The TRUTH about the housing bubble from a professional Realtor who watched it unfold:

Re: the debt currency being a Ponzi scheme; there are two sides to the real estate story. The one the banks made up to get bailouts and the TRUTH. True, the prices are too high for anyone to be able to afford to buy in a desirable area without a loan, but it DOES enable a person to live in a home instead of a rental. The problem occurred when the Fair Housing Association, aka FHA, took a polled that showed that too few low income and minorities were homeowners and pressured the lenders to lend to people who SHOULD have remained renters, who didn't understand the responsibility of being a home owner, were sold the crazy idea of an 'adjustable' mortgage. When that loan package was introduced it was NOT based on the idea that the value of homes would always go up, rather on the assumption that income would always rise. This worked well for young families just starting out in their field, building a business or career. In that case the mortgage payment would rise as their income did and they were always free to refinance when their income allowed for it, to a fixed rate loan. When the government stepped in and encouraged lenders to lend to people who truly could not qualify for a reasonable monthly payment, the lenders put them into adjustable loans (low payment for the first five years then radically adjusting to a much higher interest rate and monthly payment when their income was higher) and, since their incomes were NOT going up, they could no longer afford to pay. Lenders knew at the outset that this was a risky loan and played a game of 'hot potato', passing bundled loans on to other, bigger banks who in turn, bundled even bigger packages and sold them to investors who had no idea, because the paper trail was pretty much gone, what a risky investment they were purchasing. It was not the HOUSING that was risky; it was the BORROWERS who were risky. It was compounded by offering 'equity loans' wherein people started using their homes like piggy banks, borrowing against the home so as to be able to use the interest on the debt as a tax deduction. (There was a time when ALL interest paid to credit cards etc. was tax deductible) and doing things they otherwise might never afford: the Mercedes, the trip to Tahiti. Prices DID rise because people who couldn’t buy before were buying small homes and people who made grand profits moved into even BIGGER homes, homes that most of them didn’t even NEED for their families, but to show off their newfound social status. DEMAND is what drove prices up. As adjustable came due and people could not make the payments, homes were foreclosed on and naturally a foreclosure on a street that sold for less than current market value brought the value of the whole street and eventually, whole TOWNS down. Oh what a tangled web was weaved; I will bet investors who were REALTORS got hurt more than single home owners. I advise people to buy a house because they want a HOME and to invest their extra $$ elsewhere. I have been giving that advice for a long time. To blame the realtors and housing for our problems is a red herring the banks threw out, and people believed, to blame the public and housing for their crooked scheme. Banks sold off loans that they KNEW were on shaky ground. They KNEW it from the beginning twenty years ago! The government insured loans and, never without options, banks sold the risk to unknowing investors. More Realtors and builders lost their shirts than single home buyers. Yes, the practice of living in debt it was a Ponzi scheme but it was NOT the fault of the Real Estate industry; the fault was GREED; the fault was Wall St, yet again!

I think initially everyone believed their income would rise. Younger people got married and raised families in their twenties back then, unlike now when they marry at 40, if at all and then decide not to even have children. At any rate, by that time their careers were at their peak and an expected income rise was not going to happen. It was when the government, in their infinite wisdom, decided that EVERYONE should be a homeowner and used the FHA to guarantee loans for buyers who were really NOT qualified to buy that the problems began. When the down payment was as low as a security deposit on an apartment and sellers were paying closing costs, why NOT buy? The lender told them they could afford it. Adjustable were NOT adequately explained to buyers OR their realtors. (When I was early in my career Adjustables did not exist and we had to attend weeks of training in qualifying people for this new lending option; but newer agents had no clue and passed the buyer off to the lender who in most cases just wanted to make the commission on a loan. In the case of the introduction of the internet, buyers no longer took the advice of a trusted realtor to direct them to a reputable lender or home inspector they had dealt with before. Realtors have a fiduciary irresponsibility to work in the interest of their client, above and beyond their OWN interests, but buyers don't understand that and go off and pick their own attorneys, (who are often family friends and not real estate attorneys) home inspectors and lenders they find on the internet who are not bound to protect the buyer in the same way that a Realtor is.

The mortgage companies KNEW that when the payments adjusted UP the people would not be able to make the payments so they bundled and dumped the loans on bigger banks, who in turn bundled and dumped them on even bigger banks who sold them as 'safe', collateralized loans to mutual funds etc. Radio money shows where constantly telling people to invest in REITS or Fannie Maes. It was a game of hot potato. The criminal part came in when companies like Goldman Sachs who KNEW these would fail as soon as the payments adjusted but sold them anyway while at the same time betting short that they would fail for THEMSELVES. The bailout allowed them to get away with it. The bailouts continued so the only people who lost were private investors while the big banks had bet on the loans failing and MADE money!!! It was a CRIMINAL collapse, built on greed. A reputable company would not sell an investment that they knew would fail and PROVED that they knew it would fail by selling them short. Another, unrecognized cause of the collapse is home equity loans. People used their homes like piggy banks so of course, even WITHOUT the fall in value; they owed more on their homes than the homes were worth; again due to lax credit requirements. You could buy or borrow against a house just 2 years out of a bankruptcy!!! The only ones who didn't lose were the big banks. We should have let them fail. AND if you look back historically Goldman has a long term history of helping to create bubbles and then pulling out just before the bubbles collapsed.

The Nanny State isn’t Mary Poppins. The Nanny State is Casey Anthony.