There is no single individual or entity that can take the blame for the housing bubble and bust. The cast of characters includes the criminal, the stupid and the naive. There is no question though that one of the main characters in this tragedy is good old Uncle Sam:
[Washington's] crime: pushing federal policies that favored ever-increasing home ownership, particularly from the mid-1990s on, and thus helping spawn the housing bubble at the center of the devastating meltdown.
The sheer scope of the bipartisan, federal pro-housing undertaking is mind-boggling.
As Jeffrey Miron, a Harvard University economist, noted in testimony this week to the House Financial Services Committee, a list of past and ongoing efforts would include the Federal Housing Administration, Federal Home Loan Banks, Fannie Mae, Freddie Mac, the Community Reinvestment Act, the deductibility of mortgage interest, the tax-favored treatment of capital gains on housing, the HOPE for Homeowners Act and the $8000 homebuyer tax credit.
Then, of course, there are the Federal Reserve’s efforts to bring down mortgage rates.
The federal tax subsidy alone amounts to some $200 billion a year, according to the Tax Policy Center. Put it all together and it’s clear that Uncle Sam created immense incentives for home ownership, from which Wall Street eventually found a way to coin huge profits.
Housing has a distinct advantage over other "goods" produced in the United States. While many other industries have lost out to foreign competitors, U.S. builders don’t have to worry about competing with cheap foreign imports. It has the disadvantage of being an expensive "durable good" however. If Washington wanted to keep the economy growing with housing as an economic engine- they had to promote policies to increase the number of people who could purchase one.
These "every American a homeowner" policies overlooked the fact that there are many Americans who’s personal circumstances do not make them good candidates for home ownership. To keep filling houses with people required a blind eye on the part of regulators- and they seemed to make a point of keeping themselves in the dark.
Legislators might pay lip service to tighter regulation, but it’s not as if fraud and misrepresentation have been legal up to this point and laws are now needed to legislate against them. As the AEI notes in their most recent report, the problem is a lack of EFFECTIVE legislation that reduces systemic risk. [Thank you John for this great find.]
Washington remains pro-homeownership. [Which at this point means pro- high risk.] Note that while politicians keep rolling out program after program in an attempt to keep homeowners in their homes, they have not been rolling out similar programs for renters. The government also is keeping interest rates artificially low and providing loans at terms private industry wouldn’t touch. This is in spite of the fact that falling home values and a poor economy puts current homebuyers at risk of quickly becoming underwater owners as well.
Housing will eventually stabilize, but it will be many years before there is even a possibility of housing being the economic force that it has been. Given the results of the recent boom, it does not even seem that having housing return to such heights is even desirable. Sadly, that won’t stop Washington from trying to promote a dead horse.
AEI states in their report:
We think meaningful reform must be based on fundamental principles rather than political expediency.
May I live to see the day that ever happens.
UK House Bubble
Northern Virginia Housing Bubble Fallout
Bubble Meter
Mish's Global Economic Analysis
Ohio Fraudclosure
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Perhaps no single entity, but definitely a conspiracy.
Congress and the Executive branch may have completely failed to oversee these finacial terrorists, but they I don’t believe they promoted loan fraud to increase home ownership.
The bottom line is all the derivatives, job losses, investment losses, etc. have all spawned from funding debt that consumers, businesses and governments could never afford to pay back.
Who knows when things would have run their course, but the executives in charge of the lenders, investment banks and rating agencies made sure they were going to be the ones who capitalized on it during their watch.
Allowing and encouraging wage earners (W2 employees) with marginal credit to take out 90-100% financing based on stated income guidelines is not “laxed” lending guidelines it is felony loan fraud. Nearly every loan file had IRS form 4506T within that could have been used for a quick and easy verification of income associated with the applicant’s SSN, but they all purposely avoided the truth.
Clearly, there was no other reason to alter decades of prudent, proven, regulated, safe and sound guidelines other than to grossly, fraudulently and intentionally inflate home values.
Regardless if they were the ones signing on the dotted lines or the “fiduciaries” who were encouraging that behavior they were the only ones who could alter the guidelines that set the wheels in motion.
By their silence alone the lenders, investment banks and rating agencies are guilty of conspiracy to commit loan fraud, bank fraud, and to defraud the United States of America.
Essentially they broke every one of these laws and then some:
http://www.michaelblomquist.com/Papers/MortgageFraud.pdf
I do not remember this being discussed. I ran across this friday the 25th on Chuck Butlers blog “The Daily Phennig”. About half way down the page is a paragraph that starts “A landmark ruling…..”. It has to do with a way to avoid foreclosure by stating that MERS ( Mortgage Electronic Regristration Systems) has no legal standing. If upheld in other states it could stop foreclurures on half the houses in the US as over half of the mortgages in the country are registured with MERS. Just another way to delay the inevitable correction of housing prices.
desert rat -
I briefly had that story on the sidebar (it may have originally been an Implode-O-Find).
“LANDMARK DECISION PROMISES MASSIVE RELIEF FOR HOMEOWNERS AND TROUBLE FOR BANKS”, by Ellen Brown, OpEdNews, September 21, 2009.
FWIW Ms Brown has posted some pretty good stuff in the past.