One,

Dayum, and I had a witty comeback too.

I've taken a few thousand of the money I was saving for a down payment and bought some high tech start up stocks in web 2.0 and hydrogen technology.

I think that will return me enough money in the short term to pay outright for a house.

My friend Brian bought a two bedroom, mint condition house in rural Oregon for $36,000 (thirty six thousand...not missing any zeroes). I'm looking to do same.

I've been doing the same actually, except it's been since 1997 when I saw housing starting to bubble :(

Granted, now I have a few hundred k liquid, but it's going to take a few more years so save enough to buy outright in the bay area.

Either way, I'm not touching anything. This market is ridiculous and is ripe for a fall.

I should add "this housing market and our economy" is ripe for a fall. I really have a bad feeling the next 10 years + are going to suck something fierce.

Decreasing prices in electronics is not deflation. Prices of electrons have steadily decreased for about 50 years, despite 50 straight years of inflation.

Can't argue with prices and Laptops, PDA's by top manufacturers as well as HDTV have never been more affordable and for the most recent models.

Oh jeez, another soothsayer that knows how EVERYTHING pans out in the next couple of years. who wins the Superbowl in 2012 ? Ok , that is three years but still valuable info regardless. Please say

theoakman says

Decreasing prices in electronics is not deflation. Prices of electrons have steadily decreased for about 50 years, despite 50 straight years of inflation.

LOL! Sarcasm.. thats good.. here is a blast from the past.
It cost $9K back in 89, of course it also paid everyones salary. Now the same product (netbooks) are a tiny fraction. There is no one in SV who can control prices.. not even Google or Oracle.

This is 2640 Broadway in San Francisco, between Scott and Normandie. It also happens to be Nancy Pelosi's house. Looks like she can afford to pay for everybody's health insurance all by herself!

Seller Facts: Single family 3 beds 3.0 bath 1,800 sqft Lot 100,536,480 sqft ???????? Built in 1990 Seller's Description: Elegant home in the heart of Menlo Park. Short walk from downtown. Designed by award winning architect,Roger East. Enter a beautifully secluded inner court past a tranquil pond to your front door.Green design with active and passive solar heathing.Crafted with the finest materials. This is sophistication and comfort in exclusive tri-level living. THIS LOOKS ABOUT right! I can afford it. It's listed on Zillow for $4,100 dollars. At this price mortgage is an affordable $17/month. Maybe its a mistake? But even a homeless person might be able to swing the payments on this one. A part time job as a custodian at McDonalds at about 2 hours per week would qualify you to buty. But what about health insurance costs? food? It does look cheaper than rent. Maybe I could rent it out to someone for $50/month and keep the extra $33 dollars? Here is the link on zilllow http://www.zillow.com/homedetails/827-Fremont-St-Menlo-Park-CA-94025/15595854_zpid/ %

Seller Facts: Single family 3 beds 3.0 bath 1,800 sqft Lot 100,536,480 sqft ???????? Built in 1990 Seller's Description: Elegant home in the heart of Menlo Park. Short walk from downtown. Designed by award winning architect,Roger East. Enter a beautifully secluded inner court past a tranquil pond to your front door.Green design with active and passive solar heathing.Crafted with the finest materials. This is sophistication and comfort in exclusive tri-level living. THIS LOOKS ABOUT right! I can afford it. It's listed on Zillow for $4,100 dollars. At this price mortgage is an affordable $17/month. Maybe its a mistake? But even a homeless person might be able to swing the payments on this one. A part time job as a custodian at McDonalds at about 2 hours per week would qualify you to buty. But what about health insurance costs? food? It does look cheaper than rent. Maybe I could rent it out to someone for $50/month and keep the extra $33 dollars? Here is the link on zilllow http://www.zillow.com/homedetails/827-Fremont-St-Menlo-Park-CA-94025/15595854_zpid/ %

I built this house in 1999 for $135k, or $57sf. It peaked at $189sf (I sold @ $154sf). The house next door is listed for $62sf. Oh, the American dream of home ownership. BULL SHIT!

The dream of home ownership isn't bullshit. What's bullshit is the dream of home equity.

I own that house. I wish I sold it about purchased gold. Oh well, I have to say I feel like a slave in my own country. I can never retire, I can't afford health care, I can't move. I think this is common

Bay Area (Pleasanton) transplant Best move I ever made. Only draw back is the number of CA's transplants is driving up home price and property taxes.

Dude, Shaw of Iran Built this casa, and then his family lived here prior to selling. Nice!

Bayside Commons

"TOKYO (Reuters) -- Sony Corp. posted a loss for the fourth consecutive quarter, hit by sluggish cellphone sales and as it cut prices of its PlayStation 3 game gear, but trimmed its full-year loss forecast close to market expectations.

Sony's mobile phone joint venture with Sweden's Ericsson saw its sales tumble and losses balloon as it has lacked a strong smartphone offering to rival Apple Inc.'s (AAPL, Fortune 500) iPhone and Research in Motion's (RIM) Blackberry." (which are also cheaper than a cup of Starbucks coffee)

So that's not Deflation, then what is your definition?

Many mortgage fraud homes available at inflated prices, even better, their backyard is the busiest road in south florida. robberies on the rise and cops are overwhelmed. this area is still way overpriced and is quickly becoming more unpleasant. you either have a full walled / gated property or you remove everything from your car before you lock up tight. sirens of ambulances and train noises are consistent as well.

Damn, view of the ocean too. It's good to be the king.

This is a toxic waste site in Henderson, NV they are currently excavating with plans to build residential homes on.

What kind of toxic waste? How do you know?

Big open pools of something out there on the photo. Henderson is already way overbuilt, i am guessing.

Actually the cty address is: Lake Clarke Shore and not Palm Springs. Lake Clarke is a small town with its own Police Dept etc....

I've got the addresses mostly automated through Google maps now. For some reason Google thinks it's Palm Springs.