Sunday, September 28, 2008

Housing crunch causes and bailout follies

Speaking of crashing like the housing market, here's a decent video as to one of the causes of the current mess.

The cause outlined in the video -- the Democrats revamping of the CRA and pushing banks to lend to those who could not really afford home loans in the first place is not the only reason, but it does seem to be the spark that began the fire. Once the CRA and government led housing boom started, then coupled with the irrational belief that houses would always go up dramatically in value encouraging both quick flips and people buying homes they couldn't afford hoping the increase in value would let them refinance and have massive equity growth, we got to where we are today.

Once this irrational belief was fixed Fannie Mae and Freddie Mac encouraged ARMs and 100% loans to get more people owning houses causing values to rise as demand went up. Investment bankers went along, coupling this with quick sales of loans and then repackaging them into securities that were sold to others and it got worse from there as they then leveraged these securities beyond any rational limit.

In short, the government and high-finance wizards played with our money, got rich on bonuses (or campaign contributions and sweetheart loans in the case of the politicians), and we're left to clean up the mess. Sorry but the bailout is ridiculous in its current form, and even more ridiculous that Frank and Senator Dodd (both recipients of Fannie Mae / Freddie Mac largess and proponents of the policies that caused this mess)are inserting into the bill that 20% of the returns from the bailout does not go back to the taxpayers (or even the government) but to housing advocates such as ACORN - you know the people who helped start this mess in the first place. Nice.

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