“No, the economy tanking was big cause of the housing market collapse.”
No, the economy collapsed because government policies mandated insane lending practices to encourage home ownership for undeserving people (0% down). The false demand for housing drove prices upward and this drove a frenzy to refinance. The house of cards collapsed because of gov’t mandates.
Sorry, but I disagree. Cases exist I am sure, but it wasn’t big enough to take down the economy in my opinion. I would wager that at least 90% of the foreclosures would have never happened if people kept their jobs. Still, a vast majority of homeowners continue to pay their mortgage.
The 0% down mortgages did not come without scrutiny. I got one myself and have had no risk of missing any payments. Why? Because I had the income and was required to have the income to be approved. I am sure there were some in the mortgage industry that falsified information to get loans through, but I just don’t believe that it was prevalebt enough to be the cause of the problem.
The distant suburbs and places like Florida and Nevada were going to get hit with the oversupply shock anyway, but I could have told you that 10 years ago we were building way too many plastic houses in the middle of nowhere and you are an idiot to pay $300,000 for them; however, I don’t believe many people bought them that weren’t able to tighten their belts and pay them back at the time of their loan.
While I think Bush falsely believed everything he said over 2008, I think he had the wool pulled over his eyes and I think Paulson and Bernanke perpetuated one of the biggest scams in world history.
“No, the economy collapsed because government policies mandated insane lending practices to encourage home ownership for undeserving people (0% down)... The house of cards collapsed because of gov’t mandates.”
That sounds like the Rush Limbaugh Subprime Theory.
Unfortunately for Rush’s theory investment banks and pure mortgage lenders were not covered by government mandates. The CRA regulated only deposit-takers. The CRA-free shadow-banking system issued trillions of dollars of subprime paper because it was immensely profitable, not because anyone was twisting their arm; no one was.
Rush’s government mandate theory also has a problem with the fact that the bubble was global, and not just confined to America. Had it been the result of American regulation this would not have been the case.
In fact the origin of the bubble was some financial engineering cranked out by quants back in the 1990s. Specifically it was David Li’s Gaussian copula function, a pricing model with a flaw that was ignored by everyone using it, at least until it blew up the financial markets.