When? I’d be happy to make a specific historical comparison.
And yes, there were a lot of shady business practices underlying the current debacle. At a fundamental level, the quality of the mortgages that were bundled into various securities was misrepresented.
Not bad. However:
If the economy collapses, fundamentally sound businesses get forced into liquidation and skilled workers lose their jobs.
Estimates of the eventual adjustment to US wealth run to $1 trillion, about ?7% of annual output. Enormous. These interventions should be about avoiding contagion or undue economic contraction, things we should fear.
I wouldn’t worry too much about Joe Hosehead unfairly getting bailed out. The problem is so huge that I strongly suspect that in the end hundreds of thousands will lose their homes anyway. Don’t worry, in the best of circumstances lots of naive homebuyers will receive punishment.
If one to two percent of mortgages **at a particular point in time ** are in foreclosure, that’s an appalling number. Given that that means those mortgages churn out of the percentage every six to twelve months, consider how many mortgages must be failing to keep that number at 2%.
So what? The value of my stock portfolio is based on the price that the market(i.e. other people) set, should I sue them if they decide to undercut me? Should the government compensate me in case those evil-doers get repo’ed?
Ok, Throatwarbler Mangrove, but preventing a recession (or offsetting its depth and length) is an entirely legitimate goal of government policy.
As is curbing behavior by professionals that is fraudulent or inconsistent with fiduciary obligations.
So if your stock portfolio tanks, that’s tough luck. But if your broker advertises himself as a conservative manager and then day trades dot-coms in your account, the SEC will properly look into the matter.
And if the entire stock market drops 50%, the Fed will evaluate its effects on the broader economy and (probably, usually) cut interest rates. Which will tend to prop up the stock market.
But details matter. I’m not sure what exact proposal is being discussed in this thread. At some point, we have to move beyond generalities.
Reasonable, in the sense of not being a dumb mistake. But also ill-advised: when he was Fed chairman, his every word was tracked in the securities markets and he filtered them accordingly. Professional fed watchers did not take his utterances at face value: the ordinary investor should not have either.
Inflation-adjusted housing prices are far out of whack. One way or another, they will have to come back to earth. It could happen slower or faster. It could occur by combining gentle price declines with higher inflation. But it will happen: bubbles eventually pop (or deflate – housing markets take years to adjust, while stock markets require only days or hours).
The highest priority goal of government policy should be manage the housing price collapse so that it doesn’t take the rest of the economy with it.
Another side effect of the mortgage crisis might be the price of oil. I was listening to the Beeb just now, and they had the NY correspondent for the Financial Times. When asked why oil was so high, he said that most of the increase from $80 to $104 was speculative, and driven by hedge funds needing to find a place for their money when mortgage funds and the market are not very attractive. More money rushing in, higher prices.
Interesting chart, but somewhat deceptive. The square footage of the average new home has also grown dramatically in the past couple of decades. I would like to see that chart adjusted (somehow) for square footage.
http://www.komotv.com/news/business/16334156.html The real point is they will get their bonuses and huge retirements. Their pay is not determined by how well things go. They get paid what they want to give each other.
Take another gander. The big runup in prices began around 2000. Changes in home size predated that.
Moreover, the chart does adjust for home size and quality in a way. Larger homes cost more to build and should have correspondingly higher rents. A price/rent ratio should control for such effects.
The chart does not reflect changes in interest rates though, which could conceivably affect such ratios. But somehow I doubt that such an adjustment would alter the overall pattern. For 25 years, the index hovered in the 90-105 range. Now it appears to have peaked at just under 140.
This is what the county political hacks say all of the time, but how did they manage to pay police salaries before the boom?
My house was valued at $143k in 2000, $325K in 2005, and $255k today. Now, in 2000, with the “paltry” real estate value, the county still was able to function. And even at the “reduced” rate, it’s still almost double what it was 7 years ago. How is the county “struggling” at these rates?
In California the effect is magnified due to Prop. 13. Property taxes are basically stable when you stay in a home - they only increase for a property when there is a new buyer. There is also the problem that people whose homes have decreased in value can ask for a reappraisal, which is going to cut revenue more. Plus, the drop in property values impacts sales tax growth, and unemployment increases hurt income tax revenues, so it is a triple whammy. Except for new homes, property taxes here go up much more slowly than inflation, so that’s one reason why things are tougher now than in 2000. Not that we were awash in money then.
Plus, governments have a bit of a harder time laying off the work force. In 2000, during the bubble, values and income was rising fast. In 2001 and 2002, there were layoffs and the closing of firestations also.
when did japan bail out its banks? early 80’s? look what happened to them. do We really want to bail out our banks also? will we stagnate our economy for decades also?
this is such a mess, I think we need to let the market play out and punish the lenders that “pushed” the bad loans. problem is all that debt was sold off into the market.
I agree. I recently bought a house (signed the loan papers in late August/early September on the DAY that whatever that first big mortgage lender folded.
A couple of weeks before that, people were telling me that with my credit rating, they’d “loan you the money for any house you want” and “half a million, easy”.
Which is ridiculous; my wife and I couldnt’ even come close to the mortgage, insurance and tax on a 500k house, at least without spending every damn dime we make and being unable to have much spare cash.
I personally think that 99% of the people getting the variable rate loans and other sketchy things are abject fools, and deserve what they get. If they weren’t bright enough to read the fine print and do the research to understand it, OR find some other non-lender person who can, then they deserve what they get.
I mean really, who thinks interest rates are going to remain small for the entire term of a 30 year mortgage? If you do, you’re an idiot, plain and simple.