Who's to blame for the housing mess?

Poll

Who is most to blame for the housing mess?

Only registered users are allowed to vote for this poll.
47 votes were received.

The Fed	23		49%
The Government	9		19%
Predatory Lenders	2		4%
Free Market Fundamentalism	4		9%
Individuals	9		19%

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Who is MOST to blame for the housing mess?
Select the answer that comes closest to your views.

Here is my answer and Roubini's as well.
PS - My answer is much different than roubini's

Who's to blame for the housing mess?
http://globaleconomicanalysis.blogspot.com/2007/03/whos-to-blame-for-housing-mess.html

Edited 1 time(s). Last edit at 03/19/2007 04:29PM by Mish.

Individuals can be construed to mean
A) voters
B) people who should have known that if it looks too good to be true (like those teaser rates and/or the idea of buying a 400K house on a 30K salary) then it was too good to be true.

I went with "Individuals," although there is plenty of blame to spread around.

Individuals borrowing and paying too much to buy more home then they could afford is the real problem. Because of this, they're ruining their own financial situations and causing harm to the economy as well.

Most of them were too stupid to do the math and already hurt themselves. If your goal is to find someone to punish then you can also blame those who advised overexteded borrowers or made it possible:
1. The builders who sold to speculators - They invested in way too much land and started too many developments, then got caught by surprise when the market tanked too rapidly and speculators cancelled orders.
2. The lenders who extended credit too easily - They got caught up in the competitive race to squeeze margins and increase originations, meanwhile booking false profits on overly optimistic assumptions. They're getting surprised and burned right out of existence.
3. The Fed for allowing the easy lending and ignoring history - Wall Street was making too much money off of it all and of course the Fed serves Wall St.
4. Wall Street who underwrote, financed and invested in the builders and lenders, thus making the whole thing possible - Along the way profits soared and so did bonus checks for exectutives and traders. They'll take their short term lumps, but most of the pain will be reserved for borrowers, lenders and builders.

And don't forget the media for buying into the hype and enjoying the advertising revenue, and the government for taking donationations and serving Wall St. on a national level and builders on a local level (the governator was a huge recipient of donations from builders in California).

Edited 3 time(s). Last edit at 03/19/2007 07:45PM by RodgerRafter.

I do not think the poll has the right options to choose from.

How about adding "non-existence of the free market" Mish?

The blame lies mainly with individuals for getting themselves into the
mess. Not the first time, nor the last time. However the situation is
more complex, the non-existence of the free market and government
sponsored risk distorted the reality based upon which individuals were
making their decisions. People make their decisions based on emotions
not thinking, the non-free market (esp. Fed creating money from the
thin air) serves mainly as an amplifier.

So while I do blame individuals, and there is no way of finding a cure
for delusional behavior, getting rid of the Fed would at least remove
the amplifier.

I am rather surprised that Roubini is so off ..

As always, the real solution: truly free market (that includes free
market chosen money, etc.), is never going to be mentioned (rather it
is going to be blamed for), and we are going to see more of the same
that caused the mess in the first place.

What can not go forever will not .. it never does, but do not expect
the change to happen voluntarily, it never happened either.

Individuals...

I can find a street corner to buy crack!  But should I?
I can buy a house that I cannot afford!  But should I?

What is a predetory lender?  Please tell me!!!  LOL...If I have a product or service and market the crap out of it, even if it is not the best product or service for each person, does that make me a predetor?

We get credit card offers out the wazoo weekly still.  Irritates me...but I don't respond.  I get refinance offers in the mail, I see all the Ditech, Quicken Loan adds, etc. add nauseum...but I don't borrow more than I can afford.  And I don't even feel stalked...

Scott

My definition is as follows.  Friend calls up broker and sez he wants 30 yr.  Signed paper work two yrs ago and finds out he has arm loan.  No he is not the smartest guy, but I "coached" him and he asked the broker MULTIPLE times if this was an arm b/c the rates and pymts sounded low IMO.  He got screwed because he paid a penalty for refinancing before 2 years.  Tell me that's not predatory because my friend was smiled at as this man lied to him.  He is trying to get someone to do something in terms of criminal proceedings but that's laughable.

I voted that Free Market Fundamentalism is to blame. I have an Economics degree (Emory University)and I think that Roubini is correct in his analysis. It has long been my belief that Free Market theories are romanticized pabulum. The only way a Free Market would ever work properly is if every individual and every corporation obeyed the Golden Rule. As none of us are saints and this will never happen, regulation is needed for the marketplace to function fairly and effectively. Otherwise, greed and volatility reign supreme, with the ultimate result being that wealth becomes concentrated in the hands of a few.

Last I checked nearly every political system has concentrated wealth in the hands of a few at the expense of most.  No system is prevented that, however the system operating in the late 40's/early 50's in the US was about as close to equality you'll find.  This is down to individual desires at the expense of all of us.

Government regulation of markets and goverment in general is like food. Not having enough can kill you but having to much can be just as fatal. Like food what you need is just enough of the right kind. Of course what constitutes enough and the right kind will be the subject of endless debate but you can stay out of trouble by acting with moderation, erring on the side of less rather then more, and constantly testing the results of your decisions.

In this sense both Roubini and Mish are half right. Bad policy and regulation enables and abbets abuse but so does no regulation at all. The end result is the same, disaster. In business you expect managers to manage, when they make bad decisions you don't declare we would be better with no management at all. You must both recognize the limits of what can be managed and strive to have management that is effective. For many this is a very unsatisfactory view as they would like the world to be black and white. Less is always better or the reverse, unfortunately the world is more complicated then that.

And I voted for the Fed because they hold the ultimate responsibility for inflating the credit bubble and encouraging all the abuses it spawned.

Edited 2 time(s). Last edit at 03/21/2007 08:43AM by Hankg.

I voted for the government as the most responsible party. The Fed could not exist wihout its monopoly position granted by the government. But the government didn't stop with inflationary monetary policies. The government layered on regulations, tax policies, tax payer financed insurance, and many institutions dedicated to extending credit at below market interest rates.

Read about historical manias and you will find that they all involved monetary inflation. You will also find that rising asset prices caused the whole population to turn to asset price speculation. Why work for a living if you can make many times as much by buying assets "guaranteed" to go up? Read, for example, Extraordinary Popular Delusions and the Madness of Crowds, first published in 1841.

Yes, individuals become crazed and irresponsible during these episodes and many of us are smart enough to avoid the carnage. But inflation's siren song gets most people, time after time. After all, many players do in fact benefit enormously by getting in early and out early. The temptation seems to be too great for most people to ignore.

Tom

RogerRafter and others who say that "individuals" are responsible are right, of course, but they are ignoring one very important point. A market economy is directed by the price system and entrepreneurial behavior is directed by profit opportunity. The housing boom/mania graphically shows why the Austrian business cycle theory is so relevant -- and correct. Namely, the inflationary credit expansion distorted the price system and made it very clear to everyone that there was a seemingly limitless demand for housing.

The price signals were not screwed up because of bad individual decisions. The individual behavior was screwed up because of the price signals. Prices ran to these extremes for clearly defined reasons -- Fed policies, an unconstrained fractional reserve banking system, and many, many government policies that favored both debt and housing. It is true, I believe, that individuals should have eventually begun to understand what was happening -- but by then a great deal of damage had already been done.

Tom