CNBC Editor blames Obama's Stimulus for recent stock woes

On it goes.

There are a lot of places you can point fingers but the sub-prime loans are the originating point for the problems. Yes these loan alone would not have caused the extreme destruction that we have seen. But without them would we be where we are?

 

Yes, we would still be facing the consequences of a deflating asset bubble - all types of mortgage loans are defaulting. From crappy subprime NINJA loans all the way on up to super-jumbo loans. Securitized mortgages run the gamut of the economic spectrum. Subprime loans were a symptom of the inflated bubble, not the cause of it.

 

Please Sam, you don't believe this. Your saying that the housing bubble created the sub-prime loans?

 

can you say it didn't?

 

Oh absolutely - a rise in housing prices coupled with the belief that housing values would rise indefinitely was the underlying rationale behind the creation of exotic mortgage instruments like subprime, Alt-A, ARM's etc.

 

The housing bubble indeed created the subprime bubble. The first major mortgage company to go down was Countrywide. Countrywide is not a bank, therefore, there was no government mandate to make the loans.

 

I think if the government had not stepped in, and allowed institutions to declare bankruptcy and reorganize their debt we would be more confident in the markets right now.

DD

 

They thought that's what would happen with Lehman but it backfired bigtime.

 

The same reasoning of keeping the auto's alive because of the bankruptcies that would flow down the line through suppliers is multiplied tenfold in the financial industry

 

The housing market wasn't a bubble until it was full of artificial buyers that couldn't REALLY pay for the properties. ARM loans have been available since 1982 so it's not like they were something new that just popped up after housing prices went up, and an Alt-A is a "sub-prime" loan. These are vehicles that were used by Countrywide just as much as the GSE's. A bubble is only bad when there is no real money there to pay the inflated price, if you can't pop it it ain't a bubble.

 

What on earth are you talking about? 538 is one of the most reputable sites out there. All of his analytical work is based by facts and substance. They got national recognition for their analytical election coverage. Where is the article about Cheney and Bush?

And he backs it with statistics and evidence from past market performance. CEI is a made up index for simplicity, but comparing discretionary to staple goods is not remotely a new complex. He doesn't just make bogus arguments that aren't supported by facts.

 

Absolutely - but the housing bubble popped first and most in CA and FL. If it was just poor people doing it, it would have happened everywhere. The real problem was speculative investment. For example, ARM and interest-only loans that were given to people who thought they'd flip homes within a month or two and then got stuck with the properties. That's where the crisis started.

 

LOL, this makes absolutely zero sense, there is no difference between "a real money" bubble and an "artificial bubble" in either common sense terms (a bubble is by definition hollow.) Asset values inflate above their worth when there are too many buyers with bad information.

My premise is this: Exotic mortgage instruments were all designed based on the assumption that real estate prices woud rise indefinitely - that is why people like Alan Greenspan were touting them as a great idea as late as 2005. Your premise appears to be that the most/all of the real estate crash and ensuing global recession - can be blamed on "subprime" mortages. This is inaccurate for a number of reasons previously stated.

 

It makes perfect since. Property values do always go up but the statement "above their worth" is the bubble and you want to say that it pertains to buyers with bad information which plays a small part but when you inject buyers with no money, then you have a "crisis". Buyers that had bad info but are still willing to honor their debts are not a problem. I tried to explain this to a builder friend of mine a while back and he didn't get it. He wanted to tell me that "as long as people are paying these prices thats what they are worth". His idea was true if all of those buyers would honor their debts but I tried to explain that the buyers don't really have the money and when they all default and those homes go back on the market with no "fake" buyers to buy them he will see what I mean. He understands now.

 

FAIL, both in execution and in logic.

Property values don't always go up, in fact until recently, people's homes were seen as wasting/depreciating assets. That view is finally returning.

 

Damn I missed the ownage. I was waiting for it, because I remember the previous articles posted here discussing it.

Bottom line: Nobody was forced to loan anything. Wanna blame someone for ****ty loans stan? Blame yourself. As you said, you were "in the business". And those loans, while crappy, had nothing to do with the unregulated and doomed CDSs that overwhelmed everything.

 

Sure there are corrective periods where property values decline but the general trend is upward through history. Actually property prices go up over time. We can debate whether that number outpaces inflation or income or whatever but the price of property goes up over time.

How much did your grandparents pay for property and what is that property worth today?



Does that look like the prices are falling through history?

 

It's very ironic that you're debating the causes of the real estate bubble deflating by arguing the truth of the number one cause of it, the mistaken belief that housing prices will always go up.

Your graph doesn't adjust for inflation, but to answer your question, my grandfather's house, adjusted for inflation, is probably worth the same, provided he didn't buy it on a dip:

I wish I had an updated version of this (edit: the current number is supposedly around the 160-140 range, plummeting quickly back to 100). Look at the #'s - a house in 1890 is worth the same in 1980. Does that look like something that is "always going up" to you?



Edit - I should also say the "general trend as upward throughout history isn't entirely silly, in theory - If we go back from pre-current boom to 1890, there is a very small general trend of about a 10% gain - however it wasn't till 80 years until that gain got relatively locked in - please tell me what kind of investors apply an 80 year time horizon on their investments?

 

Gawd I love it when Samf gets OWNED. Lawyers almost always make bad financial minds. Samf is no exception.

 

Honest question: whose fault is that?

You've provided substantive arguments and I appreciate that, this thread is a good read for me.

You seem to argue that it's the governments' fault that people who had no business buying a house were approved. I don't understand. Loaners were forced by the govt to approve?