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Published: Wednesday, Feb. 27 2013 12:00 a.m. MST

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Emajor
Ogden, UT

NPR's Planet Money team did a fantastic series of investigations several years ago on the housing market collapse. And you're right, the private sector shares a large part of the blame here. Readily approving people for mortgages they could never afford and without doing any income verification. Bundling thousands upon thousands of subprime mortgages into securities and selling them back and forth at incredible profits. It was an unhinged frenzy and companies were raking in the profits. Some companies knew this was a terrible idea and would collapse, decided to bet against the market, and then underhandedly encouraged other companies to continue this risky lending to help ensure the market would collapse so they would get huge payoffs. It was capitalism gone completely amok and a great example of how laissez faire policies can leave incredible damage in their wake.

But there are two sides to the coin. No one forced millions of homeowners to accept enormous mortgages beyond their income. The lending institutions may have approved them, but they signed the forms chaining them to variable rate mortgages on homes they should have known were out of their reach.

Voice of Reason
Layton, UT

Somebody's been reading too much Paul Krugman - that stuff will disconnect you from reality.

And speaking of reality, government regulations and pressure - most notably under the Community Reinvestment Act - were in fact the major contributors in creating the climate of easy money in the subprime lending industry that took off on the mid 90's. Yes, many other fctors were involved in the subprime crash, but blaming it all on "greed" is just a lazy leftist talking point. Greed has been around for a long, long time, and will always be around in the banking industry just as in every other industry; it's human nature. That wasn't the unique factor causing this particular crash.

Government pressure really took off in the early 90's as banks were pushed to lend to borrowers who clearly didn't qualify. Not all banks suffered this pressure, but enough did to completely distort the market since mortgage lending is such a competitive industry that behavior by a few banks changes everyone else's; it has to, or they don't survive.

And bank profits only "took off" after such pressure was applied; profits were flat throughout the mid 90's to the crash.

Roland Kayser
Cottonwood Heights, UT

The housing bubble and subsequent crash were a market failure. Republicans can't admit that market failures exist, so they had to invent an alternate history to explain it all. Their history has a few grains of truth, but the fundamental cause was thirty years of financial deregulation which lead to the financialization of every aspect of our economy.

If deregulation had not enabled banks to create Collateralized Debt Obligations, Credit Default Swaps, Derivatives and a myriad other products, none of it would have been possible.

If U.S. government regulations caused the crash, then why did Spain, Britain, Ireland, Iceland, Estonia, etc. all go through similar bubbles and crashes at the exact same time?

procuradorfiscal
Tooele, UT

Re: ". . . there are two sides to the coin."

Not to true-believing leftist academics. Particularly those in the soft "sciences," who have no real fear of meaningful criticism. In their fields, one theory's as good as another, since there's no real way to prove or disprove an investigators' hypotheses.

They clearly feel a curious need to disingenuously justify and excuse abject liberal failures, cynically blaming them on those least responsible. It's their vain attempt to defend policies and practices that have an unbroken record of miserable failure.

It allows them to avoid the introspection and self-examination real people believe is important.

lost in DC
West Jordan, UT

Lew,
Let’s address your misconceptions.

Years of flat wages – According to the census, in 2003, 2004, 2005, 2006 wages GREW by 1.54%, 3.22%, 5.59%, and 5.42% respectively across all incomes; and for the lower 40%, they grew by 0.8%, 2.19%, 4.27%, and 5.57%, respectively, PLUS 2.15% in 2007 when general wages shrunk. Growth does not equal flat.

Feeding profits that landed in banks. – finance officers deposit money in banks earning 0.15% when they could pay dividends or buy back shares and increase the ROE? Sorry, not buying it.

Banks needed to do something with corporate profits so they pushed bad mortgages on people. Who held the gun forcing people into unaffordable mortgages?

Banks DID push loans, but only because barney frank forced Fanny and Freddie to lower the standard for secondary market loans, meaning more people could “qualify” for loans. Banks made the commission on the loans, which they then dumped into the secondary market. An unnatural increase in mortgages created the bubble; when it burst, it brought down our economy.

Thank Barney and the Fed

pragmatistferlife
salt lake city, utah

Voice of Reason..Community Reinvestment Act? That is the laziest of talking points. Look at your own argument in comparison to Emajor.."And bank profits only "took off" after such pressure was applied; profits were flat throughout the mid 90's to the crash." Just what was that pressure? It wasn't the government. Low interest, and programs to promote home ownership had been around forever..as you say. What was the pressure..it was simply opportunity. The opportunity to take massive profits put them in an instrument where the risk was first of all passed on and then broken up until it was entirely hidden. Wall Street firms literly imported russian physicists to create the mathematical models that built the financial instruments that housed the securitized mortgages. Yes greed has been around forever but the ability to distort that greed to personal advantage reached new heights in the mid 2000's thanks to creativity and no oversight.

JoeCapitalist2
Orem, UT

Government regulations were partially to blame for the housing bubble and collapse, but so were a lot of other factors. To lay the blame solely on government is wrong.

But so is trying to lay all the blame on big banks and greedy wall street executives. President Obama and other Democrats have done that repeatedly. Do you call them out on that like you just did to Senator Rubio?

If you did, then you are a fair-minded person. If you didn't, then just another partisan rant.

Counter Intelligence
Salt Lake City, UT

There was Government pressure to expand loans to those who really were not qualified in a misguided attempt to increase home ownership: therefore the statement that Rubio lied - is in fact a lie.

JoeBlow
Far East USA, SC

Failure to understand the mistakes made will greatly increase the chances of a repeat.
That said, how many people really, I mean REALLY want to know what caused the banking meltdown?

Looks to me that most will readily accept any explanation that exonerates their party and puts the blame squarely on the other one. Truth has very little to do with it.

Hate to break it to you, but greed is usually at the heart of most of these types of problems.

- Greed by the politicians to get donations. (yes, both R and D)
- Greed by the banking industry to make more and more money
- Greed by homeowners who thought housing would go up forever.
- Greed by the mortgage lender on commission
- Greed by the appraisers

When in doubt, look at the money.

wrz
Pheonix, AZ

You're a little confused, Lew, and you're trying to obviscate the truth.

The truth is, former Senator Chris Dodd and his Democrat friend in the House, the former Congressman Barney Frank eased the requirement for the purchase of homes so that even the poorest among us, and those who couldn't make monthly mortgage payments could qualify for a mortgage. This looked fairly workable as the housing market had continued to rise for decades so that, even if a buyer defaulted, the property could easily be disposed of for a profit to the seller (or the bank repossesser). Then, when these people started defaulting on payments and the market became flooded with unsold units it started to collapse.

The cause was not soaring corporate profits as you seem to think. Any soaring profits would not end up in banks but would be paid as dividends to stockholders as they should be. And even if the soaring profits ended up in banks, so what? Banks cannot push mortgage loans onto people in violation of governing laws.

You Democrats will try almost anything to get out of responsibility for the worst financial disaster in decades.

Grover
Salt Lake City, UT

Rubio did not "lie", just took a one sided view of the crisis that few on either side would subscribe to. "Greed" is not a problem of the left or the right, it is a human problem. There is no one cause for the bubble breaking unless you want to say it was greed. Politicians, bankers, mortgage brokers paid on commission, rating agencies, insurers will to guarantee sub prime loans when made into collateralized bonds, cash strapped homeowners, people seeing "easy money" to be made by "flipping" properties. There is plenty of blame on all sides here. Everyone wanted their piece of the pie and until the bubble burst they got more pastry than they could eat.

Alfred
Pheonix, AZ

@Roland Kayser:
"The housing bubble and subsequent crash were a market failure."

No. no. Lawmakers make laws to control markets so failures don't occur. So, if there's a blame it's poorly thought-out laws. And who makes those laws? The government. And who in the government pushed those laws? Democrats Chris Dodd and Barney Frank, leaders of their respective finance committees in the Congress, that's who. And what were those laws? Allowing/pushing home ownership through sub-prime loans. And what are sub-prime loans? Loans to buyers who are at risk of being able to make monthly mortgage payments... examples were folks such as those who were on federal unemployment rolls.

"If U.S. government regulations caused the crash, then why did Spain, Britain, Ireland, Iceland, Estonia, etc. all go through similar bubbles and crashes at the exact same time?"

Because many of those countries invested in sub-prime loans or associated collateralize debt obligations... much to their dismay.

UtahBlueDevil
Durham, NC

"Government pressure really took off in the early 90's as banks were pushed to lend to borrowers who clearly didn't qualify."

Give me a break. No one mandated anything. A customer of mine, BB&T, which holds over 95% of its own paper, didn't write risky loans - it was their own choice to not do so. It was the ability of lenders to monitize bundles of loans where the value of the bundled portfolio of these new investment vehicles was dubious. When you able to hide high risk paper in with quality paper, then turn them into exchangable equities with little transparency, that was the green light to some lenders to cash in on a deeply deregulated industry. There was little accountability to trh originators.

As to Rubio, I felt for the guy. He was presenting his rebuttal without the benefit of actually seeing the initial case being made. Regardless of side, these rebuttals are so generic in nature they are many more times a waste of energy than the SotU is. They have no context other than standard talking points. It really wasn't his fault.

Emajor
Ogden, UT

procuradorfiscal,
"Not to true-believing leftist academics"

Not to true-believing rightist anti-intellectuals either. Sorry. The problem is "true-believing", not "leftist" or "rightist". See WRZ's and Lost in DC's comments above. It's always the other side.

Ford DeTreese
Provo, UT

Ivan Boesky was wrong. Greed is not good. Conservatives keep trying to spin it so that greed is a positive thing, but theirs is an uphill argument.

There was a time in America (between the Revolution and the Civil War) when government chartered corporations to serve public purposes. The Founders had had too much experience with the British East India Company and other corporations and did not trust that particular form of business. So they chartered corporations warily and to serve a specific public purpose, and generally corporations were chartered for 20 or fewer years. The railroads changed all that, and eventually they bought enough judges to get corporations declared "persons."

The result is, well, the mess we have today, where greed is rampant and corporate values have devoured most of society. Can we reverse the trends that have been dominant since the 1860s? Probably not. Maybe economic collapse is the only solution. Then, perhaps, we can learn from our mistakes and devise an economy that does not enthrone self-interest, which, by the way, Adam Smith viewed as the hallmark of a suboptimal or mercenary economy.

lost in DC
West Jordan, UT

Bluedevil,
It was pressure by barney on fannie and Freddie that allowed banks to monetize bundles of loans. two weeks before fannie and freddie failed, barney said they were sound. Denying barney forced them to anything is smiply not true.

Emajor,
Thanks for just calling names and not even trying to rebut what I said.

Let’s take a look at the result of an ill-conceived law, shall we?

One of the purposes of dudd-frank was to end too-big-to-fail. Did you see the article in the arch-conservative rag “Rolling Stone” (sarcasm off) about how BO’s injustice department is failing to prosecute ANYONE at HSBC involved in the recently uncovered money laundering operation there? The reason the injustice department gave? HSBC was systemically too important, prosecutions would have caused another banking crisis.

So the dem bill (few if any repubs supported dudd-frank) FAILED miserably to end TBTF and allowed known money launderers, supporting al qaeda and Mexican drug lords, to walk scot-free.

Noodlekaboodle
Poplar Grove, UT

@Voice of Reason
Of course it was greed. The entire bubble was caused by greed. Greed from the banks, who wanted to make money selling those mortgages. Greed from homeowners, who wanted a house without paying any money down and with an artificially low monthly payment because of non standard loans and greed by getting a bigger, more expensive house than they could afford. Greed by the government, because they wanted to keep getting elected and keep their cushy elected positions. It's not unique to this bubble, but this bubble was caused by greed.

wrz
Pheonix, AZ

@Ford DeTreese:
"Greed is not good."

Greed has synonyms... for example 'eagerness.' Try thinking of it as 'eagerness.'

I suppose you'd be eager to maximize your wages, wouldn't you? Could you use more income? Do you think of that as 'greed?' I wouldn't think so...

Now, think of the CEO of a corporation. His job is to maximize income to the investing stock holders. As a stockholder, I appreciate the CEOs' eagerness to accomplish corporate goals.

"The railroads changed all that, and eventually they bought enough judges to get corporations declared 'persons.'"

The reason the judiciary declared corporations as 'persons' basically is so that it can sue and be sued. Perhaps it would dispel any anxiety you feel to know that, even though a corporation is a 'person' it can't vote, marry, make love, or do alotta things a 'person' can do. Corporations can only conduct business activity according to their corporate charter filed with the state of incorporation.

"Then, perhaps, we can learn from our mistakes and devise an economy that does not enthrone self-interest.."

Sounds like you're thinking about religion...

Open Minded Mormon
Everett, 00

It funny reading conservative comments.

Inone line its - The government ALWAYS gets it wrong, they need to get out, and let the free markets decide.
then it's
The Government didn't over-see enough of the lending practices and deregulated too much.

The flip-flopping is astounding.

It's no wonder at all why they chose Mitt Romney,
and it's no wonder they keep loosing elections.

Mr. Bean
Pheonix, AZ

@Open Minded Mormon:
"In one line its - The government ALWAYS gets it wrong, they need to get out, and let the free markets decide."

If the government get's it wrong it usually can be attributed to Democrats like Harry Reid and Nancy Pelosi (who says they have to pass a bill before they know what's in it).

"Then it's... The Government didn't over-see enough of the lending practices and deregulated too much."

No, no. It wasn't deregulation. In the case of the recent real estate debacle, is was... Democrats pushing housing regulations... that allowed banks to issue sub-primes, then bundle them to pass them to government entities such as Fannie Mae and Freddie Mac.

"The flip-flopping is astounding."

I think you're talking about Obama... who pushed for sequestration several years ago and now is vehemently against it. Good grief!

"It's no wonder at all why they chose Mitt Romney, and it's no wonder they keep loosing elections."

Romney lost because he was against abortion, illegal immigration, amnesty, and gay marriage... issues Obama and his Democrat friends support. Yuk!

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