Come again?
Perhaps you're still trying to understand how mortgages that people shouldn't have gotten and lenders shouldn't have underwritten are causing as much turmoil as they are, rippling far, far beyond the housing market. It's OK. Financial whizzes are still trying to understand.
David Leonhardt with The New York Times wrote a piece this week on the topic:
I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: “Can you try again?”
He ends up with one of the clearest explanations I've seen yet. The problem wasn't simply risky loans turned into risky investments. It was risky loans turned into risky investments that were -- yes -- made even riskier:
Investors then goosed their returns through leverage, the oldest strategy around. They made $100 million bets with only $1 million of their own money and $99 million in debt. If the value of the investment rose to just $101 million, the investors would double their money. Home buyers did the same thing, by putting little money down on new houses, notes Mark Zandi of Moody’s Economy.com. The Fed under Alan Greenspan helped make it all possible, sharply reducing interest rates, to prevent a double-dip recession after the technology bust of 2000, and then keeping them low for several years.
... The American home seemed like such a sure bet that a huge portion of the global financial system ended up owning a piece of it.
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Comments
Thanks for resisting the pressure from realtors.
http://news.opb.org/article/bend-media-feel-pressure-from-declining-real-estate-industry/?ref=patrick.net
Posted by: John Williams | March 22, 2008 12:38 PM
Oh dear, John -- that's a depressing story.
Posted by: Jamie Smith Hopkins | March 22, 2008 2:42 PM
Wow, censure from within the organization.... I expect that from politico's, but this seems very excessive!
Posted by: Jonathan Benya | March 22, 2008 3:19 PM
yes that is a depressing story...will the sun go the same route?
Posted by: kevin | March 22, 2008 6:44 PM
Kevin, I've never been asked to alter a story to please advertisers, nor have I felt it was done behind my back. If that were to change, I'd leave. In the end, it's in no one's interest to fudge the facts.
Posted by: Jamie Smith Hopkins | March 22, 2008 8:42 PM
Jamie - Idea for a future article. How much good did the fed do by pumping 200 billion into the company Bush Senior and other Uber-rich are invested in as opposed to how much good that 200 billion dollar boost would have done had it been given to the FHA to buy those failed mortgages and help the homeowners keep theri properties. As I understand it, the 200 million will secure the fortunes of the rich, give them time to sell off, but will do nothing to help anyone retain their homes. Am I missing something? Please tell me the 200 billion shot in the arm bush gave out saved American homes, and not just his dads investment account.
Posted by: marc bettencourt | March 23, 2008 9:14 AM