@hingehead,
hingehead wrote:You really should listen to the podcast Robert.
I don't like podcasts (I prefer to read) so I read the transcript.
http://www.thisamericanlife.org/sites/default/files/355_transcript.pdf
While I did not find it as edifying as I hoped (it's a light overview that I also have little qualm with) after reading it through it doesn't really take up anything incompatible with what I've said here except perhaps in what level of tone to take in reference to bankers.
They too, speak accurately of the participation of the many speculative home buyers.
Quote:You could buy a house with no money down, turn around and sell it a year later for in some areas double what you paid. People who'd never invested in real estate before started buying multiple properties as investments.
They also talk about how these mortgages aren't really a Wall Street creation (Wall St was the furthest from them in the chain yet were actually the first to notice the problem in the real-estate market below them in the chain).
Quote:People would close on a house, sign all the mortgage papers, and then default on their very first payment. No loss of a job, no medical emergency, they were underwater before they even started. And although no one could really hear it, that was probably the moment when one of the biggest speculative bubbles in American history popped.
Strangely, the first people in the mortgage-backed security chain who noticed, were the ones near the top. The people on Wall Street, like Mike Francis. He can remember almost to the day:
Mike Francis: It would be somewhere around Halloween of 2006. We started seeing our securities that were 6, 7, 8 months old start to perform poorly. We started to dig into the details. Wow, property values stopped increasing. Something is turning around bad here. What do we do?
The NINA loans mostly were done by small banks and mortgage companies that borrowed money from the bigger banks and sold them loans. The folks on Wall St are the furthest removed from the NINA problem and that is all covered in there too.
That podcast shows there was plenty of blame to go around to me. Sure, the Wall St. folks made risky bets by purchasing those loans from the smaller banks but they weren't the ones who made them, and everyone was pushing that bubble. The government has tax incentives for first-time buyers and while I don't think the podcast covered it (at least not in any depth)
the very strategy of securing these mortgages through mortgage-backed securities was a government strategy (executed through the government-sponsored enterprises of Fannie Mae and Freddy Mac) that was employed with the aim of reducing housing costs for low-income families and promoting homes.
Let that sink in, these Wall Street people didn't invent this, the government did as a strategy to help people buy houses and then would resell these MBS to other institutions who could then continue to do so. The problem was that when housing prices went up too much lower-income people could not afford them but were tempted to gamble on the prices going up anyway (tons of people bought houses they simply couldn't afford because the prices going up so fast made it look like you were buying $10 for $3 and if that trend continued it was a safe bet) and when they started going down the loosely-regulated MBS market collapsed.
In that chain, if your qualm is the recklessness of NINA loans, Wall St. is the least culpable party for the fiscal irresponsibility. Their main fault was to subsequently trade too aggressively on these securities and they were almost invariable multiple layers away from the loan in the first place. The advent of things like NINA loans is a product of decades of American economic policy about home-ownership. The government pushed reckless home ownership more so than did anyone on Wall Street. And while the bubble was inflating nobody complained because they were helping people buy houses. In retrospect it's very clear that the houses aren't worth what anyone though they were but this was a generalized failure and not ascribable to any one party.
In America, just about everyone was getting in on it, trying to flip houses like rolling dice. You can't just blame one of the dealers or the casino if you lose money,
everyone was gambling hard and everyone through the chain underestimated their risks and financial exposure to systemic risk in a cycle that produced a bubble.
American economic policy is nearly entirely predicated on gambling at every level. American economic policy and culture is to leverage heavily and prefer bold risks and low capitalization
across the board. It's odd to suddenly try to scapegoat people when it goes bad when everyone is involved in it willingly until then. The financial foolishness was much more widespread than that, and nearly the entire nation (myself included) lived over-exposed and under-capitalized.
The country was not financially conservative enough, and blaming it all on the banking system does little to fix that fundamental cultural flaw. It's a simple concept, if you want stability you mitigate risk at the cost of mitigating reward (economic growth). But can you really point at ANY party in the chain and say they were acting with fiscal wisdom?
I really can't, and the first thing that this recession did to me was teach me to put my own financial house in order (which is why I have a paid-off beater of a car now instead of making expensive car payments). I was living hand-to-mouth just like most of the home buyers, small banks, big banks, and even the government. When the entire chain is being fiscally agressive why does it make sense to just single out some of the big players and pretend we don't have a systemic problem with financial discipline?
