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August 20, 2008

Driving the bubble bus

Further "blame game" fodder: Dean Baker, co-director of the Center for Economic and Policy Research in Washington, weighs in today in his Housing Market Monitor:
It was only due to extremely bad policy and regulatory decisions at all levels of government, first and foremost at the Fed, that the housing bubble was allowed to grow to the enormous proportions. However, it was the private sector that actually drove the bubble. The top executives in major financial institutions took extraordinary risks. These risks may have increased short-term profit, but they eventually led to enormous losses, which is endangering the survival of many of the country's largest financial institutions.

What prompts this? A new report about Wachovia, which inherited option adjustable-rate mortgages when it acquired lender Golden West. New York Times financial correspondent Floyd Norris sums up the findings on his blog:

Wachovia has discovered that people who take out loans that let them make smaller initial monthly payments often do so because they cannot afford other loans. Given that option ARM loans cost more in the long run, that should not be a huge surprise. And homeowners who have no money invested in a home are more likely to walk away when it loses value. Who could have foreseen that?
Posted by Jamie Smith Hopkins at 10:54 AM | | Comments (4)


The lunacy continues: I just learned that a bank made 100% LTV loan on a $350,000 loan in Baltimore.

This reminds me of the situation with illegal immigrants. If there were no jobs for illegal immigrants in the US, there wouldn't be any illegals here.

Lenders gave away money to almost anyone, sometimes without any supporting documentation or income verification. Borrowers happily took that money. Both sides were recless, irresponsible and driven by their own greed. Both should be held accountable for their actions. Yet both are being bailed out by the financially responsible taxpayers.

I think someone should go to jail for all this mess. Maybe we should sue the government?

Sue the government? What a great idea. Unfortunately, the government must consent to any lawsuit. However, the same can't be said for the reckless lenders & borrowers. I think they should pay for the cost and misery they've created for the rest of us. Both financially and criminally.

Dear Anon, surely the reckless will pay -after your savings had been exhausted;)

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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