Why Did The Housing Market Crash?

Posted on 11 April 2011. Tags: , , , , , , , , , , , , , , , ,

Why Did The Housing Market Crash?

Why did the Housing Market Crash? There are many people who are asking this question and most of them did not recognize the irrationality during the housing bubble nor had the foresight that the housing bubble would collapse. Most people didn’t acknowledge that we had a bubble and still fail to understand that we continue to have an artificial Real Estate market that is overvalued for the very same reasons that caused the housing bubble to inflate. An asset class can still be artificially overpriced despite having dropped from its all time high. Instead of asking why the housing market crashed, it is much more valuable to ask the question of what created the housing bubble in the first place. To financial historians not surprising, the very variables that made the housing bubble possible are now part of the solution to “fix” the real estate market. More anti-free market policies, more Government interference to continue distorting the markets…

Contrary to the misconception that it was the free market that made the housing bubble possible it was interference in the market place that distorted the demand and supply variables for credit and real estate. The Federal Reserve greatly distorts the supply and availability of money with its anti-free market loose interest rate manipulation. The Government also interferes in the market place with non-sense guarantees of home loans made through Fannie Mae, Freddie Mac, USDA, and VA.

In a free market system the cost for credit is dictated by the market forces that consist of the relationship between the demand for credit and the availability of savings to be lent. In addition to this demand and supply relationship the lender charges a risk premium to the interest rate for the loan. In times when the savings rate is high, interest rates would come down as much money is available to be lent. On the contrary, during periods when people save little the cost for credit would go up as the availability of savings to be lent is scarce. This would also encourage saving in times when the National savings rate is low, while a low cost for borrowing would naturally encourage people to borrow money for investments and consumption during times of high savings.


It wasn’t the free market that encouraged malinvestment and speculation. It was the Government guaranteeing home loans through various agencies such as Fannie Mae and Freddie Mac that eliminated risk as the lender would have the ability to make loans while the Government guaranteed its potential losses. As such there was no incentive to lend money conservatively as doing so would restrict the number of transactions while not minimizing potential losses since these losses were absent due to the Government guarantees. To make matters worse, Republicans and Democrats alike voted several times to increase the FHA loan limit during the housing bubble. This allowed people to take on greater debt and perfectly illustrates that government subsidies do not lower the price but make the underlying assets more costly. By raising the FHA loan limits the Bureaucrats in Washington voted to extend the housing bubble, raise prices, and delay the inevitable correction.

While many self-proclaimed conservatives blame the Democrats for the social programs and anti-free market policies it was President Bush in 2002 who stated that a high down payments are a big barrier to first time owners. During “A Home Of Your Own” conference on May 17, 2002 President Bush urged Congress to use taxpayers money to interfere in the market place by lowering down payments for those that cannot afford to buy a home. During that speech President Bush also explained how the guarantees of home loans by the Government Sponsored Enterprises would streamline the underwriting process and basically neglect the risk variable. President Bush made it clear that his and Congress’ vision is to make homeownership a right and not a privilege.

“A third major barrier is the complexity and difficulty of the home buying process. There’s a lot of fine print on these forms and it bothers people, it makes them nervous…and so therefore what Mel [previous HUD Secretary] has agreed to do, and what Alfonso Jackson [current HUD Secretary] have agreed to do is to streamline the process, make rules simpler so that everybody understands what they are, makes the closing much less complicated. We certainly don’t want there to be a fine print to prevent people from owning their home. We can change the print….that will have a powerful impact…”

This type of market interference in addition to the Federal Reserve manipulating short term rates to historic lows greatly increased the demand for housing and extended cheap credit to people that otherwise wouldn’t have qualified. It wasn’t the free market that encouraged malinvestment and led to financially flawed business decisions. It was a continuation and expansion of big government policies, brought to us by both Democrats and Republicans. The Fed’s loose monetary policy with artificial low interest rates in combination with socialist and corporatist housing policies by the Government provided the foundation for the biggest housing bubble in history.

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This post was written by:

Jesse Livermore - who has written 99 posts on WTF Finance.


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  • http://twitter.com/mrbogey steve bourg

    Clinton’s regulations to Carter’s “Community Reinvestment Act” came into force 7/1/95. They flat-out REQUIRED banks and S&Ls to make 20% of their home loans to the poorest 20% of people in the ‘community’ of the bank, the next 20% to the next, etc. This made the home loan business a joke of bad loans to people who had no money for downpymts and not enough stable income to pay year after year. So the banks & s&l’s had to sell the packages of bad loans every year, and the selling got more and more complex. What a disaster our govt helped create. Thanks govt ! Thx for ‘helping’ us!

    • Anonymous

      While many self-proclaimed conservatives blame the Democrats for the social programs and anti-free market policies it was President Bush in 2002 who stated that a high down payments are a big barrier to first time owners. During “A Home Of Your Own” conference on May 17, 2002 President Bush urged Congress to use taxpayers money to interfere in the market place by lowering down payments for those that cannot afford to buy a home. During that speech President Bush also explained how the guarantees of home loans by the Government Sponsored Enterprises would streamline the underwriting process and basically neglect the risk variable. President Bush made it clear that his and Congress’ vision is to make homeownership a right and not a privilege.

      • http://twitter.com/mrbogey steve bourg

        Yes, the madness and govt intervention into the home-loan, home-buy process produced good results while home values rose.  And everything looked good while they rose, the economy was humming because of it, but largely falsely — credit bubble.  And W Bush made many comments applauding the ‘good’ results of so many results of home-ownership.  You are correct, he did not reverse Clinton’s incredibly reckless govt  intervention into the loan market..  But by 2003 and 2004 Congress (Repubs) started investigations into the trouble brewing at Fannie & Freddie, and the Democrats led by Barney Frank on the banking committee resoundingly steamrolled the hearings to no useful conclusion.

        • labrown69

           To the extent that Clinton was reckless, it was to sign Phil Gramm’s legislation in 99 and 2000 which directly led to our current economy. We now have around $270 trillion in worthless derivatives on the books of every major bank in a world with a combined GDP of around 60 trillion. Republicans who claim we still don’t need regulation should be euthanized.

          • http://twitter.com/whome151 whome15

            We still have “artificially” low intrerest rates record low to be precise, 3% to no downpayments..  where’s the bubble? everyone grossly underestimates speculators with everything. We just saw what it can do with the dot com bubble, skyrocketed oil, gold etc. Speculators can single-handedly create bubbles. You don’t get 80% rise in housing prices because the gov is giving more “poor people loans”. The bubble hit the hardest in cali, florda, arizona.. not exactly poor peoples paradises. get a grip gov works to slow to create bubbles, greed creates bubbles, loop holes create bubbles, we create the bubbles.

            • C Rice

              I’m so sick of the blame game. And, I’m ashamed by extreme and radical skepticism that American’s have today.  It’s 2012 and we need to focus our thoughts and ideas on what to do to fix it!  

          • kenpodoc

            Why do Dems always call for killing off people who dissent from their opinion?  Seriously?  Do you think you could be…misguided?

             Democrats started this ball rolling with Clinton’s executive act to give Carter’s 1978 Community Reinvestment Act teeth.  Clinton essentially heavily regulated the home loan industry by forcing that quotas of bad loans be given out by any bank receiving FDIC coverage….or be sued if it tried to do any expansion otherwise.  He was heavily aided by HUD secretaries Cisneros and then Cuomo who enforced it using local community action groups like ACORN and the NACA to sue banks on “behalf” of the CRA and the government!   It created an artificial housing  bubble well into the $ Trillions by 2000 before Bush even took office. (Obama got involved with this as a young lawyer in Chicago BTW!)  Fannie and Freddie were then buying up the loans and got political cover largely from the black congressional caucus and Barney Frank and other Democrats on the House Housing Committee.  They essentially looked the other way as money flowed into their campaign coffers from Fannie and Freddie (talk about incest! GSEs bought-off the govenrment oversight!)  And then, Fannie and Freddie sold the bad loans off to Wall Street re-packaged asMortgaged backed securities-a.k.a. “derivatives”.  Along come the 2000′s and the housing bubble is already being decried in some financial circles as a problem… Democrats cheered Bush on when his policies supported their way; and loved to pin the blame on him when those same policies failed! Look, I’m no fan of Bush, but Barney Frank is on record (Kudlow 2010), as admitting that the he and others in congress and the GSEs were largely to blame for the Housing Bubble and the subsequent Meltdown.  Democrats have their fingerprints all over this as the instigators going back to 1995.  Republicans are like the dumb kids who got caught because they crashed the other fraternity’s keg-party when the cops showed up.  They may not have started the party, but they got drunk from the same tap….Bush sure did,Liberals love to decry the Republican party for what is essentially a straw man- “all regulation is bad”.  Conservatives don’t think that as a rule, never did….Some regulation is a fact of life, but harmful, aggressive government regulation and/or intervention is exactly what caused the damn problem in the first place!  It’s just that in this case, regulation came from the RINOs and Democrats calling for heavy-handed pushing of bad loans and they set up a regulated system to do their bidding.   Re-regulation after de-regulation caused the S&L collapse in the 90′s, and government intervention caused the housing bubble thereafter.  Maybe, the historical evidence suggests that governments should not overly interfere with markets and regulations should stop at solid consumer protections instead of crony capitalism and political agendas?In this case in particular, given the specific history of the housing bubble and the subsequent meltown, Democrats  calling for more regulation is like a career criminal calling for a police escort.As to your hate comments: Ironically, it is always the Democrats who call for spilling blood of their loyal opposition as though Republicans weren’t even fellow countrymen!  It is reprehensipble and wrong.  I consider myself a conservative far more than I identify as a Republican, and while I disagree with my liberal friends, I do not call for their euthanasia or their blood.  Liberals, who speak of gun control, made erroneous death threats after the Tucson shootings in 2011.  They frequently call for women’s rights with anger and conviction but ignore the rights of millions of unborn babies each year.  They generally want smaller defense budgets but as of late, they sell M-1 tanks and F-16 jets to radical Islamists who do not claim to be our friends and are on record as wanting to destroy Israel and threaten Americans, burning our flag in from of our embasssy.  They complain about Gitmo under Bush, but look the other way at Gitmo under Obama, they complain about waterboarding three people but cheered when UBL was killed and Obama took full credit.  They look the other way when Obama’s drones kill innocent “collateral damage” known as innocent women and children but cry foul over everything W ever did…Obama is on record as being one of the most duplicitous men to ever occupy the White House, and all we ever hear about is “Bush lied”  Do you know how many Democrats in congess supported the Iraq war with virtually the same intelligence reports as Bush? Hillary Clinton and John Kerry to name two amongst a majority.  Double Standards?  And as you call for euthanizing your fellow Americans who disagree with you even when your own party’s policies are as much or more to blame for the problems we face.Two things:  1) You don’t occupy the moral high-ground when you threaten people and you support double standards via your ignorance. 2)  We are all in this thing together.  

            • labrown69

              Simply not accurate Ken. “The Community Reinvestment Act” had virtually nothing to do with the collapse of the economy. That is a myth perpetrated by right wing radio as there is nothing easier to sell to dumb rednecks than that “minority lending” was responsible for problems and that way they never have to figure out or look at the real cause which is Reaganomics … excessive deregulation, excessive leverage, the elimination of capital reserve requirements and the over the counter sale of derivatives, all Republican legislation written by Phil Gramm albeit signed by Clinton. The fact is a vast majority of “liar loans” were made by private lenders who were not even subject to the CRA guidelines which in fact did not lower or weaken or soften lending standards in any way. All the CRA said was that “qualified borrowers” could not be “red lined”, or in other words a bank could not turn down a qualified borrower JUST because the subject property he wished to purchase was in an area deemed undesirable by the bank like the inner city for instance.

              I will add that a vast majority of sub-prime loans were made between 2001 and 2006 when the Real Estate market began tanking and you remember who was president during those years …. don’t you Ken? You might also wish to look at Bush’s 200 million dollar American Dream Down Payment Act which he signed in 2003, (Clinton my ass)  Applauding Congress for authorizing the annual $200 million down payment
              assistance program, Bush and Housing and Urban Development Acting Secretary Alphonso
              Jackson said the initiative will also help meet the Administration’s “Home ownership
              Challenge” to increase minority home ownership by 5.5 million families by
              the end of the decade.This was “free money”, a grant not a loan that paid the closing costs of home buyers without repayment.

              The “housing bubble” triggered the Wall Street led melt down but it is not the reason or the “cause” for the melt down itself. Because of fraudulent securitization schemes which broke existing law from the beginning of the loan to the ffraudulent foreclosure of the home, every hundred thousand dollars of loan was parlayed into a million bucks worth of worthless derivatives by Wall St, gambling markers which currently comprise a 700 trillion dollar derivatives market which sit like a cancer on the books of every major bank. Republican deregulation is “the reason”. There was just over a trillion dollars worth of sub prime loans total so if that was what crashed the economy one trillion bucks would have fixed the economy but we know Wall Street stole ten times that.

              BofA settled a civil claim that it had lied when they “sold”
              mortgages advertised as meeting government standards. We all know by now
              that the loans “lacked documentation and underwriting.” But what is
              still to come out is WHY they lacked documentation and WHY the loans
              lacked underwriting.

              The documentation was absent simply to hide the fact that the bank
              was pretending to have ownership or an insurable interest in the loans
              and mortgage bonds. The true transaction was between the
              investor/lenders and the homeowner/borrowers. BofA stole or misused the
              identities of both the lender and the borrowers so that it could sell
              the loans many times under guise of exotic derivative instruments called
              mortgage backed bonds.

              If fully documented, the lender would have shown up as the investors,
              which is as it should have been. BofA never put up a dime for the
              funding or acquisition of any of the loans. Its claim of ownership and
              an insurable interest was a blatant lie, inasmuch as they actually had
              no risk of loss, which is why there was no underwriting standards
              applied either.

              But the real stuff is going to hit the fan as more and more people
              realize that this standard practice in the industry allegedly to
              “protect” the investors, invalidated the chain of title and there has
              been no effort to correct the problem. When it is revealed that the
              investors were cheated out of their money by a use of proceeds that
              crosses the borders of fraud, and that the terms of the bonds were never
              intended to be satisfied, just as the terms of the loan were never
              meant to be satisfied or secured, then we will have justice peeking its
              head out over the mess.

              In the end, legally, there will be privity or a relationship only
              between the investor/lenders and the borrowers and that there
              transaction was supposed to be documented and recorded. Instead the
              banks documented and recorded a different transaction in which the
              intermediaries looked like the principals and were therefore able to do
              “proprietary trading” in which they took investor money from one pocket
              and put it into another. That is what opened the door to huge “profits” (actually theft
              proceeds) on the way up and on the way down. These banks are now buying
              the same houses from themselves (using another affiliate entity) and
              then reporting the results to the investors so they can write off the
              loss. They are going to be the largest landowners in history as a result
              of this PONZI scheme.
              If the housing bubble alone and sub prime loans had crashed the economyHere is an explanation even a right winger can understand.

              A bookie really likes a horse. He believes he is going to make a killing because “it’s a sure thing” … “the horse can’t lose”.The bookie takes EIGHT HUNDRED TIMES as many bets on this horse as he can cover because he is gonna make a killing and because after all, “the horse can’t lose” … but ooops, the horse loses and he can’t pay off.They break the bookies arms and legs and put him in a dumpster. Who is to blame, the bookie who foolishly leveraged himself beyond reason OR “the horse”?

              Those who are blaming the CRA or sub-prime loans for this economy are in effect, “blaming the horse” for losing rather than the bookie who took many times as many bets as he could cover …. and THAT, my friends, is how ONE
              TRILLION bucks worth of sub-prime mortgages became EIGHT HUNDRED TRILLION dollars worth of debt thanks to Reaganomics and Republican Phil Gramm’s legislation which allowed that unregulated degree of leverage and eliminated the need for capital reserve requirements to “cover your own damn
              bets”. Next time you hear Limbaugh spreading that manure about Jimmy Carter and the Community Reinvestment Act, you will know he (and Ken for that matter) are ignorant.

        • labrown69

           Bullshit – it was in 2003 that Bush began giving free money to minority homebuyers in the form of grants, not loans, when he signed the American Dream Downpayment Act. Here is what crashed the economy.

          BofA settled a civil claim that it had lied when they “sold”
          mortgages advertised as meeting government standards. We all know by now
          that the loans “lacked documentation and underwriting.” But what is
          still to come out is WHY they lacked documentation and WHY the loans
          lacked underwriting.

          The documentation was absent simply to hide the fact that the bank
          was pretending to have ownership or an insurable interest in the loans
          and mortgage bonds. The true transaction was between the
          investor/lenders and the homeowner/borrowers. BofA stole or misused the
          identities of both the lender and the borrowers so that it could sell
          the loans many times under guise of exotic derivative instruments called
          mortgage backed bonds.

          If fully documented, the lender would have shown up as the investors,
          which is as it should have been. BofA never put up a dime for the
          funding or acquisition of any of the loans. Its claim of ownership and
          an insurable interest was a blatant lie, inasmuch as they actually had
          no risk of loss, which is why there was no underwriting standards
          applied either.

          I would suggest you track the pleadings of this U.S. Attorney and
          pick up some pointers along the way. He is definitely on the right
          track. As for now, the focus is on the bad mortgage bonds, bad loans,
          and lack of documentation up at the lender level.

          Once that veil is penetrated it will be revealed that the borrower
          was defrauded using the same misdirected documentation using appraisal
          fraud as the principal leverage point.

          But the real stuff is going to hit the fan as more and more people
          realize that this standard practice in the industry allegedly to
          “protect” the investors, invalidated the chain of title and there has
          been no effort to correct the problem. When it is revealed that the
          investors were cheated out of their money by a use of proceeds that
          crosses the borders of fraud, and that the terms of the bonds were never
          intended to be satisfied, just as the terms of the loan were never
          meant to be satisfied or secured, then we will have justice peeking its
          head out over the mess.

          In the end, legally, there will be privity or a relationship only
          between the investor/lenders and the borrowers and that there
          transaction was supposed to be documented and recorded. Instead the
          banks documented and recorded a different transaction in which the
          intermediaries looked like the principals and were therefore able to do
          “proprietary trading” in which they took investor money from one pocket
          and put it into another.

          That is what opened the door to huge “profits” (actually theft
          proceeds) on the way up and on the way down. These banks are now buying
          the same houses from themselves (using another affiliate entity) and
          then reporting the results to the investors so they can write off the
          loss. They are going to be the largest landowners in history as a result
          of this PONZI scheme.

          Here is an explanation even a right winger can understand.

          A bookie really likes a horse. He believes he is going to make a
          killing
          because “it’s a sure thing” … “the horse can’t lose” .The bookie
          takes
          EIGHT HUNDRED TIMES as many bets on this horse as he can cover
          because he is
          gonna make a killing and because after all, “the horse can’t lose”
          … but ooops, the horse loses and he can’t pay off. They break
          the bookies
          arms and legs and put him in a dumpster. Who is to blame, the
          bookie who
          foolishly leveraged himself beyond reason,  OR “the horse”?

          Those who are blaming the CRA or sub-prime loans for this economy
          are
          in effect, “blaming the horse” for losing, rather than the bookie
          who took
          many times as many bets as he could cover …. and THAT, my
          friends, is
          how ONE TRILLION bucks worth of sub-prime mortgages became EIGHT
          HUNDRED
          TRILLION dollars worth of debt thanks to Reaganomics and
          Republican Phil Gramm’s
          legislation which allowed an excessive degree of leverage and
          eliminated the
          need for capital reserve requirements so that banks who acted like
          bookies
          could “cover their own damn bets”.

    • labrown69

       That is a lie, straight up! There is not a word in the CRA that even mentioned, no less relaxed or eased  “lending standards”. The CRA was about “red lining”, turning down QUALIFIED borrowers because the subject property was in an area deemed undesireable by the bank such as the inner city. The claim that the CRA forced banks to “make loans to people who couldn’t pay them back” is a right wing myth designed to distract from the reality that they were making those loans to feed the Wall Street securitization machine that turned every 100K sub prime loan into $50 MILLION bucks worth of gambling markers, most of which is still on the books of every major bank and all of whom, if forced to keep books accurately are insolvent thanks to Republican deregulation.

    • labrown69

      Steve – that is a lie, straight up.

  • http://pulse.yahoo.com/_VE7RFTIPHDOJ6QCZOKDGWDBHYU Patriot Alice

    Because owning a house needs to be earned, it’s not a right of citizenship. If you gave away money, it would lose it’s value too, because it must be earned to maintain value. If you don’t earn whatever, it will lose value. If you gave away college degrees, it too will lose it’s value. Capisce? Comprende?

    • http://www.wtffinance.com Jesse Livermore

      College degrees already have lost value as they are “given away” with the help of government non-sense guarantees of student loans. Not only does the cost go up for education but on top of it there is more demand for college education and curriculum around the country are being watered down.

  • http://profiles.google.com/satish.m0102 satish M

    Very true, at the same time the government took over the risk, it had already made it easy for banks to gamble by repealing The Glass-Steagall Act.

    • http://profile.yahoo.com/4AMQYJURGBE6ZIEOULQJQUO7YA gary

      house value should not go up in value for ever ,there should be limit how much a house can sale for.

      i think the average house should never be more than a $ 100000 or it basicley desighned to make you a slave for the banks.

      these price are desighned keep you oweing for your whole life .

      it should not take more than 10 years to pay off your house .
      that 30 year loan crap you will never have nice vacation, you will be a slave for ever until you die

  • CSC

    It is long past time to blame Republicans OR Democrats; both parties take considerable campaign donations from industry special interests, and we’ve really been governed by corporations for decades. This becomes more and more true every election cycle, and will continue on this destructive path until we separate corprations from govt. Unfortunately, the very people who’d vote on such legislation are the elected officials who are lining their pockets with industry special interests’ money, so it’s not going to happen. We’re the Corporate States of America now, well on our way to becoming a third world country with all the corruption one associates with that status.

  • CSC

    The housing market crashed more due to what the FBI predicted in the early 2000s; that mortgage fraud was rampant, increasing, and could take out the economy, and that it was done 80% of the time by the industry itself. Home buyers, on their own, didn’t have the ability, resources, connections, authority, or knowledge to create, approve, and resell toxic loans. That many homebuyers were duped is testament to American’s ignorance, but it is not illegal. What the industry was doing, however, was in many cases illegal. While big companies got bailouts and tax breaks and play themselves as victims of the scam they themselves perpetrated, the smaller players, unconnected and without millions in the bank, sometimes went to jail for the same crimes. Google mortgage fraud.

  • http://twitter.com/JudyGraff Judy Graff

    Have you seen “Inside Job” yet? It’s about the crash and it is well worth renting.

    • http://www.wtffinance.com Jesse Livermore

      I will write a review on “Inside Job”, it’s on my to do list. The movie certainly described well what happened but its solution is in bed with the industry as it wants more regulation and “financial reform”. The proposed solution of the movie is just more of the same, more market intervention through various government and Fed programs.

  • http://profiles.google.com/usnaron Aron Rotklein

    Jesse,
    You made some very good points.
    But, you did not discuss the HUGE demand for mortgage backed securities on wall street. This demand caused credit standards to continue to drop all the way until the end. Investors pretty much told the market what the standards should be. Banks just packaged the mortgages and sold them off…during the last year before the bust, they kept more and more on their own books just to get the deal to go through because the demand was starting to fall for the lowest quality tranches of the MBS’. The keys to this demand…1. bogus credit quality ratings 2. low interest rates, investors chasing yields in alternate investments (MBS) 3. A historically stable housing market, more perceived safety. As if this wasn’t bad enough, the completely unregulated derivatives market allowed the large banks to place side bets on MBS’s. Many banks were leveraged over 35 to 1. This would not have been possible without the repeal of Glass Steagal in 1999. If I’m not mistaken, the derivatives market associated with MBS’s was larger than the MBS market. Enormous credit expansion and risk brought down the market. When you’re leveraged 35 to 1, your investments only have to drop 3% and you’re wiped out (Lehman Brothers).

    • http://www.wtffinance.com Jesse Livermore

      Aaron,

      I’m aware of the profits and losses due to mortgage backed securities but MBS weren’t the root problem. Without the artificial low interest rate policy by the Fed and the many anti-free market subsidies for the housing and credit markets by our Government housing wouldn’t have appreciated the way it did. The Government and the Fed laid the foundation.Wall Street will always look to profit from products, that is its job. We have to learn and realize that it is not the Government’s job to distort the market with interventionist policies.

      Ron Paul was very right in 2002
      http://www.wtffinance.com/2011/04/ron-paul-forecasts-the-housing-bubble-in-2002/

      A free market would self regulate. It’s government and Fed policies that interfere in the market that 1) create bubbles or 2) allow financial bubbles to grow much bigger than they would otherwise.

      With all the green Government policies there will be a speculative bubble for green energy/carbon exchange credits, etc. Sure, Wall Street packaged MBS to profit from it but that is the job of Wall Street, to profit. Wall Street does its job, the Government on the other hand sure ignores its duties to uphold the Constitution (and with that limited Government and free markets).

      • http://profiles.google.com/usnaron Aron Rotklein

        All true, but the “unregulated” derivatives market maginified the problem to an enormous degree. Through regulation, Glass Steagall prevented banks from going overboard with risk for almost 70 years. There is always a good middle ground. The banking industry needs governemnt regulation but you certainly show how governemnt intevention can throw things off track. There is a common middle ground. The answer is not going to the other end of the spectrum.

  • http://pulse.yahoo.com/_6FRRZUKTUEZYWW3YUQCL4PVYVU crazyheart

    i never heard bush say that you have a right to go buy a house you CANT AFFORD! no matter how you slice it the lack of personal responsibility of people buying homes caused this mess. EVERYONE SHOULD AIM TO BUY A HOME! that does not mean you should go out and buy something out of your comfort zone. it doesn not mean that you should not have adequate savings to maintain expenditures if you lose your job. IT DOES NOT MEAN THAT YOU DONT NEED TO SAVE FOR RETIREMENT! we are degrading as a nation when people blame others for their poor financial decisions in life.

    • http://www.wtffinance.com Jesse Livermore

      first of all home ownership is not a right but a privilege for those that can afford it. Second, in a free market system the government should NOT subsidize home ownership. But that’s exactly what both parties support. It’s not just the left but also the right. The GOP with Bush as a leader supported the increase in subsidies for the housing market through credit guarantees. If you were to actually watch the posted video you’d understand that President Bush was just as much an anti-free market politician and supported socialism in the housing market as the left.

      Having the right to buy something doesn’t make that a right. It’s a privilege for those that can afford it. The Democrats and the Republicans, yes, both parties supported the artificial credit environment as both parties supported government guarantees that eliminated down payments and provided credit to Americans at artificial low rates. Lack of free market is the root of our economic problems and the reason why the credit/housing bubble took place.

      • Anonymous

        Also during that time we started seeing the effects of the new business models being used by large corporations.Google:  ”The Dumbest Idea In The World, Maximizing Shareholder Value”.. This info is from Forbes Magazine, a Pro-Business, Pro- Corporation Company that now reports that this business model destroyed our economy and true capitalism. These are the big boys that are getting the tax breaks –  at the same time they were shipping more and more jobs overseas, reducing pay and benefits for their employees here in the US all while making record profits.  According to Forbes, THIS IS GREED! If we combine these two problems we have the exact reasonfor the destruction of our economy and true capitalism. A Must Read Article!

    • Teaera Bailey

      Crazyheart, 

      I understand your frustration however it is misplaced. In 2010, there were over 3.8 million foreclosures in the country.  3.8 million Americans are not financially irresponsible; financial regulations are in place to protect the public and in the case of the housing market; the government failed to protect the people.  Interest rates should have never been lowered and loan qualifications should have never been compromised. Do not be so quick to judge others, there are still millions of Americans that have lost their homes and their jobs because our government failed them; you shouldn’t do the same.

    • Anonymous

      While many self-proclaimed conservatives blame the Democrats for the social programs and anti-free market policies it was President Bush in 2002 who stated that a high down payments are a big barrier to first time owners. During “A Home Of Your Own” conference on May 17, 2002 President Bush urged Congress to use taxpayers money to interfere in the market place by lowering down payments for those that cannot afford to buy a home. During that speech President Bush also explained how the guarantees of home loans by the Government Sponsored Enterprises would streamline the underwriting process and basically neglect the risk variable. President Bush made it clear that his and Congress’ vision is to make homeownership a right and not a privilege.

      Please keep in mind that people with little to no experience were told that they could afford these homes even when they themselves questioned rather they could afford it or not. Both partys are responsible and the poor people hoping to fulfill their dreams were out and out lied to and told they COULD afford it and that their payments WOULD go down rather than UP.  In my opinion the people should not be the scapegoats here. They trusted the government and the banks.  I agree that trusting either WAS their mistake!

  • http://pulse.yahoo.com/_6FRRZUKTUEZYWW3YUQCL4PVYVU crazyheart

    btw, homeownership is A RIGHT AND ALWAYS HAS BEEN. you have every right to buy a home. he never said that you have a right for others to PAY FOR YOUR HOME! home ownership should be encouraged, but again, YOU DO NOT HAVE THE RIGHT TO BUY A HOME THAT YOU CANNOT AFFORD OR WITHSTAND IF YOU LOSE YOUR JOB AND THATS THE PROBLEM!

  • GuessWho

    What a dishonest article.  Who started the Community Reinvestment Act?  Democrats.  Started with Carter, blew up with Clinton.  Essentially, the Government Nationalized the Housing market under the direction of Democrat hacks who controlled Freddie/Fannie.  How come no mention of Barney Frank, the key democrat who stated “I think they are in good shape going forward” (Freddie/Fannie) Who controlled Congress since 2006? – Democrats!   To meet the demands of activists like ACORN for an easing of underwriting standards in order to make home ownership more accessible to more people. It was perhaps a worthwhile goal, but it caused the financial crisis when it was done by lowering mortgage underwriting standards. In the end, it was a colossal policy error by Congress and two presidential administrations – nice try!  

  • http://twitter.com/DailyMiamiNews Miami News

    The fact is well explained to some blind people who kept protecting Bush. 
    “While many self-proclaimed conservatives blame the Democrats for the social programs and anti-free market policies it was President Bush in 2002 who stated that a high down payments are a big barrier to first time owners. During “A Home Of Your Own” conference on May 17, 2002 President Bush urged Congress to use taxpayers money to interfere in the market place by lowering down payments for those that cannot afford to buy a home. During that speech President Bush also explained how the guarantees of home loans by the Government Sponsored Enterprises would streamline the underwriting process and basically neglect the risk variable. President Bush made it clear that his and Congress’ vision is to make homeownership a right and not a privilege.”
    Troy@Miami 

  • http://www.facebook.com/chris.scialfa Chris Scialfa

    I am so tired of the media,including this site, If you noticed when he blames the Democrat he has to include the Republican, But when he blames the Republican he never adds the Democrats. I pick up on these left wingers quickly.I remember it quite different…Barney Frank and his group of idiots, forced Fanny Mae & Freddy Mac to allow people who could not afford to give down payment  much less a payment each month. At the time I remember thinking oh here we go again, Democrats cause problems and when it falls apart they yell loud…It’s the Republicans that did it.So sad so sick. It appears to me and many others You can’t trust the Government. Here is a site where the U.S. citizens speak clear and honestly     http://first-thoughts.org/on/Fannie+Mae/Jimmy+Carter/

  • kenpodoc

    labrown69, whoever you are, you actually prove my point with your rants:  You are close-minded and see the problem as a single-sided issue with no input by liberals or the Democratic party into the housing meltdown.  You are engaging in a tit-for-tat juvenile discussion using foul language aimed at others and cheapen yourself and the debate. You use hyperbole more than fact based on your own biases to play one-up on anyone you deem worthy to lash out at. 

    I repeat myself:  I will readlily offer up that George W. Bush did too little to stop the momentum of the subprime housing market and in fact helped to foster it.  But my point is that this started not with Reagan (no serious history of the issue holds to that!  Ridiculous point…), but clearly started with Clinton. You misunderstand the CRA history.  Yes, when Carter signed it into law in 1978 it was designed to stop the practice of “red-lining” in poor mostly urban areas.  And it stayed essentially that way throughout Carter, Reagan, and the HW Bush years and even most of Clinton’s first term.  Then in 1995 the CRA was given a new mandate-via executive order of Bill Clinton bypassing congress-to require banks to now give certain percentages of what can only be called risky loans and prove that they did so or these banks would be subject to lawsuit if they chose to expand in a specific territory.   The game quickly became one of strange bedfellows: When a bank tried to expand into other busines in a particular city or state, they were frequently hit with lawsuits from community action groups such as ACORN claiming they had not served enough of the poor.  As crazy as that sounds, it is a well documented phenomenon.   ACORN and other groups like NACA in Boston, etc, would work inside a poor community and approach the working poor and help to get them a loan-very often that they could not afford initially or maintain- as long as they met certain requirements.  Usually those requirements would mean registering to vote and training in community action within the organizaation.  Then they helped to essentially broker loans with the banks-or they would sue the banks for subjectively not making enough loans in the areas traditionally seen as behind the “red-line”.  The banks could fiscally bear this because they were able to dump the bad loans off their balance sheet by selling it to Fannie and Freddie who by the end of the 1990′s under Jim Johnson had changed the rules by lobbying those in congress who were charged with oversight of Fannie and Freddie.  Fan and Fred then packaged up the loans and sold them again to Wall Street as Mortgage Backed Securities, which of course grew to gargantuan proportions. When Wall Street went south, both parties tried to distance themselves from the brokerage houses, but the fingerprints of BOTH parties are there-and that CLEARLY includes Democrats.  Dems were involved heavily with Jim Johnson at Fannie as well with most of his money funneling to the left.   The housing bubble grew from this start and became intertwined in both parties and was fostered by many factors including the cheap money made available by banks to many middle class Americans who bought too much house, or those who bought and flipped.  These are not hidden items, many articles and books support this history and the housing bubble was well described as early as 2000.

    As the housing bubble grew, many individuals pushed this agenda.  It should be noted that politics is more than the Presidency as there existed divided congresses during many of these years. Chris Dodd, Barney Frank, Maxine Waters, Andrew Cuomo, Henry Cisneros, Hank Paulsen and Ben Bernanke-amongst others-all helped foster this during the Bush and Clinton years-as did Bush and Clinton!   Trying to lay this entirely at the feet of Bush is factually incorrect and dishonest.  Liberal agenda was strongly in play from the beginning and much money was made on the left and the right.   I am done with your blather.

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