Diane Garnick Blames Homebuyers for the Collapse
By Barry Ritholtz - March 11th, 2010, 12:30PM
This is a rather weakass argument — why is it that after a centuries of home ownership, a century of mortgage interest deductions and decades of Fannie Mae, the whole shooting match collapsed?
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Source:
10 Years of Boom and Bust: The More Things Change, the More They Stay the Same
Aaron Task
Tech Ticker, Mar 11, 2010
http://finance.yahoo.com/tech-ticker
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March 11th, 2010 at 1:28 pm
New investment lines were rolled out, these lines allowed renters who were unqualified to become buyers. This added a massive amount of buyers into the housing market – which stressed demand pushing prices north.
IF (and if being the key word) there weren’t Alt-A’s, Option-Arms, NINJA’s, Interest only, subprime paper then the buyer couldn’t have done this.
March 11th, 2010 at 2:18 pm
As far as I can tell, other than the US taxpayer, nobody had skin in the game.
March 11th, 2010 at 2:31 pm
davossherman,
Related to that, would there have been so many Alt-A’s, NINJA’s, Interest only, etc. if the securitizers couldn’t offload the risk onto bigger fools like AIG FP? In other words, weren’t underpriced CDS written by people who never dreamed of having to make good on them a key to the bubble as well? (This is related to the discussion in the other thread over regulation of OTC derivatives like CDS, CDO’s and the like.)
March 11th, 2010 at 2:47 pm
Lest anyone object to BR’s use of “weakass”, so sayeth the OED:
ass, n. … Freq. as second element in contemptuous expressions, as poor-, punk-, sad-ass (see under first element). See also JIVE-ASS, SMART-ARSE, -ASS a. and n.
March 11th, 2010 at 2:58 pm
What an obtuse question. It’s like saying, “we added to the debt/GDP ratio almost every year since the Great Depression, why did it fall apart all of a sudden in 2008?” Or maybe, “that frat guy did just fine pounding 30 beers in a row, why did he keel over and die when he tried to drink number 31?” The period of time between the Great Depression and our ongoing debacle is about the standard length between financial calamities. Government sponsorship such as mortgage interest deductions or GSE permabids in the mortgage market are not prerequisites for a speculative bubble, but they act like an accelerant to the flames when once is in force.
When the government is willing and able to catch every fall and intentionally tries to inflate the business cycle out of existence, and is helped along by historic levels of investor overconfidence, it takes a very long time for a society to use the devices of state-sponsored speculation to leverage itself into a bubble which CANNOT be cured with the usual palliatives of Fed liquidity injections, public deficit spending, and plain old positive thinking from the touts at CNBC.
The government’s engines of subsidized credit, which includes the Federal Reserve, were effective at playing this game as long as each new dollar of debt added to GDP. Eventually, though, they succeeded in making the last bad loan to the last marginal borrower. Once they had flooded the system with as much bad credit as it could handle, even given the huge array of implicit and explicit state guarantees of debt, a revulsion such as the ongoing credit crisis was inevitable.
March 11th, 2010 at 3:03 pm
And, incidentally, plenty of people did predict exactly this outcome when structures such as the central bank, the GSEs, and the FDIC were being rolled out. To get a truly epic bubble you need both state sponsorship and a credulous investing public willing to buy into a bubble. The latter did not exist until at least the 1980s or 1990s, when most of the old hands with memories of the Great Crash had passed on or retired.
BR’s patron saint of central banking, Walter Bagehot, was even bitch-slapped back in the 1860s by Thomson Hankey, who pointed out that liquidity guarantees would encourage rash speculation and cause bankers to “confuse mortgages with bills of exchange [i.e. ready money].” Ooops!
March 11th, 2010 at 3:18 pm
One last thing, if you watch the video it’s clear Garnick is not simply “blaming homebuyers” alone but putting them in their rightful place alongside, well, basically everyone else. The credit bubble was a society-wide delusional embrace of risk, a letting-down-of-the-guard on the part of individual investors, bankers, and the regulators who were in theory supposed to be watching over the whole thing (but who in fact gave it their blessing, just as they do every major bubble).
March 11th, 2010 at 3:23 pm
@Clawback:
Nope: I inferred but did not mention securitization – as without it they couldn’t have offed it and it wouldn’t have happened. The entire industry seems hell bent on destroying itself and with a 1.6 quadrillion derivative market – mostly off balance a le SPV’s I don’t think it will be long before it all implodes.
March 11th, 2010 at 4:59 pm
I’m trying to figure a way to not get off topic and mention her terrific legs, whoa, by remarking about how Graphite aobve is absolutely correct: homebuyers, banks and Wall Street are at least alongside each other , but I don’t know how.
March 11th, 2010 at 6:16 pm
Why didn’t this post show up on the main page ?
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BR: Because flash video loads so slowly, all of the Video clips are under this Tab
March 11th, 2010 at 7:34 pm
The parents went on vacation and left the house to the teenagers who threw an orgy and burned down the house – in simple terms – just like the movie Animal House.
Fannie and Freddie, among others, analyzed millions of loans to establish underwriting criteria that would result in an acceptable of level of defaults. We abandoned all levels of underwriting under Cheney/Bus with subprimes resulting in the worst scam in history.
Everybody in government with any level of responsibility plead total stupidity to what was happening even though the mortgage insurance industry, the FDIC and a multitude of other sources warned the administration of the impending disaster.
My 45 years in the real estate business suggests that after Cheney lopped off a few heads in a rather gruesome display of power and then put forth an edict that debt didn’t matter, the typical bureaucrat (like those in the SEC) crapped in their pants at the thought of enforcing anything that would result in total destruction of their careers.
The Cheney/Bush administration wanted to demonstrate that tax cuts would result in a booming economy and when the BS failed, they juiced the markets with loose or no credit loans which resulted in a supply/demand market out of whack with millions of unqualified buyers loaded with cash chasing a limited number of homes.
Bottom line is that it was simply impossible to be that stupid – and you can take if from there.
March 11th, 2010 at 10:20 pm
We moved to US from Europe back in Nineties, during the dot-com boom. I got a good job in IT and after a 5 years of renting we started looking to buy a house.
During this process, both my wife and I were constantly baffled by the behavior of real-estate agents who were trying to convince us to buy above our means. Those conversations occasionally turned to open mocking and condescension, because “everyone knows” you buy and stretch your finances “as much as you can”, when you are buying a house. “Everyone knows” that renting is “just awful”. “You guys are too modest”, etc., etc. This experience is not unique – it’s shared by a lot of our friends.
We ended up not buying the house, because the numbers simply didn’t compute,even with my good salary. Up to this day, we are still renting.
My point is – I can easily imagine people succumbing to this pressure from real-estate agents and mortgage brokers.
I don’t consider them blameless and – yes! – ‘Caveat Emptor’ (“buyers beware”).
I do however see them as a less-guilty party, especially compared to what can only be seen as a glorified gang of slick and fast-talking professional con-men.