Housing Bubble Final

We visited Homeowners and found that they only took advantage of what was offered to them in the form of new programs that made the house seem affordable for them.

We also visited Investors and found that they take advantage of finding homes that are cheap enough so that they could have them fixed up and price them at a price that allows the homeowner to purchase them with the programs available to them.

Then looking into the banks we find that the programs that are being used to finance the loans to the homeowners are regulated and could not have been made without the regulative permission of the government regulators.

So you may have guessed that I do put most of the blame on the government and those regulations.

BUT WAIT

Why were those regulations changed?

I suggest that as prices were rising there was a larger and larger group of would-be homeowners that found the American dream was slipping away from them because they did not make enough to qualify under the old regulations to be given a loan for the home wanted.

This began a cycle that only allowed a certain group to own the homes that they wanted and they often bought more than one home. Call the second one a vacation home, or investment home, or any other term you wish to use.
Now the housing market remained strong, but the Realtors did notice this group who could no longer purchase homes and how the secondary market was responding for them. The secondary market began to gain a larger percentage of the overall market by taking on more risk (and making more money) through creative financing practices.

This secondary market consisted basically of innovative investors willing to take on the additional risk and was joined by those perceptive homeowners who were able to purchase that vacation home(s).

This growing market was basically unregulated as they did not have to comply with the existing government regulations. So in stepped the government, with the urging of special interest groups, to find a way to regulate (and tax) this growing market. The new regulations satisfied several different special interest groups. It first relaxed regulations so that the banks could offer basically the same terms as the subprime market was doing and limited the number of times that an individual could do this without falling under the regulative authorities.

As the housing market exploded with the influx of more people who could afford the homes, this "artificial" increase in demand served to greatly increase the home prices and the government allowed even more creative financing. Up stepped more special interest groups for those who still could not afford homes. Since things seemed to be going so well in the housing market and there was no end in sight the regulations were again relaxed to allow those who could not afford a home to purchase one with assistance from many different sources.

This move basically merged the two markets together under the regulative authorities and began to shut down the subprime market, as many feared the massive regulations they knew nothing about. And set the stage for the bubble to burst.

So basically, in my opinion, the government regulations are the basic cause of the bubble, which had to burst at some point. But the cause of the change in the government regulations were SPECIAL INTEREST GROUPS who only had their interest in mind and disregarded what it would do to society as a whole, over time. While the intentions (hopefully) behind these groups were admirable the government application of them left a lot lacking.

But the special interest groups were not through with the government. They showed the government that through these new regulations allowing just about everyone to get credit that many were dragged into an existence where they HAD to live on credit cards to survive and within the easy credit rules they would NEVER be debt free and most often were only borrowing from Peter to pay Paul.

Thus came the new credit card regulations which while the bubble was beginning to burst raised the minimum payment to the credit cards so that one could get out of debt faster. But again this only took money away from peoples ability to spend what disposable income they had because it now had to go to those larger credit card payments. Those that were skimming by ok with their house payments now began to default, adding to the quick bursting of the bubble.

This also took money away from business and investors due to their higher payments, leaving less to invest in their business growth and causing the beginning of layoffs to those who would add steam to the snowball as they could not afford to make their house payments.

Thus began the downward spiral of the economy which may have remained in the recession area, as before, if the free market forces were allowed to slow down the snowball, but those special interest groups policies adopted by the government, which helped in the short term, only served to inject additional snow and ice into the snowball which then became the depression which we are in now.

We must insist that the special interest groups and government step aside for a little while and allow the free market to slow and stop the snowball that they created!