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**Frenchy** · 05-12-2008, 03:34 PM

Big Government Responsible for Housing Bubble

The House passed two bills attempting to rehabilitate the housing and mortgage market this week. There doesn't seem to be any shortage of criticism and blame for the bad decisions, and rightly so. Lenders and banks do share much of the blame for the overheated market. Lending standards were relaxed, or even abandoned altogether, creating an exaggerated pool of homebuyers that led to ballooning home prices that many, especially real estate investors, expected to continue forever. Now that the bubble has burst, the losses are staggering.

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Big Government Responsible for Housing Bubble

Don · 05-12-2008, 08:44 PM

Quote:

However, many in Washington fail to realize it was government intervention that brought on the current economic malaise in the first place. The Federal Reserve’s artificially low interest rates created the loose, easy credit that ignited a voracious appetite in the banks for borrowers.

Huh? This sound more like less government involvement and the lenders could not control themselves. How is this government intervention?

XDConvert9mm · 05-12-2008, 08:50 PM

Quote:

Originally Posted by Don

Huh? This sound more like less government involvement and the lenders could not control themselves. How is this government intervention?

The Fed intervened by setting the rates too low for too long so everyone could get drunk at the cheap credit party. True, it was kind of a passive intervention but it was still there.

Don · 05-12-2008, 09:06 PM

Passive intervention? Too many counters to even begin to post (my brain overloaded on this one). So without federal intervention no lending business could make a good risk decision?

Quote:

Originally Posted by XDConvert9mm

The Fed intervened by setting the rates too low for too long so everyone could get drunk at the cheap credit party. True, it was kind of a passive intervention but it was still there.

XDConvert9mm · 05-12-2008, 09:25 PM

Quote:

Originally Posted by Don

Passive intervention? Too many counters to even begin to post (my brain overloaded on this one). So without federal intervention no lending business could make a good risk decision?

No, I didn't say that. The Fed is an independent body so that political influences, in theory, don't play into their decisions. The passive intervention I was referring to was simply leaving the rates alone after setting them too low for too long. They did not further "intervene" and raise them in time for this bubble to be avoided. Classic case of too much cheap money supply chasing borrowers. There's more to it than this but the basics are here.

east_stingray · 05-13-2008, 05:48 AM

I guess I'm one of few people left in the world who blames this mess entirely on borrowers. I don't care how much money someone is trying to give you; don't take more than you can pay back.

Trying to blame the banks and the Fed is just a bunch of finger-pointing. They were stupid and I don't really feel sorry for them, but they weren't the end-cause of this mess. Irresponsible Americans were.

XDConvert9mm · 05-13-2008, 05:53 AM

Quote:

Originally Posted by east_stingray

I guess I'm one of few people left in the world who blames this mess entirely on borrowers. I don't care how much money someone is trying to give you; don't take more than you can pay back.

Trying to blame the banks and the Fed is just a bunch of finger-pointing. They were stupid and I don't really feel sorry for them, but they weren't the end-cause of this mess. Irresponsible Americans were.

I think it's more of a combo here ES. The Fed supplied the party substance, much like a bar or a dealer. Do you have to indulge? Absolutely not. That's where the personal responsibility part comes in. So there I agree with you.

**jmichna** · 05-13-2008, 06:37 AM

Who invented the lending vehicles such as Adjustable Rate Mortgages, or Balloon Mortgages? Was it the Fed, or the lending institutions? Who chose to implement those products? Was it the Fed or the lending institutions?

On the flip side, who chose to borrow money via an ARM or Balloon mortgage?
Who was foolish (and/or greedy) enough to take out such a mortgage, when fixed rate interest mortgages were there to be had... albeit at initially higher interest rates and less attractive payment levels?

In my view, the Fed was essentially a "raw material supplier"... they only supplied the "commodity" to be marketed... the commodity being "cheap money" via low interest rates. The "market" (lenders and borrowers) chose to take the riskier options and to maximize return (for the lenders, more and higher risk customers; for the borrowers, lower payments or more house than could really be afforded).

For those who advocate even more government involvement or control, two thoughts:
1) Have you looked at a warning label lately?
2) What has increased government control improved for you lately? What has it made better, cheaper, faster?

XDConvert9mm · 05-13-2008, 06:46 AM

Quote:

Originally Posted by jmichna

Who invented the lending vehicles such as Adjustable Rate Mortgages, or Balloon Mortgages? Was it the Fed, or the lending institutions? Who chose to implement those products? Was it the Fed or the lending institutions?

On the flip side, who chose to borrow money via an ARM or Balloon mortgage?
Who was foolish (and/or greedy) enough to take out such a mortgage, when fixed rate interest mortgages were there to be had... albeit at initially higher interest rates and less attractive payment levels?

In my view, the Fed was essentially a "raw material supplier"... they only supplied the "commodity" to be marketed... the commodity being "cheap money" via low interest rates. The "market" (lenders and borrowers) chose to take the riskier options and to maximize return (for the lenders, more and higher risk customers; for the borrowers, lower payments or more house than could really be afforded).

For those who advocate even more government involvement or control, two thoughts:
1) Have you looked at a warning label lately?
2) What has increased government control improved for you lately? What has it made better, cheaper, faster?

JM, if you're referring to my post then let me make you aware that I am not advocating more government control of, well....anything. I run mostly Libertarian in regards to issues like this. The issue in this thread is a backward looking one, not forward. The fact remains that the Fed does control U.S. interest rates and money supply today as it did during the ramp up to the implosion.

My most honest opinion is that it is difficult to paint the entire situation with one broad brush. There are too many variables in individual cases and circumstances to do that.

**eric_t12** · 05-13-2008, 07:05 AM

Quote:

My most honest opinion is that it is difficult to paint the entire situation with one broad brush. There are too many variables in individual cases and circumstances to do that.

i agree completely.

...but i still say its partly their fault

05-12-2008, 03:34 PM	#1
Frenchy XDTalk 10K Member Join Date: Mar 2001 Location: Mid-Missouri Posts: 12,143	Big Government Responsible for Housing Bubble Big Government Responsible for Housing Bubble The House passed two bills attempting to rehabilitate the housing and mortgage market this week. There doesn't seem to be any shortage of criticism and blame for the bad decisions, and rightly so. Lenders and banks do share much of the blame for the overheated market. Lending standards were relaxed, or even abandoned altogether, creating an exaggerated pool of homebuyers that led to ballooning home prices that many, especially real estate investors, expected to continue forever. Now that the bubble has burst, the losses are staggering. *MORE...* Big Government Responsible for Housing Bubble __________________ ~SC Harvey~ Because Fritz says so! "Though the flame of liberty may sometimes cease to shine, the coal can never expire." Thomas Paine, The American Crisis, #1, December 23, 1776 http://mikeharvey.org/ RON PAUL IN 2008

05-13-2008, 06:37 AM	#8
jmichna XDTalk 1K Member Join Date: Jan 2008 Location: NE Illinois Posts: 1,104	Who invented the lending vehicles such as Adjustable Rate Mortgages, or Balloon Mortgages? Was it the Fed, or the lending institutions? Who chose to implement those products? Was it the Fed or the lending institutions? On the flip side, who chose to borrow money via an ARM or Balloon mortgage? Who was foolish (and/or greedy) enough to take out such a mortgage, when fixed rate interest mortgages were there to be had... albeit at initially higher interest rates and less attractive payment levels? In my view, the Fed was essentially a "raw material supplier"... they only supplied the "commodity" to be marketed... the commodity being "cheap money" via low interest rates. The "market" (lenders and borrowers) chose to take the riskier options and to maximize return (for the lenders, more and higher risk customers; for the borrowers, lower payments or more house than could really be afforded). For those who advocate even more government involvement or control, two thoughts: 1) Have you looked at a warning label lately? 2) What has increased government control improved for you lately? What has it made better, cheaper, faster? __________________ There is a principle which is a bar against all information, which is proof against all arguments and which cannot fail to keep a man in everlasting ignorance— that principle is contempt prior to investigation. - Herbert Spencer ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Watch your thoughts, for they become words. Choose your words, for they become actions. Understand actions, for they become habits. Study your habits, for they become character. Develop your character, for it becomes your destiny.

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05-13-2008, 05:48 AM	#6
east_stingray XDTalk 1K Member Join Date: Feb 2006 Posts: 1,240	I guess I'm one of few people left in the world who blames this mess entirely on borrowers. I don't care how much money someone is trying to give you; don't take more than you can pay back. Trying to blame the banks and the Fed is just a bunch of finger-pointing. They were stupid and I don't really feel sorry for them, but they weren't the end-cause of this mess. Irresponsible Americans were.