Why did the subprime mortgage crises happen? You don't have to be

[raccoon]

John Kenneth Galbraith to realize that it couldn't last forever.

Was it greed and lack of regulation? Or something more?

[hobbit709]

1. We have a winner!

Greed and lack of regulation is the answer.

"If you bet on human greed and stupidity, you won't be wrong too often"

[BlooInBloo]

2. Irresponsible lenders lending to irresponsible borrowers.

[ejpoeta]

11. i don't believe they were all irresponsible borrowers

I tend to believe that there were people who believed what they were told, and might have believed they could afford more than they could. Not all folks. but I think there were plenty who were misled. I also believe that you are just looking for trouble when you don't ask for any income verification or anything or the normal things expected of a potential borrower. there are a lot of people to blame in this. I tend to think a lot of less than knowledgeable borrowers didn't know what they were getting into. Espcially with those no interest loans and teaser rates and stuff. I remember some woman on cnn when they were talking about the mortgage thing saying she almost got pushed into one of those loans, and she was really smart on money. I think plenty of folks got tricked into taking more than they could afford by lenders who would benefit from getting these borrowers to take on more debt and knew they would sell it off anyway.

[SmileyRose]

14. Some were but I don't believe that caused all this and here's why.

Let's say the stock market is kinda sucking - I get a different job in a new city - I'm moving into a neighborhood with appreciation rates of 10% a year and my contract job only lasts for 18 months to 2 years. I take one of Lehman's fabulous loans of 50 years, interest only, ARM at 2.34% My house payments are nearly nothing by comparison to the investment potential in the house. If my bets are right, and the carnival ride goes long enough, I come out smelling like a rose. I am not being greedy, I am making the best LEGAL investment I can with my family's hard earned money.

If that loan stayed in one piece with the bank I borrowed from then my bank is the only one that suffers and/or the PMI company.

Unfortunately THE BANKS decided to sell these loans for the value of the payoff after the whole 50 years. The face value of the mortgage was say 300,000 but the bank values it at 800,000 - bundles it with other loans and sells it off in pieces. If regulation required the loan to stay whole, at face value, to be sold then IMHO 99% of this could have been avoided.

[elleng]

3. Greed and lack of regulation.

Who could ask for anything more???

[MadHound]

4. It is where Greed met Stupidity, and they wound up having a huge collision

This is greed and stupidity on the part of both the lender and borrower. Lenders got greedy by trying to find new ways to make money out of thin air. Stupid, because they hustled, then bundled together bad mortgages and passing them off as golden.

Lenders got greedy by trying to buy either too big a house or too expensive a house, and then got stupid by trying to finance it all with nothing down and an ARM.

These two forces collided and now we get to clean up the mess. What pisses me off is that we've already rewarded the banks for their greed and stupidity by giving them these honking huge bailouts, and now it looks like we're going to reward the borrowers by bailing out their stupid asses, and on top of that, giving them a better interest rate than those of us who did the right thing can get.

[SheilaT]

5. Not just

irresponsible lenders and irresponsible buyers. There was a lot of ignorance on the part of the buyers, some of it quite willful. It's commonly accepted that no one bothers to read all the documents they sign when buying a house. And not reading is encouraged. I tend to read everything I'm going to sign, and have taught my sons the same. It's interesting being with the oldest when he's buying a car because he takes the thirty minutes necessary to read what he's signing. Anyway, read everything before signing has never been more important.

There's also a significant number of people who have lost jobs and so cannot make mortgage payments. There's also the drumbeat of "you must own a home, only a fool rents" nonsense. There are many for whom renting makes more sense, but that alternative is rarely pushed.

Maybe the very biggest underlying problem is the mortgage interest deduction. If that did not exist people would never be inclined to buy more home than they can really afford, and prices would not have been driven up.

[ThomWV]

6. Do you want a concrete honest answer? The profit was decoupled from the investment.

So many problems. First: The profit was in making the loan, not in owning the loan. In fact the return on the loan was expected to be lower than the appreciation on the assett it represented so if anything there was a disincentive to hold a loan.

Then: Packages of bundled loans were first renamed and then valued and sold at prices greater than the sum of the loans that comprised them in some cases but in all cases at prices greater than the market value of the underlieing assetts securing the loans.

Now we go over the cliff.

Then: To give the impression that the now renamed and overvalued packages of loans were investments with no downside special insurance policys were devised that put a floor on losses for these instruments at their pruchase price or higher - apparently removing all risk in their ownership. Insurers did not have funds to make their policies good.

This could have gone on forever if only one condition had been met; if only wages had kept up with inflation in the housing market. Wages didn't and in the face of rising forclosures, led by preditory loans made to create the bundles of loans in the first place, property value rises first slowed, then stopped, and finall reversed. Pop goes the bubble and everything above collapses along with it.

[Stevenmarc]

7. Greed, lack of regulation and a lack of protection

This really couldn't have happened without the changes in the bankruptcy laws. When legislators allowed the financial industry to write the bill and voted it into law they gave the financial industry carte blanche to offer product to people that never should have been offered that product in the first place because they knew that it would be almost impossible for the consumer to protect themselves with bankruptcy.

They built the trap with the bankruptcy bill, baited it with crazy financial product and waited, and way too many people took the bait.

[CJCRANE]

8. Bushco are the luckiest bunch of incompetents

I've ever seen.

Near the beginning of Bush's first term he gets a terrorist catastrophe that gives him carte blanche to do whatever he wants.

Then near the end of his last term he gets a financial wipeout that sweeps billions into the coffers of his corporate buddies.

If he wasn't such an obvious idiot I'd think he was a genius.

[Trajan]

9. Something more ...

[ComtesseDeSpair]

10. Well, as far as I'm concerned...

the whole thing was caused by the fact that the price of housing has skyrocketed in the last twenty years, while salaries have stayed stagnant, which has resulted in an environment in which, if you want to own a home, you need to figure out a way to purchase a house that nobody can really afford. I mean, the average house here in my part of Chicago is something like $500,000. Who can afford that? You either give up the dream, or you give up everything to try to live the dream.

[RDANGELO]

12. The housing industry was the only thing that kept the economy going.

We have been running large trade deficits. The only real production we had in this country was housing. They ran out of buyers, so they started giving out loans to anybody just to prolong it. Of course, that made everything worse in the Long run .

[peacetalksforall]

13. Something more. Some people knew of the plan to make us a third country

nation. Some were part of the plan structurally and some got in on their own.

We have to see and acknowledge this or consider this angle if we are going to put the brakes on it or a brake on it. Or we can determine whether it is already too late.

I'd like to hear a case against the third world takedown of the Unite States of America.

A pursuit of a leveled out labor level of humanity means a greater divide which will work for them if there are enough controls.

One world order equals a corporate military religious media controlled world of laborers who make just enough to buy a little and contribute taxes to privatized governing forces including the databases that are getting loaded up with data even past January 20, the cameras, the eye scans, the control of movement, especially protests.

Wanna be a prison guard?

Humanity of the people and human leaders can change things.

Control by the wealthy is not the way we were meant to live. We seem to be enablers of their plan for us. We seem to be slow to catch on.

They have just carried off a very big theft on our backs. They knew and the people who are supposed to be overseers knew.

[Phoebe Loosinhouse]

15. When moral hazard on the part of the lenders was removed

You can write toxic mortgages all day long if there is someone waiting and eager to purchase your toxic mortgage which they will then bundle and sell to others who ALSO don't care if it's toxic, because they will purchase credit default swaps and potentially stand to make more if they DO default. It's a racket, it's a scam, it's time for Joe Friday and the bunco squad.

I can't understand why some of these financial types are not being hauled away for buying and selling illegal unregulated insurance products.

[raccoon]

16. You and me both. Seems like moral hazard only matters if you're middle class or poor. nt