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What Mortgage Crisis?

What Mortgage Crisis? by Bill Roberts.

Let's face it. If the market hadn't gone flat and then turned south we wouldn't have a mortgage crisis.

There is an old saying "a rising tide lifts all boats." Do I need to explain this to you?

If The Fed hadn't raised rates so fast most of this wouldn't have happened. Flippers could have gotten out of the market. The prices might have stopped going up, but would have only gone sideways instead of straight into the toilet.

Nobody would be yelling "Fraud, fraud, fraud" and nobody would be saying all our problems are the result of greedy Realtors, Mortgage Brokers, Banks, and anybody else they can think of to vilify.

Well maybe it's time to call a spade a spade.
Our problems all stem from our money crisis. We spend more than we make. Our country buys more than it sells. Oil is almost $100 a barrel. A $100 for black crap that oozes out of the ground. Before Jimmy Carter it was only $2 which is more like what it's worth. We're "allowing" Cuba to sell leases for drilling right off Florida to the Chinese, and we won't allow our own oil exploration companies to do the same. What's up with that?

Europe practices socialism. They are very inefficient manufacturers. Their workers make more money than our workers, they only work 35 hours per week, and have many weeks of paid vacation. Yet the Euro is worth more than the Dollar. What's up with that?

If our economy was strong and moving up as it should be, there would be no mortgage crisis. You wouldn't need to ask "who's to blame for this mess?"

I've read all the posts this week on the "Mortgage Crisis" here on ActiveRain. Everybody wants to blame the other guy. The truth is there is a little bit of truth in all the arguments, but that doesn't mean that any of them are right.

Not one of the industry segments is to blame. Realtors sold houses at ever escalating prices. Nobody said "Whoa, we gotta stop this craziness."

Mortgage Brokers arranged the financing for all these buyers. Nobody said "No, I won't make this loan for you even though the bank is willing to lend you the money."

Wall Street kept up the pressure. They had an insatiable appetite for more loans to bundle and slice. The buyers of MBS wanted all they could get.

Don't Stop The Carnival.

But the Fed did stop the carnival. They raised rates. The real estate market hiccupped. So they raised the rates again. This time the market actually coughed. But they weren't through yet. They raised the rates again.

The Federal Reserve Board of Governors Open Market Committee kept raising rates until the market was DOA.

Put the blame where it belongs. Not on each other, but on these guys that sit on the Open Market Committee, specifically, the Fed Chairmen Greenspan and Bernanke.

Greenspan, The Evil Villain

If you want to take advantage of this market call Bill Roberts (619) 244-4610.

Posted by Bill Roberts - "Baby Boomer" Retirement Planning on 11/25/2007 07:53 PM

Comments (30)

bill roberts real estate, mortgage, mortgage crisis

This post has been included in California Information San Diego County, CA Information

30 Comments on What Mortgage Crisis?

NOV

2007

Bill- I love this post! You are so right on the money here! I am amazed at the blame game but I always have put the responsibility on the Greenspan and his buddies. It was irresponsible. This is a good post and I hope it gets featured. Katerina

Katerina, Thank you for your support. I read all those "blame" posts and I was sick.

Bill Roberts

Bill I agree with your post, right up until you blamed Greenspan. Greenspan didn't create this, our legislatures and our "free economy" (i.e. greed economy) have created this situation.

To me the argument that Europe's Socialist Economy is stronger than the use Capitalist economy is a clear indicator that in a true world economy, our system is broken. We in the "free market" cannot compete against government regulated economies.

It's time to rethink the system. It's time to take care of our own!!

Bill, I'm still thinking that the buyers need to stop acting like victims. No one was in a better position than them to say, "I should have bought a less expensive house." Or maybe, "I really can't afford to buy right now." Largely speaking, unless fraud was involved, many buyers got in over their heads because they were not being finacially responsible. Realtors & lenders took advantage of the opportunity.

I glanced at an article in our home town newspaper today that suggested this "mortgage crisis" has the potential to be worse than the S&L savings problems in the 80's. Don't know about that,,,,but I'll stick with my general opinion .... people that would have only qualified for subprime loans or adjustable rate mortgages are better off getting their finances in order first and THEN buying a house.

I like your posts. Keep up the good work.

Well Kate, This is only a post, not a book. But the Fed (specifically Greenspan) set this up when he ran rates down to zero. This "forced" home prices up because home buyers buy monthly payments not total price. Then he (and Bernanke) jacked the rates up very quickly. This created our "mortgage crisis" but the problems in our economy go a lot deeper than this.

Europe is a "protectionist" economy. They keep imports out with high duties and they give "incentives" to others to buy their over-priced products. There is no valid reason for any US airline to buy Airbus except for the subsidies.

And why aren't we drilling for our own oil in the Caribbean Basin and the Arctic? If we did we wouldn't need MidEast oil at all.

Thanks for your input.

Bill Roberts

Sondra, the point of my post was that we all need to stop playing "the blame game." It's time to get back to business. There's money to be made.

Bill Roberts

Excellent point Bill. I agree whole heartedly. I'll admit I am guilty of skimming, maybe a little too quickly, through articles on the mortgage crisis. I apologize that I didn't pick that up in my skimming process. I do like your posts. Sondra

Sondra, Thanks for coming back to do it again.

Bill Roberts

BTW I see you are new to AR. Welcome. I hope you get a lot out of it.

NOV

2007

Bill R.

I agree with many of your points, but given the need to keep a consumption based economy going after 9/11, what other choices did we have than to reduce the cost of borrowing, which regrettably in hindsight, caused an unitended run up in real estate prices?

I don't blame anyone, but I certainly place more of an issue on underwriting standards that allowed for 500 credit scores with no money down. Granted, they were rewarded with a risk premium based on credit, but seriously, don't you believe that was a greater contributor to this mess than the actions of Greenspan and Bernanke?

Enquiring minds wanna know!

Bill,

You are absolutely right about Europe being a protectionist economy. The question is whether it makes sense for the US to operate as a "free economy" in a world economy dominated by "protected" economies.

What most of us don't understand is why Greenspan kept bringing down rates. The drop in rates was not intended to spur the US economy, but instead it's purpose was to allow 3rd world countries, specifically India and China to develop and be able to compete in a world economy. Much of it had to do with the complicated issues involved with trade deficits, job creation and specifically China's regulation of the Yuan. The idea was that as China and India developed stronger economies, that these countries would increase imports from the US and other Countries.

Whether it is sound economic policy or political policy I can't comment on. Certainly no one can deny that the US could not/cannot continue to export jobs to China and India indefinitely. IMO, Greenspan did what he had to do to equalize markets. The failure in the system is in the lack of government over-site of Wall Street and the creation of seemingly "safe" mortgage backed securities. This is not the first time that Mortgage Backed Securities have been abused by Wall Street. The second failure in the system is the governments failure to create economic policy to stem the stagnant wage growth that was occurring during the longest economic expansion in US history. We as a society have failed miserably at encouraging savings through economic policy and financial education of our citizens. Our economic policy is that greed is good at all costs.

My argument is that this is a societal and political issue that is much bigger than the FED Chief. Can we truly compete in a world economy dominated by protected societies? I don't think so and the shrinking middle class along with a continued decrease in the true standard of living of the majority of the US agrees with me.

Just my opinion.

Bill~

Love your overviews and opinions. As I read your-post today, and got to the final-line...where you offer remedies and advice...I was smiling all the way to the dark chocolate.

Bill Nazur, I was in favor of lower rates. It is just that he dropped them too far and too fast. And then they brought them back up too far and too fast. It caused a lot of chaos in the real estate market. We didn't need that nor deserve that.

As for underwriting standards, I guess we are onopposite sides here. I think everyone deserves to be able to own their own home. It needs to be public policy. What we don't want is an economic system where only the privileged get to own real estate.

You wouldn't deny a person (or family) the right to have a place to live would you? OK, they can pay rent but they can't make mortgage payments, is that it? Give me a break. Bad credit or no credit they still deserve to be able to own their home.

The old days are gone where a person could go off into the wilderness and build their home there. Now we have "civilization." Does that mean no home for the poor? the disenfranchised? the uneducated?

I'm not a bleeding heart liberal, but I do believe in fairness.

Bill Roberts

Kate, you are bound and determined to expose my libertarian leanings. I believe in FREE TRADE, but as you said it needs to be free in both directions. You get no argument from me on this.

But the so-called mortgage crisis is another issue. Everybody is out blaming everybody else. They need to look at exactly what transpired. If they do, they will trace the blame back to Greenspan. I am not getting into WHY he did it, just that he did it and the whole miserable mess ensued. If rates hadn't gone so low, prices wouldn't have spiked. It was simple cause and effect. Highly escalating prices opened the door to all kinds of things from instant profits for flippers to homeowners using their house as an ATM.

And FRAUD happened. It always happens, but now we are looking for someone to blame.

I say get over it and get back to work. We don't need any scapegoats. This isn't meant personally for you but to everybody out there who is crying about who is to blame for the mortgage mess.

Thanks for your participation. I wish more people would act as responsibly as you.

Bill Roberts

janeAnne, I am not going to take the blame for you putting on ten pounds.

Bill Roberts

Bill: Good post. A bit controversial but a good post does tend to stir up the controversy. Libertarian yes... and a bit scapegoat-ish. I don't think we can point the finger at one person, organization, or industry. Everyone was out there to protect their own interests. No one was looking out for the consumer (even the consumer him/herself!). It's a mess. So what is the solution? A true free market? Ending the Federal Reserve? Ron Paul for president? Wait a minute... that's politics, ain't it? lol. Either way, keep up the good work!

Rich, My point was "no more blame game." It doesn't serve any useful purpose. Getting back to work does.

Thanks for chiming in.

Bill Roberts

NOV

2007

Bill, Libertarian. Huh, I wouldn't have guessed. You made me go out the LIbertarian website and understand what the Party stands for. I had never paid attention before. Thanks for that.

You are absolutely right, let's get to the task at hand. There is gold in dem hills!!!

Hi Bill, Well done. There were many causes of this current crisis but the fact is it was inevitable. If the FED hadn't had all of the rate decreases we could have very well slipped into a recession after 9-11 and the Internet stock crash. The lower rates and real estate boom pumped much needed money into the economy. Unfortunately this caused values to sky rocket and that's where the problems began. The value of real estate was inflated. Once it started losing it's air the game was over.

Bill I did add this to the ACTIVERAIN RESOURCE POST Good job.

Bill I can sympathize with your feelings, but I think that you're off base with the facts. The facts of the matter are that there was nothing wrong with Realtors selling houses at the prices that the market at that time said that they were worth. It is nonsense to think that an agent did anything wrong in doing his/her job!

Ditto for mortgage lenders. Even the sub-prime mortgages weren't in and of themselves evil. If they had been presented to the investors in an honest and forthright manner instead of being bundled in the CDO's (collaterized debt obligations) and then "rated" by companies such as Moody's and Standard and Poors as being "investment grade" then investors could have made better decisions and this mess never would have occurred.

The housing market isn't the problem. The mortgage market isn't the problem. It's the deceitful behavior of the Wall Street investment houses and the ratings agencies that caused this problem. If we're going to call a spade a spade, then let's lay the blame where it belongs, fix it so it can't happen again and get back to work!

Bob Mitchell

ValueList Real Estate Services, Inc.

Bob, I don't want to play the blame game. That was the point of my post. Everybody acted in a natural manner. Nature abhors a vacuum. When the rates went to zero, everything that happened HAD TO HAPPEN. No blame please.

Thanks for commenting.

Bill Roberts

Kate, that is libetarian (small "l") not Libertarian Party. I don't know what those jerks stand for. I am not one of them. I was libertarian before there was a Libertarian Party, The history is interesting in case you are interested. "Freedom" means different things to different people.

Back in the 60s there was the Peace and Freedom Party who wanted social freedoms and there was the Young Americans for Freedom that wanted economic freedom. Talk about strange bedfellows! Anyway the Libertarian Party grew out of these two movements. Geeze!

I'm A Republican by party and libertarian by economic philosophy.

Now go make lots of money.

Bill Roberts

BB, It seems that we are on the same page. I wish everybody here could "see" this for what it is and stop all the blaming of everybody else. thanks for adding the link.

Bill Roberts

NOV

2007

Bill, I'm glad your post was added to the Resource Guide. I appreciated reading your thoughts on this post and it puts into perspective some of your comments. You make a convincing argument, however I know that in our area, there were other mitigating factors apart from what Greenspan was doing with the rates. But your points are well taken and well made!

NOV

2007

Lola, My "hobby" is economics. I didn't pursue a graduate degree because I couldn't find a school that shared my philosophy. If only...oh well.

Thank you for understanding, and for your kind words.

Bill Roberts

DEC

2007

Bill: Good post, brother... I'm with you all the way! Well, they're either going to have to sacrifice the dollar or the consumer, so there goes the dollar!

Jan, Thank you. What we really need is fiscal responsibility.

Bill Roberts

JAN

2008

Although I read this before & really appreciated your thoughts, it was worth my time to re-read again. The comment thread is as educational as the post itself. This is the stuff that makes Active Rain very valuable.

Lola, On that you and I agree. I can't believe how much I've gotten out of my time here.

BTW I'm glad you camr back, I've missed you lately.

Bill Roberts

SEP

2008

Where do you live? Here in Colorado, as in most of the rest of the country if RealtyTrac (as reported by mainstream media) is to be believed, home prices have not fallen substantially. In many areas homes continue to appreciate.

It seems that in addition to a few rural areas, only those regions that saw ridiculous speculation i.e. Las Vegas, Florida, and California are now seeing a substantial decrease in home values.

Just as an investor in equities takes a risk, so real estate investors must also shoulder the effects of a down market.

It seems that in addition to a few rural areas, only those regions that saw ridiculous speculation i.e. Las Vegas, Florida, and California are now seeing a substantial decrease in home values.

Just as an investor in equities takes a risk, so real estate investors must also shoulder the effects of a down market.

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