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Published: Saturday, July 13 2013 12:00 a.m. MDT

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The Real Maverick
Orem, UT

The banks didn't want to give these loans out?

Huh. Interesting.

Have you ever worked at a bank? I have. And we loved giving out these bad loans.

So you may want to check your facts as Thomas Sowell has proven many times to have been out of touch.

Res Novae
Ashburn, VA

This is revisionist apologetics for the banking industry. Pinning the bubble and resulting mortgage crisis on mandated loans doesn't tell the whole story.

It excludes tax policy that allows home mortgages to be deducted from taxes and excludes homes from capital gains.

It ignores extensive deregulation of the financial sector under Glass-Steagall.

It overlooks the artificially low interest rates in the wake of the 2001 recession.

It ignores the fact that the mortgage industry lobbied for the ability to widen the mortgage pool, and concocted all sorts of exotic mortgage vehicles to peddle to lower income people.

It sidesteps our mania for home ownership as part of the "American dream," speculation, seeing homes as investment vehicles instead of roofs above our heads, and the use of home equity as ATM machines by homeowners.

It overlooks the Wall Street frenzy for mortgage-bundled CDOs -- not to mitigate risk as the letter argues, but as financial investment vehicles.

It ignores the shady rating of toxic CDOs with the highest of ratings.

It fails to account for the significant overleveraging of major financial institutions, ravenous to snatch up these CDOs until apparent that the emperor had no clothes.

Roland Kayser
Cottonwood Heights, UT

There was a time when banks simply refused to loan money to anyone who lived in the "black" part of town. The Community Reinvestment Act of 1977 outlawed this practice. It did not ever require banks to loan money to people with poor credit, or with inadequate income. To say that it was the cause of the housing bubble is to say that it worked fine for 30 years and then it blew up the world economy.

Some conservatives refuse to accept that there can be market failures, so if markets to fail, it must be the government's fault.

lost in DC
West Jordan, UT

good insights, John

and what was started in 1997 was accelerated in the late 90s and early 2000s by slick willy and barney frank, forcing fannie and freddie to eliminate lending standards so more people could "afford" to buy houses.

the banking regulators issued a policy statement in late 2006 warning banks against non-traditional mortgages like payment option ARMs that allowed the payments to be less than the interest, so the balances grew. Other similar loan programs grew out of frank's pressure, like ninja (no assets, no job) and liar loans (stated income without verification).

under payment option ARMs, a $200k loan at 3% became $225k after 5 years,, when the rate would increase, doubling the payment. The regulators told banks to make sure the borrowers qualified at the doubled payment, but they were ignored because fannie and freddie were still buying those loans. When fannie and freddie stopped buying in the fall of 2007, the subprime mortgage market collapsed, followed by the Alt-A market, followed by the overall market and the housing bubble burst.

thus we see the bubble was caused by fannie and freddie, after pressure from slick willy and barney frank.

isrred
South Jordan, UT

Nobody was EVER "compelled" to make any of those loans. That is a lie.

And those banks made those loans because it made them money and then they sold them off to be packaged up as derivatives so that they didn't bear any of the risk--thus they didn't care how many sub-prime loans they made because they were still making money.

That's the very definition of the free market causing a problem.

watchman
Salt Lake City, UT

The evidence points to Nagel being correct in his statements. Government interference was the chief cause of the big bubble burst. Government tried to artificially give more people a chance at home ownership and it didn't work, causing huge problems for the entire country and even those people who rightly could afford home ownership.

SEY
Sandy, UT

Crony-capitalism consists of collusion between government and selected businesses. To say that the government was not involved in helping to create the housing bubble is ludicrous. The so-called free-market was given free rein to ignore regulations that would have minimized or prevented the crisis by administration and Federal Reserve officials. This "free market" gone rogue knew they had the "Greenspan put" and then the "Bernanke put" to save them from toxic investments. It was a creation of a classic "moral hazard." Enforcement of then-current regulations were sufficient to avert disaster, but government refused to apply them to their cronies.

Hutterite
American Fork, UT

I think the banks were willing participants; you can't just slag this all on big bad government. That's just cheap shooting.

Badgerbadger
Murray, UT

Banks were willing participants, BUT ONLY AFTER the GOVERNMENT GUARANTEED the loans if the borrower failed to pay.

The government guarantee is what set off the crazy lending. The government policy told banks to give loans to high risk people and that they would be 'helping the poor, minorities, etc' and in return the government would back all the loans. Make lots of money while helping the poor? Of course lenders took advantage of that.

So if the government guarantees medical care will be paid for, for everyone, can we expect the same from the medical industry?

YES!!! We are dealing with humans with a propensity to want to make money. Medical professionals too, will feel they are righteously helping people, while they suck the public coffers dry and line their own pockets.

Here we go again.

Twin Lights
Louisville, KY

Lenders were compelled to give loans to people? Nonsense. I was getting solicited (almost daily) by mortgage companies which are not nearly as regulated as banks.

Borrowers desired those loans under an assumption that, with government backing, they could live better than they had been living? What does that even mean? Either you can afford the mortgage or not. The backing implied lowered the rate.

To spread the risk, the financial community started pooling sub-prime loans into packages that could be sold to willing risk takers? Mortgages have been being pooled since at least the 1980s. The new deal here were the risk tranches and the supposed ability to mix them up in such a way that risk was taken out of most of the deal.

This was a profit party folks. When times are good you don’t have to compel the lenders from going after every profit. You have to hold them back.

Res Novae - very nice.

Eric Samuelsen
Provo, UT

Res Novae and Twin Lights:
Thanks to both of you for bringing some much needed perspective to this debate. Also for referring to those pesky things called 'facts.'
And like Twin Lights, I was actively solicited by mortgage companies. And so were both of my brothers, my aged parents, and my neighbors. One salesperson called me every day for weeks, apparently not believing that when I said 'stop bothering me, I'm not interested' I meant it.

Twin Lights
Louisville, KY

Badgerbadger,

We discussed the implied govt. guarantee of Fannie and Freddie back when I was in college in the early 1980s. There was nothing new here. Do you think the markets just "discovered" this in the late 2000s?

Eric,

Hope you are well. Good to see you here and there.

The Real Maverick
Orem, UT

Thomas Sowell is nothing more than a partisan hack. He will do anything to make excuses for the failed supply side economics of "trickle down effect."

Of course everything is thegovernment's fault and the private sector is always blameless. This letter's excuse, blaming the recession on loans made to poor people, was debunked like 4 years ago. It's just a shame that Sowell and this letter writer are just so out of touch.

carman
Wasatch Front, UT

Government was the KEY cause of the real estate bubble and subsequent collapse and financial crisis. Yes, greedy and naive home-buyers, speculators, real estate agents, appraisers, etc. have fault as well, but the key causes of the bubble and collapse are all centered in Washington DC. And this is not "revisionist history", as much as those on the left and right want it to be so. Key government failures include:

- Fiscal policy: Greenspan monetary pumping (probably #1 in importance)
- Monetary policy: Massive deficit spending by Congress, and administrations on both sides of the aisle since FDR.
- Lax and outdated bank over-site by the Federal Reserve, SEC, and many other agencies, and a complete failure of regulators to understand the risks and potential failures of new financial products such as Credit Default Swaps
-Bank and financial market deregulation (pushed by the right!)
- Unteathered Congressional support for Freddie Mac and Fannie Mae, and tacit government backing for both
- Congressional pressure and legislation that gave incentives for over-borrowing, over-lending, etc. including bowing to pressure from lobbyists who made large contributions to campaigns.

Greedy individuals could not have caused such harm without the full backing of pols in D.C.

SEY
Sandy, UT

Exactly right, Carmen. This was anything BUT a free-market phenomenon.

The Real Maverick
Orem, UT

It's pretty incredible to me that in the most obvious example of the private sector caving in on its' own greed since Black Tuesday of 1929 that there are so many from the right who wish to blame this on the public sector. Not only that, but demonize poor people along the way.

Can the private sector be held accountable??? For ANYTHING?

Or must the right defend the unfettered greed and class warfare (to steal what little the rest of us still own) at any cost?

The Real Maverick
Orem, UT

I think the greater question is, what has been done to prevent this from happening again?

Have new regulations and better practices been put into place?

Nope.

Repubs won't allow it.

Our economy is just a ticking time bomb. Rather than resolve anything repubs prefer to kick the can down the road. Maybe this next time when we're asked to bail out wall street they can finally finish the job and take what little we have left. Finally, the 1 percent will own 100 percent of the country's wealth.

Res Novae
Ashburn, VA

@The Real Maverick,

Exactly! We have a free market trifecta of deregulation, tax exemptions, and low interest rates. All powering a laissez-faire financial sector, and all heavily lobbied for by the banking, mortgage, and financial investment industries. Yet somehow it's STILL all the government's fault!

As is so typical, government interference in the markets is a heresy to capitalism. Except when it's not. It may not be consistent, but at least it's predictable!

Liberal Today
Murray, UT

Maverick

"Can the private sector be held accountable??? For ANYTHING?"

If people get fat, the food industry and soft drink makers did that to them. People can only eat what they are given.

If a person is invited to a free 'all you can eat' buffet, and they get sick from eating too much, it's the buffet's fault.

If a student doesn't do the work in school, it is because the teacher didn't meet all his/her needs, or because they didn't get to go to Headstart.

If a government leader lies to the public, it is because the other party made him do it.

If a person has lots of sex partners and spreads disease and creates unwanted pregnancies, it is nature's fault for making sex desirable.

If a person borrows more than they can afford to pay back, it is all the predatory lender's fault.

If a person comes to the USA illegally, it is society's fault, because home society is bad so bad they can't get rich, and the USA's society won't share our riches.

Nope, private sector people cannot be held accountable for anything.

Badgerbadger
Murray, UT

Lib 2dA & Mav

You forgot the most important one.

If anything goes wrong in Obama's presidency, it's George W Bush's fault!

Oh wait, he is a private sector person now.

So how does that fit with your narrative?

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