Behind the Meltdown

[rowyn]

A couple of years ago, I posted a rant about Fanny Mae & Freddie Mac's involvement in the economic trainwreck still unfolding today. (Summary: RARGH ALL THEIR FAULT WHY DIDN"T ANYONE STOP THEM?!?)

jurann left a comment on my post last week that reminded me of this, and reminded me that I've never tried to organize all of my thoughts on What Went Wrong.

Comments

[shockwave77598]

Yes, but there was also rampant corruption and out and out violations of the law

[rowyn]

That's absolutely outrageous, that stunt your bank tried to pull. I'm almost sorry you didn't walk: that's complete BS.

Fraud certainly happened, both in deceptive lenders and in deceptive borrowers. Nothing in my reading on the subject or in my personal experiences as a bank employee suggests that fraud was a major factor in the crisis, though. It didn't help any, but even if there had not been a single dishonest person in the country, the meltdown would still have happened.

[tuftears]

Good grief! I'll have to be really careful on this, I'm signing a refinance this Saturday. o_o

[rowyn]

You will get a huge pile of paperwork to sign, most of which is harmless (99% of loan documentation is "this is what happens if the borrower doesn't pay us back"). There are only two things that you really want to look at

[tuftears]

Thanks for the informative article! You should totally write for finance sites, I've been looking at fool.com lately.

[rowyn]

I was thinking about that when I wrote this, and then I thought "but then I have to source everything, blah too much work." I couldn't even be bothered to link back to my own rant from 2008. :D

[tuftears]

I think they pay you to do that.

[rowyn]

Yeah, but I'm not sure they pay *enough* for me to do it!

[skyflame]

That was one of the most coherent summaries of the housing bubble I've read so far. Thank you. :)

[rowyn]

You're welcome! I'm glad it was informative. :)

[gavinfox]

I do want to read this... but LJ cut please?

[rowyn]

Um, okay, but why? I've never actually understood why some people like cut-tags on text-only posts. I actually disabled all cut-tags on my own friends list because I find them extremely annoying when I'm reading -- I'd much rather scroll past entries I don't want to read than constantly open new tabs to be able to read the ones I do.

[gavinfox]

Cause it takes really really long to scroll the entries when you are trying to skim entries and stuff...

[joxn]

This doesn't explain why there was so much bad lending in the commercial real estate market, though.

[rowyn]

I'm not as familiar with what went wrong with commercial real estate; my impression is that the run-up on residential housing spilled over to commercial RE to a lesser degree; bankers want to lend money, and even if there's not a secondary market to sell commercial RE mortgages, there's still a sense that real estate is real estate and surely an office building is nearly as safe an investment as a house, right?

And of course, when the broader economy tanked after the housing market meltdown, that hurt commercial real estate too, just as it hurt everything else. I do know that the commercial real estate market is suffering, but it took longer to weaken and isn't nearly as bad as the residential.

[joxn]

"bankers want to lend money, and even if there's not a secondary market to sell commercial RE mortgages, there's still a sense that real estate is real estate and surely an office building is nearly as safe an investment as a house, right?"

Of course, if they lend money with little more due diligence than that, they deserve to lose their shirts.

[rowyn]

I admit, it's tempting to look at it that way. :/ But of course, there was due diligence -- it just turned out that their estimates of risk, based on what everyone was using at the time, were way, way off.