Tom-Guy

For everything John-boy gets right, he ***** something up.

Ignorance is Bliss (coolest guy ever) (coolest guy ever).

signorelli21

Thats true, but what your describing is an effect of government intervention and not the cause of the problem, Basically we were headed for a recession after the tech stocks crashed in the late 90's but after Sept 11th 2001, the government enacted something like 1.5 billion in tax cuts and new spending as well as the federal reserve cutting interest rates to 1 percent, this is what caused the bubble. Then also remember around this time the stock market had just taken a huge ---- so there was all this capital to invest and rather than bet on stocks it was invested in mortgage backed securities, these are basically assets that are made up of pooled mortgages that at the time were very secure and paid high returns.

So then like Chris said you have all these developers come along and start building houses, which are built in phases, and are bought by investors through contracts prior to the completion of the first phase of the development, the theory being that since the houses are owned before completed they do not saturate the market and cause a price reduction, also this creates demand which guarantees the future phases of the development higher prices.

But then you look at the lending standards, which prior to this boom period were very strict (because they wanted to be paid back the money they were loaning people) however the huge demand caused all these new mortgage products to start being offered such as interest only ARMS and special teaser rates that allowed people with bad credit and poor job history to buy houses. The reason being that home prices were rising like 20% a year (which was all based on speculation which is a whole other subject) and all you had to do was live in the house for a year or two and sell.

Also the government introduced a capital gains tax break for i believe 500K for couples that owned their home (er well lived in anyway) for two years.

Heres an example from Peter Schiff's book "Crashproof" :
Anyhow the point is that without the Government meddling with interest rates and pushing tax incentives, the banks would not have lowered lending standards and the housing bubble would never have been created, we would have had a brief albeit painful recession and would not be talking in our current predicament. Now we are in an interesting delemma where (according to Keynesian economics) the FED can either raise interest rates to combat inflation at the cost of causing a bad recession, or increase spending which will stave off recession and increase inflation.

So sure the government should "REGULATE" the banking industry, this means create guidelines to ensure investors are not taken advantage of and if so they are provided a means of recourse, without this then large corporations and hedgefunds would be able to manipulate stock prices and ---- shareholders while making large profits for the fund managers and putting all the risk on the common stock holders, of course this is exactly whats been happening... so yea theres a bunch of greedy bastards that took advantage of alot of idiots, but those same idiots were also greedy and this is what got them taken advantage of, however it was the federal government that made it all possible and should be limited in their intervention of the markets.

Guy-Fast

Anyone who wants to understand what started this look at the city of Stockton California. Its a shithole of ghettos/poverty/murder/drugs but they built around the ghettos 2500+ sq foot homes. People bought them up to get away from that world. Well google will tell you the rest.