Letters to the Editor
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Blame Republicans
Republican strategists working of data that shows homeowners are more likely to vote republican launched a plan to jiggle the rules a bit to allow a lot of Americans to become homeowners. You'll recall Bush's blather about a ownership society.
So the repub congress, rewrote the rules that allowed banks to sell their mortgages, which led the bank to grant mortgages to less than qualified people because the risk wasn't going to be theirs since they planned to sell the mortgage. The securities traders bundled the mortgages they'd bought and sold shares in them and all would be good as long as the housing market never went down. We know how that turned out.
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R-E-G-U-L-A-T-I-O-N
Gregg, the problem is in large part the dismantling of the Banking regulation set in place by FDR the last time a Republican ran the world economy aground. Greenspan was a strong proponet of "deregulation". He also knew precisely what he was doing as he is a very smart man. What has happened over the last 7 years is the wholesale and deliberate looting of the American Treasury and economy to enrich a handful of extremely wealthy people. The have carefully put in place a whole new serious of laws that will enable them to control us when the bottom falls out which it will next year. You won't be able to declare bankruptcy and if complain well you can be named an "enemy combatent". If the police and military prove unreliable, nevermind, there is a dependable militia (Blackwater) waiting in the wings. But maybe you are right, Uncle Al is a great man, give him a slap on the back. And George Bush, well he is a Christian isn't he, so he would never do anything wrong.
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Andrew , you forgot an important piece ...
And that is that Congress asked Greenspan to tighten underrwriting standards for loans back in 1994. Greespan failed to do this. This opened the door for the lowering of standards and fraud on the consumer/ loan broker level.
Gramlich saw this coming and wanted to stop some of the madness but Greenspan would have none of it . Greenspans' answer was to whole heartedly endorse the 2005 Bankruptcy Act as a backstop, instead of nippping the problem in the bud with higher underwriting standards.
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yes, FilthyHarry, that same model that worked so well in "privatizing" all of our retirement packages ....
with, I gather from the Bakersfield examples below, hint of deja vu from the Savings and Loan Debacles of Bush I ...
yes, that private sector can always be counted on to skim off large profits and leave the public sector to clean up the mess.
Also worth a nod, after more than a decade of stagnant or even declining real wages (and job security) and zero savings for many many people (and the destabilization of retirement and health care benefits -- less coverage, more out of pocket costs, etc.), buying a home for a "reasonable" monthly mortgage sounded like a golden opportunity to create a "nest egg" and "leave something behind" (an inheritance or sellable asset in the face of old age, illness and death).
Freedom from landlords and rent increases, gentrification are real as is the desire to "put down roots."
Naive maybe, but it wasn't "stupidity" when "the establishment" embraced these buyers ... it was snakeoil and seduction. When I got my mortgage, I was offer almost twice as much as I had previously decided I could afford. There weren't many houses in that price range (and god knows the ancillary services that make their percentage based on selling price always push the next-better (and costlier) models). It was VERY tempting to push my price ceiling up by a measly $50,000 ... where a whole bunch of bigger, younger houses were available. If I had, with energy prices skyrocketing, food steadily climbing, wages flat or declining, I would be in serious trouble NOW ... even with my fixed 20 year mortgage. On one income, after 10 years, it's squeaky.
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But he most certainly did do it
And then some.
The Wizard of Bubbleland:
(http://atimes01.atimes.com/atimes/Global_Economy/GI14Dj01.html
September 14, 2005
Greenspan, the Wizard of Bubbleland )
In my estimation the three worst errors Bill made were:
Nafta
Alan Greenspan
Abandoning health care reform
"When housing markets go to excess, when sub-prime borrowers join the fray, or when corporate credit becomes freely available at ridiculously low spreads, central banks should lean against the wind."
"It is high time for monetary authorities to adopt new procedures - namely, taking the state of asset markets into explicit consideration when framing policy options. As the increasing prevalence of bubbles indicates, a failure to recognise the interplay between the state of asset markets and the real economy is an egregious policy error." Stephen Roach
Paging Wile E.
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The Subprime Lending Mess Could Have Been Avoided
Chairman Greenspan and the Federal Reserve shirked their regulatory responsibility and allowed banks to create the subprime lending mess. Edward Gramlich warned Alan Greenspan about the looming subprime crisis, but instead, Chairman Greenspan, coached by the Republicans, let the private players in the housing mortgage market work without any government oversight, resulting in this awful subprime lending catastrophe.
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Meltdown
Eric, you are 100% correct. It is also so important to understand that this meltdown was not an accident, it was planned. If you view everything that has taken place over the last 7 years from the war in Iraq to the Bankruptcy law to the creation of militia's such as Blackwater. Everything has been put in place to deal with the coming collapse of our financial system. I am not a conspiracy nut but it is simply not possible that Greenspan and the others did not know what they were doing. Ok, so Bush was out to lunch or riding his Bike but Cheney certainly knew. The shear scale of the kleptocracy is mind numbing.
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Great Topic
Great topic and letters.
I can sum up my responses nicely to all of this simply by saying:
I'M WITH PANCHO ON THIS ONE.
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One thing I haven't seen mentioned much, if at all, what I have read is a nationwide shortage of affordable rental units ...
and, it's not just in New Orleans or New York ... it was true in my home town of Santa Monica, CA and my new town, Boulder, CO and lots of other less "prime" places.
The workers behind the counters, including many employee professionals, simply cannot live where they work. Buying into less "prime" neighborhoods (with the reasonable assumption that these neighborhoods would eventually be gentrified or otherwise blessed by the "rising tide" of appreciation) was one of the only ways to avoid crushing commutes or the truly truly seedy "slum" housing available still at outrageous prices at the bottom of the rental market.
Blaming the victim really misses the bigger picture, imho.