Compounding Errors

[daveon]

I let fly earlier at a Libertarian.  He responded and as I don't want to pollute Charlie's Blog with it.  I'll do it here :)

I do not intend to blame mortgage disaster on the poor, but on the deregulation pursued by politicians ignorant of economics in the name of home ownership for the poor. Granted the issue escalated to grave proportions because people were buying jumbo mortgage homes with no $ down and unreliable future earnings.

Seriously?  Seriously?  This is EXACTLY what I have a problem with, not just with Libertarians but with huge swathes of the largely American conservative right.

First: the mortgage market wasn't really deregulated, at least not in the way they're thinking.  Yes, the government backed certain mortgages to a certain point - but as I understand it you still had a loan acceptance process (Chris? You might be clearer on this than I) - you still had, frankly good loans to people who just wanted to own their own home, after we'd had a property boom that made it unlikely.

The issue escalated because the market OUTSIDE of the government regulated one, was just that. UNREGULATED.

There were no rules on who you could loan to, or what you could do with them.

To make matters worse, you could then take a massive spread bet on the loans succeeding AND make money off that.

But it wasn't just home loans, it was home refinancing - where you could take out loans on your property, on insane terms, with no valuation of the property to buy shit that the government in 2001 needed you to buy to deal with the fact there was a recession.

The rest is, as they say, history.

Now we're left with a seriously damaged credit market, a huge personal debt burden and a nasty mess to clean up.

The only thing that is certain, something that Hank Paulson and Tim Geithner knew back in 2008 - we haven't thrown anywhere near enough money at this crisis and the current "race to the bottom" in terms of who can be the most austere is a major fucking error that we'll sadly have to live through.

 

Comments

[nmg.livejournal.com]

In the UK, they started moving the qualifying incomes for mortgages into insanity levels because, well, if they hadn't then nobody could have afforded a bloody house and the market would have stalled years ago.

Damned straight. I'm very glad that ias and I kept our income multiple low (to around 2.5) when some lenders were offering multiples above 5.

[daveon.livejournal.com]

When we bought our place in London we got a lot of pressure to borrow more than the 2x income we ended up borrowing. We've a small place but it was a mortgage we knew we could afford.