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These are my inexpert reasons why we are where we are.
The financial system (Global?) pushed housing/401k’s to the limit as to keep the ‘toxic mortgages’ flowing. Then the financial system was astonished just how naïve the people & gov’t were so the frenzy went into overdrive/milking mode knowing quite well that this frenzy can’t last forever; the game of musical chairs was hurried along.
No matter how crooked a system is you do have to have some semblance of authenticity to get/keep the Ponzi scheme going; in this case upward appreciation of investments forever (houses/401ks) for every Tom, Dick, & Harry!
IMHO if the people withdrew their 401k money around Jan-March of 2008 we would be in the same predicament except that Gov’t/Wall Street would be begging/enticing the people to spend/invest because now the people have the illusionary money, not the Banksters/Wall Streeters. Of course higher taxes may ensue but the people would now have the temporary leverage/opportunity to wipe the slate clean & incrementally get some quality ideas working.
So my question is; how ‘funny logic’ am I in this reasoning?
Supply and demand is all folks, it's very simple. I would hope Bernanke would realize that. Loosened guidelines created greater demand so prices went up. Tightening guidelines reduced the buyer pool and demand was reduced, so prices fell. It's easy, don't read more into than that. Supply and demand.
Supply and demand is all folks, it's very simple. I would hope Bernanke would realize that. Loosened guidelines created greater demand so prices went up. Tightening guidelines reduced the buyer pool and demand was reduced, so prices fell. It's easy, don't read more into than that. Supply and demand.
I agree with you that on some level, it boils down to supply and demand. I think that is very clear.
The difficult part is hashing out the details of how demand was affected, when, why, and by whom, and how to proceed going forward. That is what the argument is about. You have a variety of factors that distorted demand upwards; Bernanke says it is regulatory failure, the failed regulators say it was monetary policy.
The difficult part is hashing out the details of how demand was affected, when, why, and by whom, and how to proceed going forward. That is what the argument is about. You have a variety of factors that distorted demand upwards; Bernanke says it is regulatory failure, the failed regulators say it was monetary policy.
No it's not difficult. Lets keep it nice and simple and not over-analyze. When lenders starting giving loans to people with 400 credit scores it created a huge new buyer pool (subprime loans). Now those with bad credit can no longer get loans and we fewer buyers. Some of those bad scores are going into foreclosure creating an even higher than normal inventory.
It has nothing to do with rates so much as the ability of buyers to get loans. Those with what used to be "good" 620 scores aren't shoe ins either. We need a happy medium and we'll be fine. The lenders now are borderline ridiculous.
Interest rates didn't create the bubble. Real estate is supply and demand. Having more buyers in the pool created the bubble. More buyers were in the pool because loan guidelines were relaxed and demand increased. Supply got lower, prices got higher. Now guidelines are stricter and there are fewer buyers in the pool. Demand is reduced, supply is higher. Prices fall.
Easy enough, and not really controlled by rates but by supply and demand.
But why were loan guidelines relaxed?
Because interests rates were held artificially low and hence investors demanded something with reasonable returns. Wall street gladly met that demand by packaging up home loans. That increased the demand for home loans from banks to be sold to wall street. To meet that demand banks had to lower standards and since it was almost risk free for them (they just sold the note to wall street anyway) they went crazy.
Yes the direct cause is that people borrowed to too much money to bid up the prices of houses in a speculative mania. But that was allowed by low lending standards. Which in turn were caused by demand for investment products removing the risk from the loan originator. Which was the result of artificially low interest rates.
And low interest rates were caused by the Fed setting them.
There was another factor at play which was that wall street was willing to leverage to insane levels. But this was partly caused by low interest rates itself - when returns and interest rates are low leverage is the easy way to make a decent return. But the main cause was the everyone *knew* that if the bets went bad the Fed would come to the rescue via the Greenspan Put (which Bernanke embraced and put on steroids) so it was game on.
And supply did not get lower, demand simply increased faster than supply. There was a house building boom after all.
Loan guidelines were originally relaxed during the Clinton administration in an effort to try to create a greater amount of minority home owners and continued into the Bush era. It was a group effort of the government and the banks. The market came crashing down when they figured out the financially irresponsible they gave loans to were still financially irresponsible. Subprime got carried away. It had nothing to do with the actual rates.
You are correct that supply didn't decrease but rather demand increased. Regardless of how you say it, the net result is the same.
I wonder what would happen if there were no FreddieMac and FannyMae. Well in particular, no government guarantee, in other words, banks had to assume their own risk.
Of course, along with this, banks can choose their own guidelines. The government can't really force companies to take on risk without a guarantee. It would mean that somebody that earns $25k/year just doesn't get to own a house. Too bad.
I wonder what would happen if there were no FreddieMac and FannyMae. Well in particular, no government guarantee, in other words, banks had to assume their own risk.
Of course, along with this, banks can choose their own guidelines. The government can't really force companies to take on risk without a guarantee. It would mean that somebody that earns $25k/year just doesn't get to own a house. Too bad.
It might get better after a while, or it might not. Interesting question.
Supply and demand is all folks, it's very simple. I would hope Bernanke would realize that. Loosened guidelines created greater demand so prices went up. Tightening guidelines reduced the buyer pool and demand was reduced, so prices fell. It's easy, don't read more into than that. Supply and demand.
Demand goes up when interest rate goes down? Isn't it? If not, they why is the great Bernanke trying to keep the interest rate down artificially?
Did not wee see an increase in sales/demand in the 2nd half of 2009 after Ben started buying mortgage backed securities. And that happened even amid tight lending standard.
Wake up Ben. You already had to eat back your words sever times in the past!!! You are only fooling yourself and destroying this country and free market. Please don't make it USSA.
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