Friday, July 15, 2005

The Blame Game

One of the big questions is who is to blame for the housing bubble.

Here is my list:
  1. Greenspan & The Feds for the cheap money supply (low interest rates) for such a long time
  2. Parts of the Real Estate Industry for promoting the bubble and not inducing a does of reality
  3. Irresponsible Lenders for lending to people who really can't afford it.
  4. Fannie Mae & Freddie Mac for bundling up risky loans from
  5. Asian Central Banks & other for buying all these risky bundled loans
  6. Speculators & Flippers ( for being greedy and fueling this mania)
  7. Some HomeBuyers for buying beyond thier means and being ill informed.
  8. Parts of the Media for not informing the public about this issue sooner (finally they are commiunicating this)
  9. Others ( yet to be determined, please discuss)

22 comments:

  1. I would add George W. Bush, for tax policies that give the wealthiest people even more money to spend on 2nd homes, 3rd homes, apartments for their college-age children, 4th homes, 5th homes, etc. etc.

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  2. I don't think you can blame the buyers for being greedy as that is only human nature. I definately think Greenspan's Fed holds much of the blame. But then, I'd like to see us return to the gold standard so I disagree with the Fed on philosophical reasons. Anyway,...

    What I think is wrong with the system as a whole or what needs to be done is:
    1. Lenders need to reign in loans to under qualified folks. There needs to be enforced regulations.

    2. Lenders should be held accountable for their loans -- they should be rewarded for good loans (via earning the interest payment) and suffer the consequences for the bad loans (eat the cost of defaults). Doing so would take care of point 1, above. Currently all loans get sold to the GSEs from what I understand so if a loan goes bad the originating loan office does not get hurt.

    3. Flipping should be made illegal. I think saying a purchaser must occupy a residence for at least two years would be sufficient. As for vacation properties, same sort of deal except something like they must occupy the property some months out of every year for a period of say, five years. If a property is marked for investment purposes only, then I don't know. If it's for rental purposes, then maybe you must hold that property for five years minimum or something along those lines.

    4. We should go back to the gold standard and stop inflating our way out of our messes.

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  3. Interesting points.

    "We should go back to the gold standard and stop inflating our way out of our messes."

    I disagree about going back to the gold standard. Who says gold as opposed to some other commodity should be the standard?

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  4. That's fine with me. It doesn't have to be gold. Do you care to suggest something? But gold has always been something of great value and historically, currencies based on the gold standard did not inflate appreciably. In the US there was practically no inflation until after we left the gold standard (was that 1933 or there abouts?) and since then one US dollar has lost 95% of its purchasing power.

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  5. I think it has a lot to do with the big dot com market boom. You had a bunch of young entreprenurs (me spell bad) who had a LOT of money and woudl get into bidding wars on homes. They all the prices where shot to hell and there we go. Also, all the new home building. A lot of builder artificially inflate the price of their homes. I.e. for every 3 homes they sell in a new division, they increase the price. THis causes other homes that are already built, to also have increased value as a comparison. Hopefully it will not burst too soon though. We just bought. :-)

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  6. Definitely Clinton!

    Tax law change. Tech bubble. LTCM, Peso crisis.

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  7. Under the gold standard, the problem was the regular bank collapses, instead of inflation. Before the federal reserve, most currency (paper money) was issued by individual banks. The problem was that they still held fractional reserves for the money that they loaned out, and if there was a run on the bank, they didn't have sufficient assets to convert the money to specie. The reason that the government stopped exchanging money for currency 1933 was the fact that they only had a fraction of the amount of gold neccessary to convert outstanding currency into coin.

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  8. If we were to go back to some standard, I would prefer it be for a basket of commodities. ( I need to read more about the gold standard, currency based on commodities etc.)

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  9. My above comment does NOT mean that I favor a currency based on commodities. It just means that if we were to go back to some commodity based currency system, I would prefer it to be for a basket of commodities.

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  10. Davidm commodity based currency may have troubles if producer countries artificially inflat supply.

    How about having all national debt dominated in a basket of currencies (like Special Drawing Rights)?

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  11. anon 11:00,

    "commodity based currency may have troubles if producer countries artificially inflat supply."

    Fair point.

    I have a very basic understanding of the implications "of having all national debt dominated in a basket of currencies" The idea sound quite reasonable, but I would need to do more research.

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  12. I didn't mean to cause this thread to get off topic.

    So when the blame game gets rolling, who do we blame?

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  13. right. I think there 8 main groups to blame as posted in my post.


    Who will take responsibility?
    Probably very few.

    Who deserves the most blame?
    Tough question. I think those with the most knowledge and most amount of power deserve the most blame. That would mean Feds & Greenspan, Lenders, Real Estate cheerleaders (liek David Lereah).

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  14. Oh for Heaven's sake, it's like the old saying, "We've met the enemy, and he is us."

    When it pops, there will be a hunt for villains. Someone, probably several people, will wind up in jail.

    But the bubble is our fault, collectively.

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  15. Apparently some are now blaming the hedge funds for the bubble; more specifically, the reason why long term rates are remaining so low:
    http://www.forbes.com/business/2005/06/20/bond-rates-mortgages-cx_lm_0620rates.html

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  16. My list:

    1. Greenspan & The Fed for allowing fed supplied $ to banks to be used for interest only loans

    2. Most recent value appraisals that can allow speculators to bid up the value "over night"

    3. Greed within the Real Estate Industry that knows it makes more the more they promote high prices

    4. Lenders who've created 207 different types of home loans that allow little to no equity down.

    5. Fannie Mae & Freddie Mac for ... a multitude of sins ... that continue today

    6. Real Estate lawyers, speculators, morgage brokers, etc for being greedy and leading the "sheep to the shear"

    7. Home Buyers for buying beyond thier means and allowing market mania to influence their decisions

    8 Republicans who, under Bush have sttod by and watched a market that went up 60% from 1970 to 2000 to go up over 60% in just 4 years ... shameful

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  17. thanks for all your insightful comments. Thats why I enjoy this blog. I learn much from the posters.

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  18. The bubble will keep growing, for political reasons....the administration capitalizes on the fact that there are more homeowners now than ever in the history of the US. These homeowners will join the ranks of low-income-renters or worse...people in cash positions will be able to pick up keys from the banks at a lot more reasoble price...The current losers won't be able to pick up even the lower priced RE because their credit would be ruined, the banruptcy law won't allow them to wipe their credit card slate clean and the mortgage lenders will not touch them with a ten foot pole!

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  19. I live in northern VA and I personally blame home buyers. Realtors and banks are only giving people what the want, what they are demanding. I do not beileve it is just motived by greed though. People around here seem to get real puffed up with pride when they tell you the latest assesment on their home, or how much they just sold their home for, or how much they just paid for their new home.

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  20. My list:

    1. Greenspan & The Fed for allowing fed supplied $ to banks to be used for interest only loans

    2. Most recent value appraisals that can allow speculators to bid up the value "over night"

    3. Greed within the Real Estate Industry that knows it makes more the more they promote high prices

    4. Lenders who've created 207 different types of home loans that allow little to no equity down.

    5. Fannie Mae & Freddie Mac for ... a multitude of sins ... that continue today

    6. Real Estate lawyers, speculators, morgage brokers, etc for being greedy and leading the "sheep to the shear"

    7. Home Buyers for buying beyond thier means and allowing market mania to influence their decisions

    8 Republicans who, under Bush have sttod by and watched a market that went up 60% from 1970 to 2000 to go up over 60% in just 4 years ... shameful

    ReplyDelete
  21. Definitely Clinton!

    Tax law change. Tech bubble. LTCM, Peso crisis.

    ReplyDelete
  22. That's fine with me. It doesn't have to be gold. Do you care to suggest something? But gold has always been something of great value and historically, currencies based on the gold standard did not inflate appreciably. In the US there was practically no inflation until after we left the gold standard (was that 1933 or there abouts?) and since then one US dollar has lost 95% of its purchasing power.

    ReplyDelete