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Old 09-19-2008, 08:22 PM
 
Location: Orlando, Florida
43,858 posts, read 43,573,829 times
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Quote:
Originally Posted by brently54 View Post
You guys are boring me with facts. It is so much easier to just blame President Bush for everything negative!
I was thinking the same thing. This is the first thread in a long time that I actually learned something by reading it. Thanks to all the posters.
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Old 09-20-2008, 06:26 AM
 
19,183 posts, read 27,744,233 times
Reputation: 4000
A lot of threads were woven into this tapestry. Certainly, deregulation on the one hand and willfully passive oversight of remaining regulation on the other are more than just noticeable strands. Here's another to consider. In a strongly pro-business environment, the increased wealth realized from productivity gains was disproprotionately steered into corporate profits by minimizing the share that would ordinarily have gone into wage gains, an effect that was only amplified by concurrent changes in the tax code. Over time, large pools of capital began to accumulate, but with their wages constrained, consumers no longer had sufficient real income with which to purchase the output that productivity gains had resulted in. The only way to move this residual product off of corporate shelves was to push the message of consume, consume, consume our way to prosperity, while creating the means for consumers to borrow from expanded capital pools the very funds that would have been theirs already as wages under a different paradigm. With jawboning, lender creativity, and tax cuts alone failing to accomplish the mission, lower and lower interest rates were required to fuel the necessary borrowing. As interest rates fell, the prices of all long-term assets (such as houses) began to rise, and higher prices mean higher assessed values, and thus the means of qualifying for more credit, and people would have been fools not to have taken advantage of it. The problems eventually arose exactly where it was predicted that they would -- on the weak periphery of expanded lending regimes once purchasing power had been sufficiently pumped back up and global pressures began to force interest rates to rise again. The rest is pretty much history, to the point where it is now the same investors and other corporate types who thought they were cutting themselves such a break by cutting out the worker who are finding that is they themselves whom they left holding the bag. All in all, a sad story, and one that never needed to be told...
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Old 09-20-2008, 01:40 PM
 
Location: State of Being
35,885 posts, read 65,276,463 times
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Let's face it. Many people were irresponsible. Brokers took advantage of the ignorance of people so they could get their commissions . . . and people who took out creatively financed loans were irresponsible b/c they KNEW they could never afford those teaser "interest only" loans. And on top of that, people making $25,000 a year knew they had no business buying $500,000 houses even if they were stupid enuff not to read the fine print on their loan docs.

Responsible people don't play games w/ money. End of story.
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Old 09-20-2008, 03:48 PM
 
Location: Washington DC
5,915 posts, read 7,087,007 times
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There is a real conceptual gap here. The Fed doesn't set market interest rates. They have an ability to influence short term interest rates through their open market committee, but they don't have any substantive influence on medium and long term markets. The problem with the housing market largely stems from unsound lending practices in the subprime lending market. This wasn't even supposed to be a market that the government participated in.

I certainly think federal and state governments didn't exercise the proper amount of oversight. It's clear that the mortgage markets and wall street firms packaging the loans were not suffering from too much regulation. Hopefully we have learned our lesson of the dangers of deregulation.
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Old 09-20-2008, 11:05 PM
 
19,183 posts, read 27,744,233 times
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The average 30-year fixed conforming mortgage rate was flitting around 8.50% in the Spring of 2000. By the Spring of 2003, it was touching 5.25%. Were changes in the Fed's targets for the federal funds rate directly responsible for that drop? No. Did expected and parallel shifts in the regime that is led by the Fed targets bring that about? Yes. Does that sort of drop cause a $500K house suddenly to be worth $700K? Yes. Would it be remarkable for homeowners to take advatage of that free $200K in extra home equity? No.
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Old 09-21-2008, 08:50 AM
 
Location: N. Ga
3,492 posts, read 3,098,523 times
Reputation: 1833
Quote:
Originally Posted by anifani821 View Post
Let's face it. Many people were irresponsible. Brokers took advantage of the ignorance of people so they could get their commissions . . . and people who took out creatively financed loans were irresponsible b/c they KNEW they could never afford those teaser "interest only" loans. And on top of that, people making $25,000 a year knew they had no business buying $500,000 houses even if they were stupid enuff not to read the fine print on their loan docs.

Responsible people don't play games w/ money. End of story.
I agree. And I saw first hand many times the lender tell the appraiser, "We need the house to appraise at this,".... Reason being, then they could loan more, give second's back to the sellers, pay the buyers closing costs, etc. And all the while, the house was actually NOT worth its appraised value. And then the comp prices just kept going up and up. When you can build a new home for 150.00 per square foot, why would you buy one at 300.00 a sq.ft? Makes no sense to me..........
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Old 09-23-2008, 11:16 AM
 
Location: Atlanta, GA
2,290 posts, read 4,948,013 times
Reputation: 784
Is government to blame? Look at it this way:

If one believes that a country's national security is based, in part, on its economic strength, then one would expect that that country's government would take the necessary precautions and measures to protect its country's economy.
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Old 09-25-2008, 11:58 AM
 
Location: CO
1,599 posts, read 3,006,655 times
Reputation: 488
The scariest part of all of this is that one crisis usually breeds another. Now that we're all so desperate to do whatever it takes to recover, what will be deregulated next to offset all of this chaos? Off shore drilling comes to mind. Just think of all the negative things that could happen in that industry with no oversight. We all know how responsible the oil industry (and big business in general) can be when it comes to increasing profits. Not that I'm opposed to offshore drilling. But I am concerned about the responsibility of rich people looking to get richer with no oversight.
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Old 09-25-2008, 12:17 PM
 
Location: Atlanta, GA
2,290 posts, read 4,948,013 times
Reputation: 784
Quote:
Originally Posted by Ludachris View Post
The scariest part of all of this is that one crisis usually breeds another. Now that we're all so desperate to do whatever it takes to recover, what will be deregulated next to offset all of this chaos? Off shore drilling comes to mind. Just think of all the negative things that could happen in that industry with no oversight. We all know how responsible the oil industry (and big business in general) can be when it comes to increasing profits. Not that I'm opposed to offshore drilling. But I am concerned about the responsibility of rich people looking to get richer with no oversight.
I'd say the next industry to be deregulated with lightning speed will be the alternative energy industry. It's a new "market", the giants and barons are few, and it's ripe for Wall Street thugs looking for the next big score. All they need is Uncle Sam's blessing.
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Old 09-25-2008, 02:24 PM
 
878 posts, read 1,846,679 times
Reputation: 460
Quote:
Originally Posted by saganista View Post
Certainly, deregulation on the one hand...
What caused this was not deregulation, but overregulation. This is the canard being thrown out by the left in order to demean the concept of deregulation so that government control can surface. The government doesn't do anything well, why we would expect them to manage financial markets well is beyond me.

The government created Freddie & Fannie, implicitly guaranteed their debts by maintaining control, and then directed them to pay cash in exchange for securities which had little to no actual value.

Lenders realized that they could sell junk paper to these two firms, cover their rears with a federal guarantee, and make some money on the side.

If the government hadn't gotten involved, then banks wouldn't have had a federal guarantee for these loans. They would have had to bear the risks themselves, a much more frightening concept.
Lend $500,000 to someone with a federal guarantee? No problem!
Lend $500,000 to someone with no guarantee? Better check thier income and credit history first.

This failure is an example of the government forcing a political decision into the financial markets without any regard for the consequences.
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