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Thread summary:

Housing programs: free market, mortgage loan limits, government regulation, financial firms.

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Old 07-31-2008, 12:07 PM
 
Location: Chino, CA
1,458 posts, read 3,058,406 times
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According to a study at UCI, they narrowed down the cause of the housing mess to not enough government intervention. According to them, if Fannie and Freddie had raised their conforming loan limit in the past (like they have now), that the housing crisis could have been prevented.

"Had Congress listened to the real predicament that was forthcoming and had raised the loan limits back then and let Fannie and Freddie do their job properly, we would not have the problem we ultimately experienced," he said. "Because we opened up the flood gates of this loosey-goosey lending ... we enticed people to become homeowners who were not in the position to do it."

http://www.pe.com/imagesdaily/2008/07-31/bubble31_grf_400.jpg (broken link)

UC Irvine real estate study blames mortgage crisis on home loan limits | Business | PE.com | Southern California News | News for Inland Southern California (http://www.pe.com/business/local/stories/PE_Biz_S_bubble31.3f0e947.html - broken link)

-chuck22b
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Old 07-31-2008, 12:52 PM
 
Location: Cary, NC
1,036 posts, read 3,767,454 times
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Ummm... it was the government that did not allow Fannie and Freddie to raise the loan limit and imposed controls on them. Fannie Mae/Freddie Mac wanted to expand into higher loan amounts and buy higher loan volumes for years, but because of accounting scandals the White House and Congress was opposed to allowing them more flexibility.

Now that the housing mess is a bigger priority, they are reluctantly giving greater power to Fannie/Freddie to help clean up the mess. Even with the new bill that passed this week there was great hesitation on the part of many to hand them more power.

It is kind of like the fox and hen house. Fannie and Freddie made mistakes. The government penalized them for it. Housing mess gets worse, so the government gives more power to Fannie/Freddie and hope they can help and do not abuse their power. I guess its the lesser of two evils.... or that action, even bad action, gets more votes than sitting on the sidelines.
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Old 07-31-2008, 12:59 PM
 
Location: Chino, CA
1,458 posts, read 3,058,406 times
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Quote:
Originally Posted by rcarrillo View Post
Ummm... it was the government that did not allow Fannie and Freddie to raise the loan limit and imposed controls on them. Fannie Mae/Freddie Mac wanted to expand into higher loan amounts and buy higher loan volumes for years, but because of accounting scandals the White House and Congress was opposed to allowing them more flexibility.

Now that the housing mess is a bigger priority, they are reluctantly giving greater power to Fannie/Freddie to help clean up the mess. Even with the new bill that passed this week there was great hesitation on the part of many to hand them more power.

It is kind of like the fox and hen house. Fannie and Freddie made mistakes. The government penalized them for it. Housing mess gets worse, so the government gives more power to Fannie/Freddie and hope they can help and do not abuse their power. I guess its the lesser of two evils.... or that action, even bad action, gets more votes than sitting on the sidelines.
Your right rcarrillo, I read the article wrong, it's government inaction that prevented Fannie and Freddie to expand their portfolio. The free markets were responsible for taking advantage of the resulting financing "void".

So, now that Fannie and Freddie has opened up their coffers... does that mean things should balance out where FHA loans would be the primary type of loan vs. private loans?

-chuck22b
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Old 07-31-2008, 01:56 PM
 
Location: RSM
5,113 posts, read 18,181,426 times
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the housing mess is caused by consumers, not by government regulation(or lack there of). the government is not our babysitter. people made bad, impulsive decisions. that is all that happened.

the only real problem i have with the whole thing is that the big banks are getting a free pass on it while most average joes suffer(either through losing our tax dollars or people losing in foreclosure). that is not free market activity and i dont appreciate the govt playing favorites in this. if i can make a bad decision and be punished for it so should the bank for enabling it. that is how the free market works
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Old 07-31-2008, 02:14 PM
 
2,197 posts, read 6,927,070 times
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People who want the government to be our babysitter, as bhcompy so aptly put it, aren't going to like the outcome. Nationalizing everything financial is going to be just as restraining, annoying and humiliating now as being babysat when we were kids. The government has granted itself the power to check credit card transactions! Yes, it's on the aggregate today, but another baby step or two...

My issue is not so much that some people are getting helped, but that it's the wrong people. It's going to be one more big entitlement program that benefits those who work the system and lets those who really need-- and deserve-- the help fall through the cracks. Same story, different program.
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Old 07-31-2008, 02:42 PM
 
Location: Chino, CA
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So, let's take the argument to the other extreme... No government regulations on any market. Do you guys think that's the best way for markets to be ran? A free for all? I'm sure the top 1% of society would love that to happen. We can have kings, emperors, serfs and lords, militias all over again. Those with the most "Might" will be "Right".

In a truly free market, no one would get bailed out... and capital can flow every which way it pleases. I would suspect that there would be even more highly turbulent economic business cycles.

-chuck22b
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Old 07-31-2008, 02:57 PM
 
Location: RSM
5,113 posts, read 18,181,426 times
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there is always an entrepreneur willing to do it right. as you can see, a lot of financial firms did it right this time around. a lot did it wrong as well. the problem is that negative publicity far outweighs positive publicity, so we dont see that.

jubak on msn recently posted a list of 5 financial firms that gained from this problem, and most of them limited their exposure to risky real estate investments.

that shows me that not every business was intent on taking higher risk. some will to make a quick buck, some wont to save money in the long run. that is how business works on the supply side of a capitalist system, risk vs reward.

on the consumer side it is up to adults to make sound decisions when they spend their money. consumers should be shrewd in nature, and we once were, but people are far more impulsive nowadays. shrewd consumers find real deals, because good businesses want to attract that business. impulsive consumers find the ones that shout the loudest, and those are the businesses that will accept more risk in order to make a buck, and that may mean putting their customers at risk as well.
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Old 07-31-2008, 03:40 PM
 
2,197 posts, read 6,927,070 times
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The problem is that we not only continue to reinforce irresponsible behavior, but we are now starting to encourage it. Rewarding undesirable behavior (buying more house than you can afford and walking away when it becomes inconvenient) and penalizing positive behavior (saving and living within your means) negatively incentivizes exactly what we, as taxpayers, would like to avoid. Unless, of course, the goal is to increase taxes, then we're tracking.

The bailout has just taught the XYZ generations that doing whatever you want is kewl, manipulating the system is way kewler and the government will bail you out BT if you mess up. So if you want it, go for it! Work it! Instant gratification rocks!

Try teaching kids that actions have consequences now. It's hard to even type it and keep a straight face.
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Old 07-31-2008, 03:44 PM
 
2,840 posts, read 3,237,618 times
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No, it was an "unregulated" market. We are now looking at the ugly face of unregulation. What we shall see now is regulation like never before.
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Old 07-31-2008, 03:48 PM
 
48,508 posts, read 88,612,073 times
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I can juts see people that papa sam will alwyas be there to bail tehm put at others expense.It like raising kids and always bailing them out;they learn nothing except that theiur papa has deep pockets regueardless of hoe he gets tyhe money.
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