the bubble was NOT caused by risky fucking mortgages. at least YOU are finally making that point yourself. it is ENTIRELY POSSIBLE for a bubble to involve non-risky things. go fucking google what a bubble is if you want to talk about it more.

or, you can continue to talk out your ass, like you are known to do, such as when you asserted that Republicans were filibustering in the house

3/26/2010 9:10:23 PM

3/26/2010 9:17:27 PM

Quote :

"the bubble was NOT caused by risky fucking mortgages. at least YOU are finally making that point yourself. it is ENTIRELY POSSIBLE for a bubble to involve non-risky things. go fucking google what a bubble is if you want to talk about it more."

The availability of mortgages to a huge swath of people who couldn't pay them artificially increased the demand for housing.

Drastically increased demand for housing beyond sustainable levels (as measured by ability to pay) -----> BUBBLE.

3/26/2010 9:18:01 PM

the ability to pay does not cause the bubble. the bubble is simply increased demand which leads to increased prices. the demand for subprimes increased only because the demand for housing overall increased.

however, the ability to pay DOES effect when the bubble bursts. But, even then, this is not entirely on the backs of subprime. McMansions defaulted as well.

3/26/2010 9:29:36 PM

so it is your contention that the wider availability of mortgages was not a significant component of increased demand?

3/26/2010 9:48:48 PM

no, not at all. just that subprime mortgages were not the sole component of the bubble

3/26/2010 9:52:08 PM

I don't think anyone has argued that they were.

Often, a lot of folks who view it as a primary, or even the major, cause will say that X caused Y when they really mean that X and a ton of other things caused Y, but X was the biggest.

3/26/2010 10:01:13 PM

Kris was. and he was trying to put those words into my mouth.

3/26/2010 10:10:37 PM

Quote :

"the bubble was NOT caused by risky fucking mortgages."

It was technically the speculation on risky mortgages, people were buying them for far more than they were worth, people started figuring that out, then they started selling all mortgages as fast as they could, people started selling stocks that were exposed to these morgages, banks constricted credit, economy grinds to a halt.

Every bubble is caused when people start bidding something up far more than it is worth. It could be bad mortgages securities, tech company stocks, or tulip bulbs. In this case it was the bad mortgages.

But let's go ahead and hear why and interest rate caused it...

3/27/2010 3:26:21 AM

You current position is that interest rates caused people to start bidding up real-estate. Although it bears pointing out, the real-estate fiasco could not have happened without the mortgage fiasco, and the mortgage fiasco could not have happened without the real-estate fiasco.

3/28/2010 5:29:10 PM

Quote :

"Every bubble is caused when people start bidding something up far more than it is worth"

and something must cause people to do that, ya dumb fuck!

3/28/2010 7:44:27 PM

Quote :

"Although it bears pointing out, the real-estate fiasco could not have happened without the mortgage fiasco, and the mortgage fiasco could not have happened without the real-estate fiasco."

People wouldn't have been able to buy all those houses without the loans.

Quote :

"and something must cause people to do that, ya dumb fuck!"

The thing that caused it was by being able to package a risky mortgage and get it rated as a good one. The interest rate had nothing to do with it.

3/28/2010 8:40:28 PM

so, again, lower interest rates, which translate to a lower monthly payment, had NOTHING to do with driving up demand. at all?

being able to package a mortgage is worthless if no one wants to come in and buy the fucking thing in the first place. and guess what got that ball rolling? that's right, low interest rates

besides, simple timelines show that demand for houses increased well before the mortgages were being packaged up. so it seems hard to believe that the cause came after the effect.

3/28/2010 9:53:45 PM

Quote :

"The thing that caused it was by being able to package a risky mortgage and get it rated as a good one. The interest rate had nothing to do with it."

The rating agencies had everything to do with the mortgage backed securities, but they're not the reason for the bad loans to have occurred in the first place. They would put bad mortgages in with good ones and sell them with a AAA rating. Interest rates are the things that allowed banks to give out the bad loans, though.

3/28/2010 10:09:19 PM

Quote :

"so, again, lower interest rates, which translate to a lower monthly payment, had NOTHING to do with driving up demand. at all?"

I stated it made it worse, but you claimed it caused it, which is just plain wrong.

Quote :

"being able to package a mortgage is worthless if no one wants to come in and buy the fucking thing in the first place."

the secondary was exploding as more and more AAA rated mortgage derivatives were being offered at such a cheap rate due to the risky mortgages that had been packaged in.

Quote :

"besides, simple timelines show that demand for houses increased well before the mortgages were being packaged up."

Mortgage backed securities have been around since the 1970's. The problem here was that these securities were getting better ratings than they should have.

Quote :

"Interest rates are the things that allowed banks to give out the bad loans, though."

No. The banks gave out bad loans because they could repackage them and sell them as AAA. If the banks couldn't sell them on the secondary, they wouldn't have made the loans.

3/28/2010 10:45:44 PM

Quote :

"No. The banks gave out bad loans because they could repackage them and sell them as AAA. If the banks couldn't sell them on the secondary, they wouldn't have made the loans."

I'm agreeing that rating agencies and the MBS had a lot to do with it, but you're absolving the Fed and the GSEs of blame. Banks could not have gotten away with doing these interest only payment ARMs if it were not for the low interest rate by the Fed. Greenspan even justified the Fed's actions in the early 2000s, by saying that ARMs were a good thing. This came directly from the former Fed chairman. He said ARMs were good because they increased home ownership, which was exactly what everyone wanted to hear back then. That's precisely why interest rates were slashed after the tech bubble burst. He felt it would have the effect of making loans easier to get, and it's pretty much accepted that low interest rates do just that.

Of course, the GSEs were a major player. I still don't understand how some on the left are ignoring their role in this crisis. Problem is, we haven't really fixed the problems that caused the crisis. I think there's going to be a second housing crisis when another wave of these ARMs reset this year and next year. There's still moral hazard all over the place.

We have a pretty fucked up banking system, with the fractional reserve system and the FDIC backed deposits. They're loaded up with phony money from the Fed, and no one really cares how secure any bank is, because they know the government will pay out if the bank isn't secure. Optimally, you'd have people researching banks and choosing one with the highest return on savings, while also being secure.

3/28/2010 11:14:21 PM

Quote :

"Of course, the GSEs were a major player. I still don't understand how some on the left are ignoring their role in this crisis."

I know it's probably been rehashed a thousand times, but could you explain this for me? I know that they were involved, but I don't see them as being at the crux of the issue. Thanks.

3/28/2010 11:41:12 PM

Quote :

"I'm agreeing that rating agencies and the MBS had a lot to do with it, but you're absolving the Fed and the GSEs of blame."

They're not to blame. They made it worse, sure, but they were doing what they were supposed to, responding to the market.

Quote :

"Banks could not have gotten away with doing these interest only payment ARMs if it were not for the low interest rate by the Fed."

Why not?

Quote :

"Greenspan even justified the Fed's actions in the early 2000s, by saying that ARMs were a good thing. This came directly from the former Fed chairman. He said ARMs were good because they increased home ownership, which was exactly what everyone wanted to hear back then."

There's nothing bad about ARMs themselves, the problem comes when you can sell them on the secondary for artificially inflated prices.

3/28/2010 11:58:36 PM

^^They bought most of the mortgage backed securities Kris is talking about.

Quote :

"They're not to blame. They made it worse, sure, but they were doing what they were supposed to, responding to the market."

How are they not to blame? Who would have bought a bunch of worthless mortgages otherwise? If it weren't for the GSEs, fulfilling the politician's wishes to "increase home ownership," none of this would have been possible. Obviously, once Freddie and Fannie started doing it, the private sector attempted to cash in on it too, but there's no way it could have happened without government intervention.

Quote :

"Why not?"

They wouldn't have been able to cover their balance sheets. Having cheap money from the Fed in their reserves allowed them to originate the loans, otherwise it would not have been doable.

Quote :

"There's nothing bad about ARMs themselves, the problem comes when you can sell them on the secondary for artificially inflated prices."

There kind of is a problem with ARMs themselves, though Greenspan made the same argument as you. If you can get a 300,000 house and only make interest payments on it, how does that not encourage people that can't afford to pay off the house, in any conceivable scenario, to get a loan?

[Edited on March 29, 2010 at 12:26 AM. Reason : ]

3/29/2010 12:04:03 AM

And the promise of bailouts, don't forget that. It has been stated government policy that the 14 largest financial firms in the nation would be bailed out. In effect, our entire financial system consists of Government Sponsored Enterprises. As such, whatever they do, the fault lies with their sponsor, Barney Frank.

3/29/2010 12:23:28 AM

Quote :

"If you can get a 300,000 house and only make interest payments on it, how does that not encourage people that can't afford to pay off the house, in any conceivable scenario, to get a loan?"

I understand your argument, but I think Kris is addressing the secondary market. Is the issue regarding the GSEs more of securitization topic?

Quote :

"Obviously, once Freddie and Fannie started doing it, the private sector attempted to cash in on it too,"

To what, specifically, is "it" that you're referring? The GSEs securitized subprime loans, which then led to the private sector doing the same?

3/29/2010 1:12:37 AM

Quote :

"The GSEs securitized subprime loans, which then led to the private sector doing the same?"

It is based upon the theory of the firm. At a curtain level of understanding, businesses have no idea how they are profitable. They try to get as much revenue as they can with as little expenditure as possible, then they prey that the dice roll out profits. Banks are even harder, because they have a long-term component which is very confounding. As such, like any business, they have a nasty habit of engaging in "me-too" behavior. There is no doubt today that at the time these companies made vast sums of money producing and even holding sub-prime loans. As the bubble went on for a decade, it was inevitable that a practice shown to make huge bonuses for executives would spread. Only banking partnerships, which neither pay bonuses nor insulate the downside, managed to escape the fiasco unscathed.

3/29/2010 1:25:29 AM

Quote :

"If it weren't for the GSEs, fulfilling the politician's wishes to "increase home ownership," none of this would have been possible."

The government could have wished it all they wanted, it wouldn't have happened without ratings being exploited to make it profitable.

Quote :

"They wouldn't have been able to cover their balance sheets. Having cheap money from the Fed in their reserves allowed them to originate the loans, otherwise it would not have been doable."

They were selling those mortgages for a healthy profit, it's pretty easy to come up with more money to invest in something you're already making plenty of money off of.

Quote :

"If you can get a 300,000 house and only make interest payments on it, how does that not encourage people that can't afford to pay off the house, in any conceivable scenario, to get a loan?"

Whether or not those people get the loan is left up to the bank, who in turn will make the loan if they are able to sell it and make some money. What they can sell it on the secondary depends on risk, which is evaluated by ratings. The ratings were what broke, the rest of the machine was working just like it should.

Quote :

"And the promise of bailouts, don't forget that. It has been stated government policy that the 14 largest financial firms in the nation would be bailed out. In effect, our entire financial system consists of Government Sponsored Enterprises. As such, whatever they do, the fault lies with their sponsor, Barney Frank."

I agree, we should not have gotten ourselves in a scenario where bailout was the best option. What we should do is start breaking up banks. There's no reason for them to be so large, they should be able to split out branches so single failures won't have as large of a domino effect.

3/29/2010 12:11:53 PM

Couldn't have put this in an older tax thread?

9/2/2010 12:24:49 AM