Yablo wrote:I was a loan auditor for a credit union prior to the crash, and I remember being shocked and a little terrified that people with terrible credit were not only getting mortgages to buy property they couldn't afford, but then getting second mortgages at much higher rates which would raise the total amount borrowed against the property to as high as 125% of the assessed value. Our VP of Lending agreed that it was the worst lending policy he'd ever seen, but he said the credit union's hands were tied in the matter. The federal government was not only encouraging the practice, it was all but requiring it.
That last part always seems to get left out of discussions about the housing crash... people act like the banks did all of this on their own and - of course - use that as a reason to call for government to step in and control them... the reality is, a lot of their bad lending behavior was practically mandated by the government. There were plenty of people in the industry that were predicting the crash before it happened. But nobody wanted to listen.
Yeah. Unfortunately, the nature of a bubble is that when people realize it's a problem, it busts. So, by it's very nature, people are mostly thinking things are okay on the way up, and all reassuring each other, and making poor decisions. The government was not a farsighted agency, staving off the bubble in advance. Far, far from it. It was using the same bad decision making, and in making policies based on that, made the trouble worse.
Nobody's really figured out how to never have bubbles. There'd have probably been some bubble even without any government intervention at all. But they certainly didn't prevent any degree of it, and definitely worsened it to some degree. (reactions AFTER the bust are a rather separate category....though one could argue that some of those reactions were also unfair)