On the bursting of the housing bubble

[xavier]

A fairly concise and accurate analysis of why we got to where we are:

http://www.thestreet.com/story/10439756 ... uc=_txtmdb

[KungFooMasta]

Xavier, thanks for the link, very informative. I remember catching a statement on the news while flipping channel, with somebody saying our current crisis is everybody's fault. I disagree though, I feel its the greedy lenders trying to let people get into debt easily, that lured in people who could not afford to pay. I also agree with appraisers, I think they are working with lenders to up the prices of homes, to increase loans.

Either way, the end result is that all americans will get affective in some bad way, including the people who are able to make their payments. I really hope we don't bail out all these companies that made such dumb mistakes, unless these organizations get 100% re-staffed, which isn't likely. But we don't really have many alternatives.. bad situation.

[xavier]

I feel its the greedy lenders trying to let people get into debt easily, that lured in people who could not afford to pay. I also agree with appraisers, I think they are working with lenders to up the prices of homes, to increase loans.

And it's also partially the fault of the borrower who let their eyes get bigger than their income, and ignored the nagging voice in the back of their heads that said "you can't afford this if the value tanks".

It's also partially the fault of ancient SEC legislation that requires corporations to file quarterly, which in turn entices CEOs to do whatever they can, every three months, to increase the reported earnings (supposed or otherwise).

I don't really understand this "greed" part, other than it's got a nice emotional populist ring to it. If there's greed, it's on everyone's shoulders -- those CEOs don't pocket the difference when the stock price goes up; the shareholders (you, me, "everyman", who owns stock in these companies, and who expects their share price continually to increase). If there's "greed", then it's all of America, from the bottom to the top, and not limited to just a few corporate officers.

[KungFooMasta]

What I meant by greed is:

Say there is a house that has a specific value X. An appraiser comes in and states the value of the house to be Y, which is greater than X, or an inflated value. This works in the Lenders favor because they can hand out larger loans, which increase profits from the interest homeowners pay on their mortgage. The larger the loan, the more money lenders make. The same idea is applied to credit cards, companies send out ridiculous offers all the time getting people to sign up for more debt. This desire to hand out invitations to more debt (in order to gain more profits) is what I call greed.

[xavier]

This desire to hand out invitations to more debt (in order to gain more profits) is what I call greed.

Actually, greed is a personal motivation, not a corporate one, and unless a corporate officer's compensation is directly tied to earnings reports, their personal greed never enters into the picture. Greed may enter into it in the case of commissioned salespeople, but again, it's nothing specific to corporate activity; when you go to work, don't you want to make more money than you do now? It's probably more a case of improper ethical choices than actual greed, is my point.

[KungFooMasta]

I would say a companies tactics can be considered greedy, especially in the case of handing out mortgage loans to people who cannot pay for them. The company uses unsafe practice in order to maximize profits, and in this case it didn't turn out well. Companies are led through the top execs, which are (most likely) insanely wealthy, so I would say their drive to maximize company assets without proper risk mitigation is what caused our problem. And writing a check to keep these idiots in business can only hurt us in the long term. (Why change? the government will bail us out, since our influence is so great)

[xavier]

Companies are led through the top execs, which are (most likely) insanely wealthy,

My point is that a CEO's compensation package is set, and while I agree that some may have clauses that provide bonuses for various performance metrics, not all (or even, perhaps most) do, and the CEO gets paid the same regardless of the company's performance.

So I'm still not sure how so many people see evidence of "greed" in that equation.

[Minthos]

Greed is the fundamental concept that makes companies and capitalism in general work. Unchecked greed leads to world dominance or ruin. Usually ruin.

[jjp]

That is too simple Outside of monocausal theories - e.g. in reality - there is always more than one reason for something.

[xavier]

Greed is the fundamental concept that makes companies and capitalism in general work.

It's also what makes tinpot dictatorships such as those in sub-Saharan Africa and in Middle and South America work. Are you saying that Zimbabwe and Cuba are examples of capitalism at work?

Greed then is also the reason that people strive to make a better life for themselves. By your reasoning, everyone should just be content with what they have and never want anything more or better?

Unchecked greed leads to world dominance or ruin. Usually ruin.

Except that there is no such thing in the real world. Everything is checked in one way or another, all the way down to raw violence if needed (think, burglars and self-defense in the home).

[johnhpus]

those CEOs don't pocket the difference when the stock price goes up; the shareholders (you, me, "everyman", who owns stock in these companies, and who expects their share price continually to increase

I don't know much about corporations, but aren't founders often CEOs, and doesn't a CEO's compensation usually/often include stock?

[Minthos]

Greed is the fundamental concept that makes companies and capitalism in general work.

It's also what makes tinpot dictatorships such as those in sub-Saharan Africa and in Middle and South America work. Are you saying that Zimbabwe and Cuba are examples of capitalism at work?

Greed then is also the reason that people strive to make a better life for themselves. By your reasoning, everyone should just be content with what they have and never want anything more or better?

Where did you get those silly notions from? Did you even read what I wrote? Capitalism needs greed to work, but greed doesen't need capitalism to work. And I never passed judgment on greed. Greed is both good and bad, as you just argued.

Unchecked greed leads to world dominance or ruin. Usually ruin.

Except that there is no such thing in the real world. Everything is checked in one way or another, all the way down to raw violence if needed (think, burglars and self-defense in the home).

Everything is relative, world dominance included.

[warmi]

Another interesting article ..... written 8 years ago.

http://www.city-journal.org/html/10_1_t ... ollar.html

[KungFooMasta]

I only read the first few paragraphs before my eyes started to glaze over.. whats a good summary for the article?

Back on current events, the 700 billion bailout bill was denied. Can anybody point me to an article describing the new bill? I think I breifly saw something about tax breaks and insurance against bank deposits, in addition to the 700 billion bailout. Doesn't sound like a different solution to me. Is the only solution to throw tons of money (that we don't have) at the solution? Doesn't feel very intelligent..

I'm reading a few responses from 'the people', from this article:

http://www.msnbc.msn.com/id/26962783/

There are some interesting responses, like this one:

Perhaps the solution is to take the position that doing nothing is likely to have a similar effect to doing something. Trying to control a situation clearly out of control is an obsession we could do without. Far greater effect can be achieve by spending less (overall) on roads, bridges, mass transit, improved environmental practice etc. Employ the people, and the economy will right size itself. There is no painless way out of this situation.

[xavier]

I only read the first few paragraphs before my eyes started to glaze over.. whats a good summary for the article?

That what I said in another thread is the fact: that a well-intentioned program initiated under the Carter administration was abused in so many ways, both under Clinton and continuing through Bush, that the current crisis was inevitable.

[xavier]

Back on current events, the 700 billion bailout bill was denied. Can anybody point me to an article describing the new bill? I think I breifly saw something about tax breaks and insurance against bank deposits, in addition to the 700 billion bailout. Doesn't sound like a different solution to me.

The current version moving through the Senate is intended to get more Representatives on board. So they are throwing them a few bones, such as increased FDIC depository insurance levels for a year:

http://hosted.ap.org/dynamic/stories/F/ ... TE=DEFAULT

[Game_Ender]

Quick summary of xavier's article: The CRA law requires the banks to spend X (where X is in billions) on loans to poor people or they will be heavily fined. "non-profit" organizations take this money and do the actual loan giving, with complete disregard for people ability to really pay back the loan. The "non-profit" organization gets a payed about $2000 per mortgage they sign.

From the article above:

Looking into the future gives further cause for concern: "The bulk of these loans," notes a Federal Reserve economist, "have been made during a period in which we have not experienced an economic downturn." The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools.

Like the writing on the wall.

[SaiCo]

Yeh, right, but the system already works that way - which causes MASSSIVE disortions to market .

I would suggest reading from another viewpoint

Long story short: there are those in power and their big-bussines friends, and there's the rest, that pays their dues. And very few politicians from 1913 opposed that. (and none succeded)