Who’s To Blame For The Recession and Depression
I got a email from a guy today that asked me my thoughts on the Recession , so I responded, and figured this might be good for the blog.
“Mr. Schlichter,
My name is Andrew Ellis and I was hoping I could ask you a question
about the current real estate market. I am taking REAL 101 at Ohio University
and as an assignment for that class I have to ask someone in the real estate
world a question on their opinion of the current market. The question is who
do you think is the main group to blame for the current housing market
conditions? The choices are as follows: the borrowers, the lenders, the
brokers, the investors, or the Government. I am sorry for any trouble that
this may give you.
V/r
Andrew E”
My thoughts are this :
The borrowers are to blame in the fact that many individuals borrowed using sub-prime or ALT-A style loans that they KNEW they couldn’t repay. Many planned for no emergencies, loss of jobs ,ect. If you go back to the early 80s , interest rates were significantly higher than they have been even with the highest subprime brackets, yet the foreclosure rate never reached a number close to what we’re seeing now. So they borrowed way beyond their means , knowing they were doing it.
Many Lenders are to blame as well because they couldn’t just say “No” when someone walked in thedoor. Add to this, many brokers had no interest in the stability of the borrowers beyond closing due to the fact mortgages were sold to other companies who would service.
Agents were to blame because they never told people that they shouldn’t be buying beyond their means, and just sold the houses regardless of the mortgage the buyers were getting.
Appraisers are to blame because they valued properties using very poor comps. I’ve worked with several banks concerning loan fraud , and appraisers either allowed themselves to be manipulated or down right had a interest in a bad value. Of course the banks were willing to blacklist the appraisers if the values came in too low.
Investors/developers share blame because many were building at a pace that was completely unsustainable, expecting the market to continue (Knowing that we were at a pace that couldn’t be sustained for very long). When they went belly up , they send dozens/hundreds of units in individual subdivisions/areas into foreclosure, to sell at a very small fraction of what they were selling them to the individuals buying.
Finally the government, who in my thoughts shares the biggest bit of the blame. They developed policies that reward banks giving bad loans to bad buyers all in the name of “Diversity” and then punish banks that do not participate in Community Re-Investment (which usually means giving bad loans out). They then turned a blind eye when values skyrocketed and the market boomed, local governments had a major interest because the higher the values went , the higher tax revenue they had. So local governments had a very major interest in seeing values and a false market continue.
Because of this , we’ve seen THE WORST recession in the US , and are on the verge of a total collapse of our system due to the fact too many people turned a blind eye. However , the government shares a larger part of the share (Although everyone else shares blame too). This whole thing has been because of greed more than anything else, because everyone was making money off of someone else.
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did you mean to imply that most are the blame in every group… or …that a percent of each group ….
Great post. I too agree with you that the government is to blame for all this mess. I know that at the risk of becoming too socialist, the government let the market do what’s best. But in this case, the market turned absolutely corrupt and brought everybody else down with them. Look at Canada and Norway! Look at how they are somewhat ‘surviving’ in this global economic crisis. Nobody knows how much longer they’ll be able to weather the storm either.
check out the New York Times article dated 9/30/1999….it’s the best description of a smoking gun that I have seen…..read it for yourself…..easy to find….enjoy
Blame goes back much further to the loss of manufacturing jobs which, 20 years ago, started the trend of no wage growth in most sectors. To make up for it, cheap money became available through loosening of credit card and banking regulations in the 1990s during the Clinton years. Much of the malaise started back then, not in the past five years. The sub-prime debacle was a product of the opportunities in the system and many different groups taking advantage of it. The day that the average Las Vegas cocktail waitress or stripper could brag she owned 3-5 condos we should have all known. This type of overleveraging buyer was created years before the collapse. The problem was, even those who knew it was a game of musical chairs couldnt get out of the game fast enough
Just like that we cannot blame everyone. It is the Government that should take the entire responsibility. Is it safe to invest in foreclosure homes in Canada?
Our country was also hit hard by the Economic Recession. At least we are seeing some signs of economic recovery now. I hope that we could recover soon from this recession.
*…….
Meh