Alan Greenspan wrote in his book The Age of Turbulence, "I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk, and that subsidized home ownership initiatives distort market outcomes. But I believed then, as now, that the benefits of broadened home ownership are worth the risk. Protection of property rights, so critical to a market economy, requires a critical mass of owners to sustain political support."

Note that last sentence. The whole idea of Bush's "ownership society" was supposed to be egalitarian, and many non-egalitarians condemn it as an overly idealistic attempt to be egalitarian. Yet actually, the whole idea of the ownership society, is a the-people-will-vote-for-ownership-society. This was a Machiavellian choice to put everyone at great risk, so that the propertied would hopefully get more political support!!!!! And the extent of that risk should have been obvious!

Yeah, you see, obviously it didn't. The problem is that lots and lots of people think the same way, hence the term "common sense". When lots and lots of people think one way, and get into a lot of trouble, "common sense" was wrong. "Common sense" is wrong all of the time. "Common Sense" is what told GWB and congress that borrowing money from China to write checks out to a hundred million Americans so that they can buy things and preempt a recession, was wrong.

Here is another example: Credit. "Common sense" says buy now-pay later. That's what most people do -or did. It also told them to buy the biggest house the bank would let them. I call this "Common Sense" because most people did it. It's common.

Just look at politicians. They brag about having "Common Sense" all of the time. And they are normally wrong.

@madanthony:

um everyone was screaming for regulators to to step in on predatory lending practices, reverse mortgages, interest only, no monye down, refinances that did not one any good but the lenders.

I believe it was these practices allowed to run amok un checked that are the primary cause of thsi economic catastrophie.

No No No, these guys were not that strupid, do not let them switch the story on you, they came into the wWite House and listened to no one because they stated over n over again that they ACTUALLY DID KNOW WHAT THEY WERE DOING, and til this day I believe they did know what they were doing, they hoodwinked people intentionally and allowed them to be fooled by savy brokers and salesmen, who had only a weakened regulatory authority to contend with. Some buyers were dumb, but really more brokers and bankers were crooked and complicit with this corruption, they wanted the money from THE sales and that was all they cared about, now the whole world is in free fall, no they were not that dumb, they were that corrupt from the begining
SEND THEM ALL TO JAIL.

It frightens me to think that this show continued to find material during the first stages of the crisis, and will probably keep doing so. There's one born every minute...

Shouldn't they have known not to buy something they didn't have enough money for?

And the Federal Reserve inflating the money supply and making people think they could have a free lunch.

And Fannie Mae and Freddie Mac being government sponsored enterprises (GSE) instead of being private companies. The government doesn't have the authority to provide mortgages. Nor can they run a business efficiently.

Sheople - stop looking to Uncle Sam for your financial bliss and get off your LAZY SELF CHOSEN STUPID ASS and get it for yourself.

And if you don't, don't come around expecting hard working people like ME to pay for your LAZY ass.

No way, no how, that's why I didn't vote for nObama, and that's why I'm conservative for life.

KMA.

Their second choice was Lucifer Holdings.

The only way the government could have prevented the mortgage crisis was to pass laws that 1)pretty much banned any kind of mortgage other than a traditional 20% down, fixed rate, 30-year loan and 2)banned the securitization of mortgage securities.

There is absolutely no way that any politician would have proposed these things, because it would have made it impossible for a sizable number of people to get loans, and sent housing prices down sharply. Many of these people shouldn't have gotten loans, but politically, nobody wants to be seen as the guy who broke up the party.

And they were only 6 months off or so.

Unfortunately, I don't see it as crazy at all - it's just gotten worse than they were thinking.

As far as I can tell, they set it up so that:
1) Encouraged companies to either ship jobs elsewhere or to focus on short term profit
2) Set up financial markets so that people would be "investing" in bad commodities.
3) Encouraged people that couldn't afford them to buy houses, most of them new.

So, who got rich? Bankers, investment fund managers. Who was employed (and still is in most cases) by Bush?

What conclusion can I help but come to?

@johnva: bubble busting to be left to a Dem. who was running freddie and fannie and against reeling in there insane lending practices? dodd, frank?? ring a bell? whats there party affiliation? exactly.

@madanthony: 'taking steps..' like what? making sure they are qualified and can afford it? if you cant afford something it shouldnt just be given to you with well wishes.

" (what is the maximum salary at the top pay grade, anyway)"

kinda sums it up right there...
maybe if you say it slower and louder it will make more sense? =P

"I propose that taxpayers arrange to reduce the maximum compensation of all govenment employees to a level where "affording a house" becomes a meaningful concept to them."

looks like you said 'all' to me...

@johnva:

Didn't you hear? The market sold off in October once it became clear that Obama was going to win the presidency and destroy the economy once in office.

@speedwell:
The Office of Personnel Management publishes Federal employee salary tables. Employees in the Washington DC area (most federal Employees)get: [www.opm.gov]
The Highest pay rates are in the San Francisco Area [www.opm.gov]

To read the tables, select a GS level (administrative people usually top out at a GS-9 or GS-10, Engineers top out at GS-13 or GS-14 (although they start at GS-9), Lawyers usually top out at GS-14, and start at GS-9,
GS-15 is typically supervisor level)

Next, select a step level. Employees start at step 1, and increase from step 1-2-3 every year. They then need to wait 2 years before they increase between steps 4-5-6, and 3 years between steps 7-8-9-10, meaning someone is at a step 9 has most likely been with the government for 18 years (there are some exceptions and the rules are much more complex, so all you federal employees don't yell).

Also, you can research the salary of your favorite federal employee (unless they work in a position where their identity needs to remain secret) at [php.app.com] gathered through a Freedom of Information Act Request.

@Oranges w/ Cheese: My wife and I paid $179K for our home. This is far less than we qualified for. We also saved, and worked very hard for it. It wasn't our first choice of area, and we really wanted a lot more stuff, but in the end fiscal responsibility won out. If you do the same you will be okay.

Unless you live in an area where housing has historically been very expensive I would say you have a decent shot. Honestly, 30K isn't a lot, but respectable. It's a lot more than I made when I was 24 (1999 in case you're wondering).

Yet he scoffed at me for having a home half paid for, no other debts, and liquid assets in the credit union. And this guy bragged about being a genius just like our bankster friends. Newsflash, "geniuses" - your reality checks just bounced and you - and your fancy schmancy degrees - are obsolete.

@speedwell: Actually I did have a /b somewhere in that last post after the first line. or maybe it was a /i, which could be the problem.

@BluePlastic: Reading comprehension is of God.

I didn't say to reduce everyone's salaries indiscriminately, I said to reduce the maximum salary government workers could make (what is the maximum salary at the top pay grade, anyway) until the economic realities of what it took to own a home scrolled within their blinkered view. In yet other words, I proposed bringing the salaries of the guys at the top down to the level of people who have to actually think about what they spend on and for their home.

Again, "a little bit louder and a little bit worse?"

Fannie did try to make it affordable yes. But all those loan originators who pushed easy loans with toxic ARM clauses are really the ones to blame.

They intentionally buy "wounded" companies - their goal is buying "undervalued" companies - ie buying companies that are fucked and either unfucking them or selling the parts for more than the whole. They probably figure if they lose money on some of them, they can make it up if they have a few big successes.

My understanding with Chrysler was that they paid next-to-nothing for it from Mercedes - that Mercedes forgave debt in amounts greater than what they paid for the company.

can you show me where in my post I said "majority"? A nontrivial number clearly were - the number I found googleing was 29% low-income, but the site required a subscription.

Anyway, This NPR story suggests that many of the borrowers were from groups that it would look bad to be denying credit to:

Studies have found that subprime borrowers tend to live in low-income neighborhoods. They're less likely to have a college education and more likely to be a minority, especially black or Hispanic.

Here's a NYTimes article from 1999:

[query.nytimes.com]

"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers."

@failurate: Who's to say he isn't thinking "pre-"bailout? Barney Frank, Chris Dodd, Maxine Waters, Franklin Raines, Jim Johnson, Jamie Gorelick: All democrats, all with dirty, dirty dirty hands in this mess. These were the guys in 2005/2006 who were insisting that there was no need for further oversight for fannie and freddie, that more regulation would just prevent (unworthy) buyers from obtaining loans - something that is anathema to a doctrine that believes home ownership is a right. This stuff is all public record. You can hear Barney Frank IN HIS OWN WORDS essentially implicating himself on youtube.

Your average American House RIGHT NOW costs a little bit more than 190,000 dollars.

In order to afford the mortgage payment (according to bankrate.com) taking into account paying money into savings monthly, a car payment, and other expenditures (I.E. living within your means), you have to make upwards of $65k a year. Which, for most college grads and people who've even been in their fields for a few years is ludicrous.

These people who purchased $400,000 homes - they better be millionaires, because its the only way they're gonna be able to pay off that house - unless they're seriously frugal.

Wonder if the Bush Wunderkinds would carry the view that everyone needed to own a house if they'd spent years working as a building's super.

Didn't anyone raise an eyebrow when people were able to get mortgages when they didn't even qualify to rent an apartment? Or when home equity loans ads were played right after the ones for personal injury lawyers?

I would never have believed that we could have an administration that could fail so monumentally that something of that magnitude isn't even reported.

@xay: @SynMonger: Obviously I didn't mean people's salaries should be reduced unless they were making more than the maximum salary someone could make and still have to think about whether their house was affordable. If this is still too opaque for you, I can explain it again slower and louder so even government employees can understand.

That's a bit of tinfoil hat theory, don't you think?

Not really, he just helped Chrysler (read: Cerberus) get part of the $18 billion payout plan.

The idea that a bank would give someone who makes $30,000 a year $300,000 to buy a house is bad enough. But the idea that the government would step in so that said person could KEEP that house is just insane.

I make enough money to buy a house. I bought a house I could afford. The idea that my tax dollars should be used to pay my neighbor's mortgage just because he or she got a house they couldn't afford is just a little too socialist... even for me.

Right, I'm sure Democrats had nothing to do with it.

The Democrats were the reason the bailout passed. No strings attached. I guess they "forgot" banks wouldn't report back to them what was done with billions in taxpayer money if they weren't supposed to.

I don't follow your train of thought at all. To me, CDSes on their face seem like a dubious way to make money. I mean, go to anyone that isn't a banker and tell them that there's money to be made in buying debt then passing that debt off to some idiot that intends to do the same thing to yet another, dumber idiot.

Shortly after Bear Stearns collapsed Warren Buffet was talking about how he was largely unaffected by all of Wall Street's goings-on because he simply didn't use investment vehicles that relied on complex models or used some form of 'trick' to make them work.

Warren Buffet's approach is the pinnacle of common sense.

Credit default swaps are their antithesis.

A lot better than being able to fill a gas *can* with $10 of gas...

@speedwell: I hope you mean "elected officials" when you say government employees. This government employee has never been able to afford a house.

a) Figure out how to pocket the money you got from the Feds
b) Take out a loan from the Chinese using any worthwile assets as collateral
c) Have Chrysler buy back all of their shares from Cerberus

d) Take whatever is left of Chrysler, fill up the motor with straight 50W, put some sawdust in the rear end and dump the POS on the Feds.

e) Run like hell.

- "The Bush administration took a lot of pride that homeownership had reached historic highs..." -

Indicating the President and his administration were proud of the fact that home-ownership reached a high during the time he was President.

- "...But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost." -

However, the President and his administration are not proud of the fact that a number of home-owners are living outside of their means and had to to become home-owners.

This wasn't just customers making bad decisions, there was a lot of pressure tactics and unethical things done by the lenders too.

If they had to pay the ridiculous rate everyone else does and get the run around every time you file a claim and it's denied for no good reason, I'm sure things would change quickly.

@Eric1285: So the lenders who didn't even bother to verify income are innocent victims?

If you loan a homeless guy $10,000 and he doesn't pay it back, whose fault is it? His for not paying it back or yours for loaning it to him in the first place? Who would your mother slap in the back of the head? Probably both of you.

@madanthony: Can you please present your statistics that it was the poor who made up a majority of sub-prime borrowers?

Elephants don't usually live in houses, so you can't expect them to forget that, because they wouldn't know in the first place.

Slightly off topic, but Mr. Snow is a part of a team of lobbyists that is getting a piece of that bailout money for Chrysler. Cerberus is a super-ultra private company that has been very successful. They made a bad bet paying 7.4B for Chrysler. Here he is connected with Bush and Co, getting a handout.

They could just use their own money to restructure Chrysler.

If I hit someone with a car I'm pretty sure saying that I'm an incompetent driver won't keep me out of jail.

If you present enough people with a promise that they can buy a house, then turn it for easy profit when it gains 40% value in 2 years risk-free, you will eventually find enough of them who will go along just for the chance at having more money.

Where the government is as fault is that it removed the safeguards in place that would have otherwise prevented this from happening. The market was moving along so well, the government stepped aside completely just to let it keep it's momentum. In doing so, they created a runaway train that has now crashed into the mountain.

My favorite part of the article is when the administrator responsible for Freddie & Fannie, Armando Falcon, wrote a scathing report warning of these GSEs' impending collapse, the White House's response was to, well, I'll just quote:

"Days later, as Mr. Falcon was in New York preparing to deliver a speech about his [critical] findings, his cellphone rang. It was the White House personnel office, he said, telling him he was about to be unemployed.
His warnings were buried in the next day's news coverage, trumped by the White House announcement that Mr. Bush would replace Mr. Falcon, a Democrat appointed by Bill Clinton, with Mark C. Brickell, a leader in the derivatives industry that Mr. Falcon's report had flagged."

(sorry. my excuse for lame jokes is that it's still before noon.)

But those granite counters are nice!

Redistrabution of wealth from the bottom up.Lets see we have allowed most good jobs to be shipped overseas. We are taking back the property at firesale prices( plus whatever you allready put in). Now we can price a college ed out of range besides who needs a degree to stock shelves or mow my yard. Soon you will sell me the children or take that lazy 8 year old to work in the mine with you. We are promoting family values I mean who could be closer then 16 people in that 3 bedroom rental shack. Welcome to Pottersville.

@chrisjames:

Actually...Most people were shouting, "Yes, that's good, lend to the poor people, yes poor people deserve homes too!!! Lend more, lend more, LEND MORE".

If you shouted, "Don't lend to the poor people who won't be able to afford the loans, when the rate resets!"

Then you were probably labeled a racist and dismissed, instead of being labled financially responsible.

This Monday morning Treasury Secretary stuff is Hi-larious.

"Yeah, don't listen to them all. They're the crazy ones; not us."

I don't take it as a literal statement. It's not that they "forgot", it's that they were trying to so hard to make creative financing available to all comers (along with the Congress, can't "forget" their part) they didn't understand that sooner or later the chickens come home to roost. Yeah below market rates are awesome and family A can afford it now, but what about in 2-3 years, can they afford it THEN.

That is what they "forgot". just like I will probably forget that I owe NEWEGG $1,000 in December of 2009. But, the bill will jog my memory right quick, Summer of 2008, Gov'ment got the bill.

No, he is not incompetent.
He would like you to think so, so as to take the target off of his back for sleeping on the job.
But in all reality, he (and the Bush administration) knew precisely what was going to happen.
He now want's you to think it was an "oversight", or that he's some kind of dumbass. I'm not buying it.

What he did is criminal. He should be in jail.

"Back where I come from there are people teaching in universities, who have no more brains than you have. The only thing they have that you don't, is a diploma."

On a side note, there seems to be an emerging pattern with all of these Bush-appointed cronies.

"Whoops. Sorry the market just gone did imploded. What was I supposed to do? I'm just an idiot in a Cabinet-level position. How the hell should I know what's going on?!"

Finding that balance is what all those expensive PR flacks get paid for.

So, were these people that incompetent, or were they only interested in gouging homebuyers with inflated house estimated and ballooning interest rates, and hoping the suckers could keep paying?

Either way, such people deserve to be denied breathable air for a day.

@madanthony: Can you imagine what the class-based criticisms would have looked like? "OMG the Rethuglicans are trying to keep poor and minorities out of houses!"

Sounds like a rock vs hard place.

Home ownership has always been considered the "American Dream", and it would have been political suicide for anyone - from either party - to take steps like additional regulation that would have decreased the ability of people - especially of poor, subprime borrowers - from owning houses - especially in an real estate boom where people were seeing their houses going up 20% a year.

Why am I not surprised that he "owns" 80% of chrysler?

@katylostherart:

It sure is. Here are their other holdings, which are basically a litany of scarily wounded companies. GMAC is another terrible investment. Then again, nobody in Private Equity seems particularly brilliant at the moment.

[www.cerberuscapital.com]

Thank you.

Ooops, I forgot where I put the key. Enjoy your stay.

isn't that a statement AGAINST his competency?

Well, I suppose it's surprised everyone that dumb homebuyers, in tandem with greedy mortgage brokers, equals a recipe for FAIL.

A lot of economics is based on "the rational consumer" and "the rational seller"...this crisis was lacking a lot on both sides. Shortsightedness FTL.

@speedwell: Yes, I do indeed mean that the President should pay for the White House and its expenses out of his own pocket. He would get a set amount of money, and he would have to budget accordingly. Good training for dealing with budget realities, don't you thin?

I propose that taxpayers arrange to reduce the maximum compensation of all govenment employees to a level where "affording a house" becomes a meaningful concept to them.