Not too long ago people who wanted to buy a house would spend some time (sometimes a lot of time) working hard at a job to save enough money so that they could afford to put down a downpayment. When they thought that they had enough saved up they would go to a bank or other mortgage lender and ask to borrow money so that they could use that and the money they saved to buy the house they needed.
If the bank felt that the people asking for the money had a reasonable chance of actually paying for the mortgage they would make them suffer through the tortuous process of closing the deal before they handed them a huge sum of money with which they could buy their house. If the bank felt that there was a reasonable chance that people would not, in the end, be able to pay their mortgage based on employment, credit rating, etc., as long as it didn't involve discrimination, then the bank would say, sorry, we can't risk lending you our money.
Lots of people didn't qualify for mortgages. It wasn't necessarily their fault. It wasn't personal. They just needed to work harder, save more and/or set their sights on somewhat less of a house.
Enter the Left in the form of Barney Frank, Democrat Representive of Massachusetts, and plenty of liberal politicians with the power to influence. No longer is homeownership a privilege, a reward for hardwork and patience. It is a right. It is something that is owed to you. Affordability is no longer a factor.
So we are left with the government, with Barney Frank in the vocal lead, who believe that the banks should lend money to people to buy a house because, well, they should. And you have the banks, who know their business, who want to lend money to people who they know will be able to pay it back. Well, you know the government will put pressure on the banks to lend money to people who the banks know will be unable to pay the money back. Now there are lots of thugs in high and low places, public and private, lining up behind Barney (pardon the visual) to lead the charge for the little guy under the guise of affordable housing. But Barney is the Chairman of the House Financial Services Committee. In other words he's the voice of Capital Hill when it comes to dealing with the banking industry.
Now, the banks certainly don't want the government coming down on them (any more than they already are) so they comply, especially Fannie Mae and Freddie Mac which are essentially financial arms of the government anyway. Of course the only way the banks can even hope to arrange loans for these folks is to use sub-prime methods such as interest only payments and low adjustable rates. Of course the fact that within a couple or few years the arrangement will change. It has to. And then the folks who could barely afford the initial payments have no hope of being able to keep up with the payments and will, inevitably, in short order, be foreclosed upon.
It was quite inevitable.
Now, add the fact that these easy mortages puts a strain on the supply side of the housing market which pumps up the prices. The Fed lowers interest rates that the banks use to borrow from each other so that they can loan money to you and me which means that we can afford to pay for a bigger mortgage which means that the seller can ask more for his house and the housing market starts to balloon. The banks have the opportunity to unload these future disasters to those who would package them in nice little complicated investment devices for Wall Street to eat up so they unload. The devices are sold to entities all over the world like a virus waiting to put the body in the ICU.
Eventually, predictably, the timer ticked its last and the bomb went off. There were lots of warnings by a few people who saw what was coming. There was lots of blame to go around, in Washington and Wall Street. Lawyers who think they are economists because they were elected to Congress. Brokers who saw an opportunity to profit regardless of the quality of the investments they were dealing with. And homeowners who knew (or should have known) that there was no way they could afford the house they lived in.
Of course the obvious target for blame for everything was Bush. As if a sitting president had any real influence over the economy. Most times the economy booms or busts dispite any action by the guy who happens to be sitting in the White House. After all, the president doesn't get to be where he is by being a world class economist. No, I put this one squarely in the lap of Congress who are all too happy to nod their heads when Barney Frank rants from his chairmanship.
Which pretty much makes them all Barneys.
I recommend going to the Patriot Post at http://patriotpost.us/ vol. 9 no.7 to read Mark Alexander's spin on the economic recession.
