The CRA is to blame?

A very depressing day, banks failing, stock market around the world are crashing and Pelosi/Boehner are in a p!ssing contest.

Then I read your post and check out your blog.

What a pleasure to read, I see someone who just wanted to understand this mess and posted a honest view biased on his research.

Just tell the truth.

Thanks again..

I agree the CRA is not the primary cause of this real estate house of cards but it contributed some of the mindset. The mindset that everybody should own a home whether they can afford it or not because home prices always go up. Well , we found out they don't always go up. One of the biggest contributors were these new independent mortgage firms backed by credit lines from major investment banks like Merrill Lynch and Bear Stearns that constantly advertised Interest only mortgages with little money down. This created artificial demand that distorted the residential housing markets. Builders simply raised prices up and up in response to this insatiable demand, especially in hot markets like Florida, Arizona and California. This was all based on easy money for too long by the Federal Reserve. It all collapsed when those interest only mortgages converted to standard principle AND interest mortgages. So, that $400,000 mortgage for 880.00 a month adjusted to 4,000.00 a month and the customers simply could not afford them. Those homes that were 50% overvalued were now worth half of what they recently sold for due to all the foreclosures. I saw this coming back in 2005 and shorted many homebuider stocks but lost money because the insanity went on for 2 more years. I was too early unfortunately.

Yeah. I just heard an interview of Bill Seidman, one of the guys who invented the Credit Default Swaps after the S&L crises of the 80's. He pleaded with Greenspan to regulate them but Greenspan said no because the buyers and sellers were "well informed" and thus the market would "regulate it self." That's worked out great. They say there are $58 Trillion of those suckers out there. Or were nobody can tell what they are worth now.

One of the reason that people were encouraged to buy houses is that the housing market is really the only thing proping up the economy for the past 10 years. It wasn't so much social engineering as it was an economic decision. Debt was being used to hide the fact that wages have been flat for 30 years.