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Yale Economists On The Financial Crisis
Posted by PotatoChef • 4/15/09 • Subscribe to this Discussion [RSS] • Report This Topic
Topics: Economy, financial crisis, Yale
There is a really good video of a discussion put on by Yale economist discussing the current financial crisis.
I learned something by watching it. You can watch it here:
gregmankiw.blogspot.com/2009/04/yale-economists-on-financial-crisis.html
Opinions on the financial situation?
User Comments
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The financial situation is getting better, but chances are the economy won't start to turn around until early next year. The housing situation is still relatively weak. Low home prices and interest rates are driving current demand; this is not sustainable. Until house prices and interest rates part ways, the economic prospect is still grim.
I recently wrote a post attempting to explain the root cause of the subprime mortgage crisis. Feel free to take a look and tell me what you think.
swordfury.wordpress.com/2009/03/23/econ-sense-mortgage-crisis/ -
@neoauteur,
left a comment. -
In all honesty nobody put a gun to anyone's head and made them buy a $400,000 house when their income was only $50,000. There is plenty of blame to go around...certainly the banks were reckless, irresponsible, and maybe criminal in their negligance. But the people who bought these expensive houses that they could not afford, with no money down, full well knew they were getting in over their heads. They need to be held accountable. I do not want to pay for other peoples failed dreams.
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No one was buying a $400k home on a $50k income.
Let's not exaggerate here.
Edit to add - the banks have underwriters for the specific purpose of rejecting applications that are not financially sound. If the banks approved lines of credit, full well knowing it was a very high risk - that is the bank's fault.
I can apply for a million dollar line of credit all I want, as many times as I want to - that doesn't mean the bank is going to give it to me. -
Actually I'm not really exaggerating. There was a story in the Las Vegas Review Journal where they interviewed a stay at home mom whose hosuse was being foreclosed on. She said that her husband who worked in construction had gotten laid off from his $39,000 per year job. Because of that they couldn't afford to make the mortgage payments on their $350,000 house. She was blaming the mortage company. You are right they should not have given them a loan for that much money. But to overlook the fact that these people went out on their own and looked at houses that cost that much is not the banks fault. They wanted a big house. They knew (regardless of the interest rate) that they could not afford it. It would be like me going out and buying a Rolls Royce and then playing dumb when I couldn't make the payments. It was my fault for buying a car I couldn't afford.
It is not serving anybody's purpose to let people think they are innocent bystanders when they helped cause the problem. If they think it was all somebody else's fault then they are apt to repeat the bad behavior when they get the chance. -
If the family was able to pay the mortgage on that salary then they were able to pay it.
It wouldn't matter if they had a $200k income or a $40k income - once you're laid off, your income is $0.
That said - yes, the responsibility lies with the banks. They approved the loan, they took the risk (probably in hopes of an ARM to make a ton of money, with an early pay off penalty to boot).
I look at million dollar homes all the time. But when the Mr and I were actually house hunting, the bank dictated what price range we could actually look at, by our application. I could have made an offer on any house I wanted, but my mortgage would not have been approved, unless it was in the agreed upon price range
Listen, if someone told you you could afford a Roll Royce on your income, and worked out a payment plan that you could actually afford (IE, you could make the payments) - and then approved you for it, you would take it, provided you really wanted to spend your money on that.
The banks told these people they could afford these houses, arranged payment plans so that they could make the payments - that's on the bank. -
Right-wingers love to blame the working class, but because of the deregulation in the late 90s, banks were able to leverage loans at levels that turned it into high stakes gambling. THAT is the reason for the collapse of our economy -- not the home buyers. -
Everybody the government, the banks and the homeowner are at fault to a point. If you got laid off then no it is not all your fault. I only buy things I can pay cash for so I don't get myself into a bad situation again. Just recovering from Wells Fargo completely messing up my world.
The government is partially at fault as they made it mandatory that people even with bad credit and not much of an income be able to get a chance at buying a house. It starts there as now there have to be banks that will give people mortgages. It is the banks fault as they were and this is no exaggeration giving people mortgages for $500,000-$1 mil and these families gross household income was about $500-$1000 a week. And there was much more behind it. Now the person is at fault for buying a house that they know is way out of their price range. People want more then their cash can buy. People that make millions a year typically overspend as if they lost their job tomorrow they would be screwed.
Yup anything house car anything I buy is with cash paid off no worries. -
The government is partially at fault as they made it mandatory that people even with bad credit and not much of an income be able to get a chance at buying a house.
There is absolutely NO program dictating that banks give loans to people with bad credit. What you're referring to is the CRA (Community reinvestment act) and it clearly indicates that the borrows and loans must be GOOD loans. The act requires that banks give out smaller loans that meet the needs of lower income families and small businesses, because the banks were neglecting the part of the community who would have done well with a SMALL loan.
That act caused no problems until banks and real estate businesses got greedy, and let the prices of homes balloon to a price range where they could no longer comply with the law.
It is the banks fault as they were and this is no exaggeration giving people mortgages for $500,000-$1 mil and these families gross household income was about $500-$1000 a week.
Does anyone have any proof that the foreclosures were $1 million homes being sold to people with a $24k per year income? Because I'm thinking this is inaccurate information.
A lot of homes were lost were not super low incomes, and not super high priced homes - most of the foreclosures and subprime mortgages were from banks who were not required to comply with the CRA - and consisted of balloon payments and ARM's that became unreasonable, or were due to layoffs. -
Oh I am going back to information that is very low key now but has to do with when Bill Clinton was in office. I personally know somebody who got a loan for a house with no considerable income about $750 a week gross and the loan was for $800,000. It was part of a bill that Clinton had passed to give everybody an opportunity to own a home.
This is how far back this problem really started. It is no recent changes that started this just that made it worse. -
Bill Clinton tightened up the regulation on banks, because they were not meeting the CRA number requirements. The act did not - and has never - required banks to give out large loans to people with low income (although $40k per year isn't a "low" income depending on where you live). It only required that banks give a certain percentage of (appropriate) loans to low(er) income families, and small businesses.
In fact, most of the banks now citing the CRA for foreclosures were not even required to comply with that legislation, not when it was fist implemented, not under Clinton, and not under Bush.
I wanna know where all these banks are that were giving out these huge loans with no down payments and little income...because when we were hunting for a house - the highest mortgage the bank was willing to give us was $120k. And that was with - at the time, a double income household which was over $40k per year, and a 20% down payment, plus closing costs. -
Most of the homes foreclosed in my state were priced (foreclosure buy price) between $625,000 and $2 million. Not sure of the original purchase prices.
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True Clinton did not require banks to give out such high of loans which is where the bank and home buyer is at fault. There were banks out there that were willing to though. I at one time had a lower income and for the sake of it tried getting a loan and would have been approved for a $375,000 mortgage. I was not planning on taking it at the time but was just curious. What Clinton did pass is that every American even low income and those with poor credit had the right to purchase their own house.
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I find amazingly interesting that one of them confessed that when economists gather in a group they do auto-censorship and align on consensus avoiding to alert people on coming crisis !
If you cannot count on politicians, if you cannot count on journalists and if you cannot even count on economists, on whom can you count on to alert you ?-
Compromise and consensus are not very common in the world of economics. This must be an isolated case.
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Economist are like everybody else. They tend to get group-think when in the same room.
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Yeah, they group think about a cushy life.
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I’m tired of hearing about homeowner irresponsibility. The fact is—for every $1.00 of homeowner mortgage, there was $30 - $35 of derivative speculation. That’s PURE GREED at work in a deregulated financial market. Home purchasers might be guilty of chasing the American dream, but culpability for the precipitous economic crash rests with the actions of financial fund managers.
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