I'm pointing to the deregulation of bundled mortgages through the commodities futures modernization act (also responsible for creating the enron loophole).
Commodities Futures Modernization act? Mortgages are commodities now?
You ever heard of Gramm Leach Bliley? AKA Financial Services Modernization act?
We don't disagree about that. I completely agree the fed did that. What I'm saying is that made the problem worse. But this whole thing would not be possible if the banks were financially responsible for who they handed out loans to. But since they were being bundled up and sold on Wall St as AAA investments regardless of how likely they were to default, the banks could give loans to anyone risk free. Without that, this whole thing is not possible.
The point that this would not have been possible if the market had not been deregulated is a point I've made several times on every page in this thread and no one has yet even addressed it. That says something right there.
I'm told I'm wrong over and over again, yet everyone telling me I'm wrong as completely ignored the core of my argument without exception. If I'm wrong, this should easily be debunked right?
It is worth it if what you're getting the loan to buy was projected to double in value over the life of the loan. The average price of a house was projected to do better than that.
I would much rather buy a house at 4% than 9%, Fed rates didn't dip under 6% until 2001, in 2003 and 2004 the fed funds rate was under 2% and didn't get above 5% until halfway through 2006. Look at the housing bubble, the peak was between 2003 and 2006, same exact peak as the ultra low interest rates, in fact housing wasn't even bubble sized until 2002 due to the higher interest rates. Deregulation happened in 1999, we had a recession in later half 2001 and early 2002, then the fed brought rates down and housing boomed.
Also note that there were other factors that fueled this boom too, Speculative fever, Promotion in the Media, Belief that Real Estate is always a good investment,Home Ownership Mania, and deregulation, but the main contributor was low interest rates.
This only happened when loans started defaulting and AAA rated CDC's became worthless. You can't have a crisis that revolves around people defaulting on loans if people aren't defaulting on loans.
You can't have defaulted loans if the loans were never made in the first place.
The reason the loans started defaulting en mass is because the banks didn't care if the people they were handing the loans out to couldn't pay. If it wasn't for deregulation these loans could not have been sold off, instead the banks would be holding the paper. In that situation they must consider whether or not the customer can afford it.
absolutely, with the mortgages bundled the risk was taken off the banks back and pooled into a fannie or freddie loan and therefore the defaults would be paid by the general public. Since some of the banks were rather smart, they also insured things through an instrument known as CDS (Credit Default Swap) and Big Banks like Goldman Sachs and JP Morgan actually got paid double if the home was defaulted on, once from the public coffers through fannie and once through the insurance company (AIG). They were trying to find people who would default on the loans, but they had to have someone first, if only there was a way to entice a Janitor who makes $20k a year into signing a loan for a $250K house......
What do you think the free market is? You seem to be using it as a blanket term that includes everything you think works good. But that is not what it is at all.
Free market simply = no regulations, rules, etc. You are free to buy or sell whatever you want without restriction. Basically, the free market lets everything happen. Now how would getting rid of all the rules prevent this sort of thing from happening?
Now i know why you are so confused, you don't have any idea what a free market is.
"A
free market is a market in which economic intervention and regulation by the state is limited to tax collection, and
enforcement of private ownership and contracts."
If you think about it, the FED could have actually helped the problem. They didn't, but the potential was there. If the FED was eliminated and there were no regulated interest rates, wouldn't that have made the problem much worse potentially?
Interest rates would be set by the market, and would be fairly valued. Instead of a 1 year CD returning .25% and inflation being 10%, you would have a 1 year Cd return 10% and inflation would be at 3%.
