Some of you took issue with the recent suggestion by several economists that low interest rates, razor-thin down payments and gone-to-lunch lending standards are only to blame for part of the run-up in home prices during the last decade, with John Q. Homebuyer on the hook for some part as well.
Here's part of Wonk reader (and mortgage broker) Josh Dowlut's comment:
From an economic analysis and policy standpoint, it matters not that droves of people full of irrational exuberance were willing to bet it all on housing. It only matters what made those bets possible. In other words, what opened the flood gates, not why did people choose to run through them.
To that answer:
1. The Financial Modernization Act of 1999 and
2. The Commodities Futures Modernization Act of 2000, undid long-standing depression era safeguards and turned the banking industry into a casino (literally, the CFMA 2000 actually referenced state and federal gaming law).
These two bills of which no one is seriously talking about undoing worked together to create a system where the person and company who decided whether or not to make a loan could lay off the longterm risk on another party. That shirking of risk is what created your option ARMs, no down payment loans, and stated income loans which opened the floodgates to allow both fearful ("if I don't buy now I'll be priced out forever) and greedy (I'll leverage a 10% appreciating asset) buyers to run through.
Frank Rizzo wrote a long comment too. Here's a taste: "There is plenty of blame to go around. The financial institution, mortgage broker, real estate agent, and the appraiser all played their part. ... If banks were required to hold the loans themselves in their portfolio, you would have to think the majority of those loans NEVER would have been approved in the first place."
Mr. Raven offered a helping of blame to the Federal Reserve under Alan Greenspan and successor Ben Bernanke: "Someone has to print the money and guaranty the income or debt. These guys thought they had tamed the business cycle and could manage expectations by just printing more money."
"Little Debbie," meanwhile, wrote up a laundry list of everyone you could possibly think of and then some, tongue decidedly in cheek, with this coda: "Here's the answer: whatever ideology I spout (due, most likely to my socioeconomic circumstances) is the culprit."
Here's a question to get beyond blame: Has the system -- everything that affects the housing market -- been changed to the point that we're unlikely to end up with another housing bubble down the road? Or are we as much at risk as we were before? (Or -- gulp -- more so?)
If you could make one structural change, what would it be?