Housing market misery

As weak as the housing market is, 90% of mortgage money now comes from government institutions. The private morgage market has all but disappeared. Many of today's loans are still low down-payment loans, meaning that many of today's buyers are at dangerous leverage levels.

The government and the lenders know this is bad policy, but feel that the housing sales industry would shut down without government assistance. The question remains, would we be better or worse off without the government lenders providing loans to buyers? That's a tough one.

If we're going g to be subsidizing anything, I'd pick direct home construction and elimination of dilapidated and dangerous structures.

Of course, that wouldn't be profitable for the finance industry.

"Some quick notes of caution, culled in recent days from The Associated Press, to members of the Obama administration who insist that the economy is enjoying a strong recovery -- and who not-so-subtly hint that we shouldn't believe our lying eyes, which see things rather differently:"

This writer in my opinion should continue to write in this strong manner. Lieberals are at the bottom of the perception scale, so they need blunt language. I know of at least one Lieberal who comments here who would probably insist that you " rarely enunciate or defend what you believe."

Liberals have enough perception to know that it was repub-lie-cons and the previous administration that helped create this mess, then repub-lie-cons get upset when Liberals don't step in and clean up repub-lie-cons mess fast enough...what a joke.

By and large the housing bust was created by a combination of greedy lenders writing mortgages to people with little concern about qualifications, knowing that they can simply flip the mortgage over to investment bankers who could get the rating agencies like Moody's and S&P who didn't want to be left out of the party to grade what was essentially junk, with the highest ratings, so Goldman's and others can sell the junk to unwitting investors around the world, and if that were not enough of a scam itself, create products called "credit default swaps" which allowed them to leverage the junk as much as 30x it's value without any reserves.

All of this was motivate by greed and then this house of cards came tumbling down.

But the Free Press Editors want to blame the mess on Washington. If there is any blame at all to pin on Washington it would have to be placed at the feet of the Bush administration for it's lax regulatory environment which allowed all this to happen. The same lax regulatory climate that Candidate Romney would like to return us to.

Exactly right, Plato. The right wing free market purists keep perpetuating the lie that it was entirely the government's fault (specifically Fannie and Freddie) while they turn a blind eye to the derivatives game that started with the greedy private investors and who were responsible for the vast majority of the bad loans taking place. Fannie and Freddie were also guilty of making some shady loans but they were very late in the game and had only a small percentage of the market. To blame the entire housing crisis on them is to deny the truth of what happened, just so the voo-doo economics proponents can push their agenda that everything is always the government's fault and private bankers and investors are always squeaky clean and beyond reproach all of the time.

Clinton, who was drinking the supply-side economics kool-aid at the time, should never have repealed the Glass-Steagall Act. Bush and his cronies then bull-headedly inisted on keeping in place the hands-off, lax regulatory environment. Even after all that has happened and even though we are still in the throes of this stinking economy and an anemic housing market, the righties are still insisting that it was all government's fault in the first place and they won't allow any sensible regulations on the banks to be put in place. They are not only not learning from the mistakes that were made; they won't even acknowledge the real mistakes in the first place. Whatever "recovery" we are seeing now is minimal and it's illusory to boot. If we don't reign in the greedy banker/investor bastards who started this thing in the first place, it's only a matter of time before another crisis hits and this time it will bring about a full blown depression.

"It cannot be repeated too often that these are the disastrous consequences of government micromanagement of the housing market and of federal pressure on lenders to lend to home buyers who were poor credit risks."

Dead on!!! Under threats to charge banks with discrimination the feds imposed quotas on the banks. The Demoncrats were accusing banks of red lining minority neighborhoods and were not going to let them open up banks in these areas unless they started giving out more loans to minorities.

No bank in their right mind would have given people with bad credit or no credit or with little income a loan unless forced to by the feds. This would be at the top of the no-brainer list.

Hey CON - nuck you wrote to me....."You rarely enunciate or defend what you believe"

Am I getting through to you?

Carter, Clinton and Bush were responsible for this mess and you liberals want to give the President and government more power to screw things up?

Another piece of the government intervention puzzle is the CRA, which is also known as the Community Reinvestment Act. This began under Carter and was expanded under Clinton and Bush. The Community Reinvestment act was supposed to address lending discrimination practices. It was used by Clinton and Bush to artificially increase home ownership in America. The CRA simply turned into legislation mandating that banks begin lending to borrowers that did not have the ability to repay the loans. However, this program really found its home with Fannie Mae and Freddie Mac, who were more than willing to comply. The predatory lenders that everyone was screaming about were originating mortgages based on guidelines from Fannie Mae and Freddie Mac. These guidelines in turn came from the CRA. That doesn’t make all mortgage brokers innocent, but they would have never been able to make those loans had it not been for the GSE’s, Fannie Mae and Freddie Mac. It was an absolute absurdity when a borrower with no money down, on a “no, no loan” (no income, no asset verification) would be charged a risk premium of 1-2% over a prime borrower. A true free market would have priced those sub-prime loans much higher. In fact, a free market would more than likely have never touched those loans, because they are near impossible to price, given that the risks would be too difficult to determine. The bubble was created by an orchestra of market intervention from the Federal Reserve, the manipulation of interest rates; and the Federal Government intervention via GSE’s and affordable housing initiatives. Artificially lower interest rates increased the demand for housing. It also allowed for housing prices to increase beyond a nominal level by making them more affordable at a higher price. The GSE’s created a market for the sub-prime and risky loans, which were then securitized and sold to Wall Street. The Community Reinvestment Act poured fuel on an already volatile situation. All of this activity created artificial demand for housing with cheap money and artificially low lending standards. All of this was made possible by the practices of the Federal Reserve and its ability to create money out of thin air and made worse by government intervention. Many try to blame the free market in the aftermath of this mess. The reality is that we haven’t seen a free market economy since the creation of the Federal Reserve (1913) and it has become even less of a free market ever since. If a true free market were at work, these malinvestments would not have been possible, because the capital required for them would not have been available to do so.