How did we get into this mess? (Cato)

http://www.cato.org/pub_display.php?pub_id=9788

"The housing bubble and its aftermath
arose from market distortions created by the
Federal Reserve, government backing of
Fannie Mae and Freddie Mac, the Department
of Housing and Urban Development, and the
Federal Housing Authority. We are experienc-
ing the unfortunate results of perverse govern-
ment policies."

Anyone who really thinks "predatory lenders" and "greedy bankers" are to blame for this "free market failure" ought to read this.

Not that anyone (well, there is one guy...) in Washington is listening...

 

Main causes of this problem:

1 - Adjustable Rate Mortgages and knowledge-less home buyers 2 - Investment Banks securitizing Mortgages in the form of collateralized debt obligations

Home owner unable to pay mortgage --> value of "Mortgage backed securities" declines --> suddenly house value drops and owner can no longer use it as equity to finance payments --> more foreclosures and ibanks take huge hits in MBS trading and CDOs --> debt piles on home buyers who at once were financing homes using ARMs --> consumer spending, confidence declines--> earnings reports hit hard for major companies--> SNOWBALL effect

John Wikowski
 

in addition to that, the major GSEs were unable to securitize, sell off their loans due to a lack of demand in the MBS/CDO market. And with the briliance of marked to market accounting, these items tore up the balance sheets of GSE and banks alike "forcing" the govt to intervene.

------------ I'm making it up as I go along.
 

I think I have to agree with the article here - greed is a constant and can't be what actually caused this. Yeah, greed is what allowed things to happen the way they did, but, like the author says, blaming this mess on greed is akin to blaming airplane crashes on gravity. Gravity enables airplanes to crash, but no one would go around and say the plane crashed due to gravity.

 

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