The Bonddad Blog: About that GSE/CRA Causing the Bubble Argument ....

Tuesday, November 15, 2011

About that GSE/CRA Causing the Bubble Argument ....

Riddle me this: did all of these countries have a Fannie/Freddie or CRA?

From Barry

14 comments:

fadrian said...: Well they must have! Otherwise, they wouldn't be in this mess! Just ask any conservative...; November 15, 2011 at 3:14 PM
Rusty Shackleford said...: From wikipedia: (http://en.wikipedia.org/wiki/Affordability_of_housing_in_the_United_Kingdom)

"During the period 2001-2007, many lenders began offering loans of increasing multiples of income[9] sometimes to people with poor credit ratings; products that did not require a deposit became more common- 125% mortgage products appeared."

Evidently, loans became too easy to get in the UK. I've seen claims that this is connected with Thatcher's banking deregulation that happened in the 1980s. Could it be that every country has its own narrative? (and that the US's includes the CRA and the GSEs in a key way?); November 15, 2011 at 4:03 PM
Anonymous said...: Kinda interesting how the world's last holdout against money printing is at the bottom of the picture.; November 15, 2011 at 4:09 PM
Randall said...: Actually, conservatives said this in their DISSENT on the Financial Crisis Inquiry Commission. I made a very similar graph -- 11 months ago.
http://www.americanthinker.com/blog/2011/01/graph_for_the_day_for_january_3.html

Actually, this addresses the "Blame Bush" crowd. Did Bush cause housing bubbles everywhere?; November 15, 2011 at 4:11 PM
Anonymous said...: This is an incredibly wide grouping of lines, with three loose groupings, so your point seems fishy from the chart. In fact, the G7-G20 regularly meet to synchronize their fiscal and monetary policies, which would effect the money supply and interest rates across these economies. You would want to find economies in the other groups that had similar interest rate policies to the US from 1995-2007 and run a regression analysis to get at effects other than general economic indicators.; November 15, 2011 at 4:17 PM
Anonymous said...: What Fadrian said!; November 15, 2011 at 5:21 PM
Anonymous said...: bond dad is a professional bullshit artist; November 15, 2011 at 5:39 PM
Anonymous said...: Well, just look at the housing bubble in Spain:

http://www.youtube.com/watch?v=xWrbAmtZuGc&feature=youtube_gdata_player

Looks familiar, right?; November 15, 2011 at 6:00 PM
Scotto said...: It's those poor people again. They're everywhere. They're dragging down whole continents with their lack of liquidity. Now they're waving around pitchforks like they don't care about the Euribor/Eonia spread.; November 15, 2011 at 8:42 PM
Anonymous said...: Federal reserve policy had everything to do with the housing bubble:

1) The Fed kept its policy interest rate, the federal funds rate, below the natural or neutral interest rate for an extended period.

2) Given the excessive monetary easing shown above, the Fed helped create a credit boom that found its way--via financial innovation, lax governance (both private and public), and misaligned incentives--into the housing market.

(3) Given the Fed's monetary superpower status, its loose monetary policy got exported across the globe. As a result, the Fed helped create a global liquidity glut that in turn helped fuel a global housing boom.

http://macromarketmusings.blogspot.com/2010/09/what-role-did-fed-play-in-housing.html; November 15, 2011 at 10:06 PM
ElSid said...: I have been making this point over and over (on comment boards and elsewhere) for years. All you have to do when someone is blaming Freddie or Fannie is ask "Who caused the housing bubble in Ireland? Fannie? How about the one in Spain?"

Done. They have no answer. Conversation over, because they haven't really thought about it, usually.

And it does sort of go to the "blame Bush" issue, as someone posted above, but not in the way that person suspects -- Europe, after watching the U.S. bubble up since 1980, took a bite of the apple and started their own financial and economic liberalization, ala Reagan, and *that* is the answer to the question of who caused the bubble in Ireland.; November 15, 2011 at 11:34 PM
Anonymous said...: Ok Bond Dad, riddle me this. Did the global financial system crash because housing prices were too high, or because large numbers of subprime borrowers began to default in 2007/2008?

While the general bubble in asset prices was caused by cheap credit, the severity of the bust was exacerbated by the composition of the underlying mortgages. If your house price drops 30% but you remain current on your payments, you don't cause any further financial contagion. You'll likely cut back on spending due to the negative wealth effect, but you won't cause MBS and CDO prices to collapse. Without that, Bear and Lehman probably don't go down. We'd have had a severe recession for sure, but the unwinding would have been much more orderly.; November 16, 2011 at 7:16 AM
Randall said...: So Europe's problems in 2008-11 are the result of imitating Reagan, 1981-89? And government spending 50% of GDP is economic liberation? Comedy gold.

Here's another thought: all these governments FORCED banks to over-invest in mortgage-backed securities (because, you know, they're safer). See Basel II.; November 16, 2011 at 7:33 AM
Gatesben said...: well said...pointable...
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