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Forum Post: "Inside Job", One Question Remains for Me

Posted 12 years ago on Dec. 28, 2011, 7:23 p.m. EST by infonomics (393)
This content is user submitted and not an official statement

I just completed viewing the documentary Inside Job which has left me with one remaining question. What was the initial cause, the first cause, that render homeowners unable to adequately meet their mortgage payments? I'm offering the following suggestions only to constrain your responses to the most reducible reasons. Sometimes people tend to think at superficial levels that really have more prominent underlying reasons. I am not offering reasons to assert my understanding or to imply any kind of intellectual prowess. My best speculations are:

  • Adjustable mortgage interest rates were accelerated according to mortgage contracts because properties lost their value due to oversupply.
  • People loss their jobs to outsourcing.
  • People loss their jobs due to natural cyclical recession.

Of course I realize that simultaneous reasons can exist.

Incidentally, the answer to this question must not be so apparent if you recall the interview that Candy Crowley had with George W. Bush during the time in which he was pitching his book. In that interview Crowley asked Bush why his administration, with an abundance of intellectual resources, did not see the crisis sooner than they did. Bush hesitated but eventually replied that he did not know.

My interest in this matter is more philosophical than political.

Again, forgive the pressing but I am not satisfied yet.

A married couple is sitting across the desk from a mortgage broker, who, at a minimum, has flippant regard (reckless indifference) to their ability to make the loan payment. Both the husband and wife are securely employed and, at a minimum, understand simple math, such as their combined income is sufficient to meet the mortgage payment at the current interest rate. They may even understand the causes, probability and consequences of rising interest rates. (As I type I am beginning to convince myself of the first cause.) Did the couple ignore the probability that their future income would not keep up with the probability of rising interest rates and hence mortgage payments? So, what I am suggesting is that the problem was not so much one of lost income from unemployment but rather one of static income not keeping up with increased mortgage payments. Here, I am giving the couple the benefit of the doubt on the matter of their integrity, which to say, I am not indicting them with the suggestion that they sat across from the mortgage banker with foreknowledge that their jobs were not secure.

From here I am well aware of the domino effect.

Thank you sages, From a Reductionist

Update for the Archives

After reviewing George W. Bush's Address to the Nation on the Economic Crisis on September 24, 2008, I am closer to the understanding that I sought.

The metaphorical domino that began the unraveling occurred with aggressive home construction that fed upon the false optimism initiated from low interest rates, which, in turn, engendered from capital fleeing low interest cash-bearing investments, such as CD's, and from a spiking stock market. In other words, home speculation was the only sensible play. When home inventories exceed demand, home prices stagnated, then began a decline and with the decline came the triggering of adjustable rates. So, in summation, the house of dominoes was created by deregulation and opportunistic financial mavens and it collapsed from the false optimism of home builders. Homeowners further aided the collapse because they were not financially able to endure the probability that they ignored at closing. You can encapsulate this entire understanding by citing that the economic collapse of 2008 was a system failure.



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[-] 2 points by shadz66 (19985) 12 years ago

reductio ad absurdum ?

[-] 2 points by infonomics (393) 12 years ago

Well, according to Camus with my concurrence, all roads lead to there.

[-] 2 points by April (3196) 12 years ago

I don't know if there is a single thing to point to. Some really good books on the subject, go alot further in depth than the movie.
"Too Big to Fail" by Andrew Sorkin, and "All the Devils are Here", can't remember the authors. Also, "The Big Short" by Michael Lewis.

There were alot of shady disreputable mortgage brokers (like Countrywide and worse) that were pushing no-doc loans and exotic type adjustable loans and flipping them. They didn't care that the loans were never going to be paid back because they immediately sold them to Wall Street, who in turn securitized them again. This is what fueled the bubble. The mortgage brokers or Wall Street didn't care if the loans were never paid back. Deregulation and the government's desire for increased home ownership helped the process along. More people were being put into houses, faster than houses could be built which drove up values. Higher values encouraged cash out financing/debt.

I guess you could say that what started the downturn was the homeowners that took on bad loans that they couldn't repay. When their adjustable rate reset or when their expense kiting caught up with them and they could no longer make their mortgage payments on a loan they should have never been put into or took on in the first place. I would put alot of the blame on the disreputable brokers as the source. Most of them are out of business now, naturally. Many were subjects of lawsuits by States AG and some individuals are even went to jail for it I believe.

But the fact there was a bubble created in the first place is the underlying problem. There is certainly enough blame to go around. I believe that the biggest share of the blame falls on Wall Street. They had the most to gain, and the least to lose.

[-] 1 points by mvjobless (370) 12 years ago

I believe the problem started long ago, even before the repeal of Glass Steagall in 1999. Go back to the S&L crisis of the 80's and the resulting creation of regulations as well as repeal of those regulations and on and on. The history of the banking game is nauseating to say the least.

[-] 1 points by April (3196) 12 years ago

Agree. The deregulation amplified the collapse. The deregulation fueled the bad securitizations concocted by Wall Street.

Without deregulation, there probably would still have been a housing crash, just based on the bad loans. It would probably have been to a lesser more isolated degree. It would not have been so widespread and severe to cause the entire Wall Street meltdown.

In fact, there was a mini housing crash, I think it was in mid 90's. Isolated and dried up pretty quickly because some banks got burned by the bad mortgages and stopped buying them from the shady brokers and the shady broker industry folded up because they could no longer flip those bad loans.

But the whole thing started up again a few years later when Wall Street devised their creative schemes to slice and dice mortgages into tiny pieces in order to "supposedly" spread the risk. The problem was, the bar kept getting set lower and lower. AAA loans were really only AA, B loans were really C's etc.

[-] 1 points by gsw (3410) from Woodbridge Township, NJ 12 years ago

I had one of those countrywide loans, and got out from a fortunate early inheiritance, and into a better one on my next place, and this is only my second home in 18 years of ownership....I bought in 2002, with 20 percent down, and have refinanced , just when rates went down and did not pull out a bunch of equity. I lived kind of conservatively, as my parents had taught, as if I could pay off my mortgage on just my income, and not have it be a huge stretch.

[-] 1 points by infonomics (393) 12 years ago

"I guess you could say that what started the downturn was the homeowners that took on bad loans that they couldn't repay." April, excuse me for pressing, but are you arguing that the homeowners took out mortgages with monthly payments that they could not make from day one? To add emphasis to my suggestion, did they sign the contract knowing they could not make the first payment? (Incidentally, pressing for reduced reasons is the methodology of a reductionist. Socratic.)

[-] 1 points by gsw (3410) from Woodbridge Township, NJ 12 years ago

why would the banks make loans (undocumented) they knew, might not get repaid, if they couldn't sell them down the road, as AAA deriviatives?

Then they let people take out equity, with no equity

[-] 1 points by gsw (3410) from Woodbridge Township, NJ 12 years ago

they couldn't have "taken" on the "bad loans" without the loan-officer's ok. aren't banks supposed to check up on income, credit, etc

yea there were illiterates signed up too, the illiterate got the "subprime" loan, that gave the mortgage pusher a 7X bonus over regular loans.

[-] 1 points by April (3196) 12 years ago

Well, yes and no. I don't know about day one. And I can't be sure what exactly was going through their mind when they signed the contract. I can imagine that maybe they felt like they had achieved a little bit of the American dream in becoming a homeowner. Maybe they were a little too high in the clouds of that dream.

Like I said, there were alot of really shady mortgage brokers that were using predatory lending practices and were prosecuted for it. I think in some cases people were lured into it with very aggressive sales tactics. I don't think people buy a home with the intention of defaulting only to have their family evicted. How awful would that be! To have your family and children be thrown out of their home. Nobody wants that for their family. It makes no sense. In many cases people were victims of aggresive and predatory sales tactics.

The mortgage brokers were experts at pushing bad loans. That was their job and they got very wealthy doing it. The mortgage brokers and Wall Street knew the loans were bad.

Read the books. It will tell you all about it. Look up Countrywide. This was one of the largest mortgage brokers at that time. That's the one big name I can remember off the top of my head. But there were many, many others.

[-] 1 points by cmt (1195) from Tolland, CT 12 years ago

Politically incorrect, but relevant to this issue: people vary widely in ability. There are many hard working, responsible people whose intellectual abilities are limited. They can be taken advantage of. They can be conned into signing things they shouldn't. There is plenty of evidence that mortgage brokers did that, and did it a lot, during the fraud bubble. The mortgage brokers got rich; those people got taken.

[-] 1 points by April (3196) 12 years ago

I agree. The fact is some people are smater than others. And the financing process can be confusing and intimidating. Let alone, understanding all of your expenses and what you can afford, utilities, taxes and other living expenses. I'm sure it can be quite difficult for some people. Throw into the mix bad lending practices and shady brokers. It was a disaster waiting to happen.

It's very sad. I'm sure there were alot of hard working people that wanted nothing more than to believe that somehow they could own a home for their family.

[-] 1 points by AFarewellToKings (1486) 12 years ago

Bill Black would be able to answer this with authority. His site is called New Economic Perspectives. Here's an interview from an early occupation:


[-] 1 points by mvjobless (370) 12 years ago

How about no income verification loans which means anyone off the street could go in and apply for a loan and get it which is exactly what happened in alot of cases. How about the scum bankers who were looking for anyway to fatten their bottom line and preverting the rules to such extremes that we ended up with all manner of derivatives, something even they know so little about. Asseholes all of them, bigger assholes in congress that refuse to regulate this mess and stop the hemmoraging economy.

[-] 1 points by gsw (3410) from Woodbridge Township, NJ 12 years ago

one first cause was mortgage pushers were given a 7X bonus for getting sub-prime loans approved, to minorities. these sub-prime loans were "robo-signed off" with no documentation as being able to pay/income, to people who had little english or education. the more of these they could sign up, the more they made, as long as prices went up, people were told "don't worry" you can re-finance when your APR is going to reset. they weren't documented cause the banks would repackage and resell asap to investment banks, who invented "isurance" derivatives to cover there bets. so APR s went from teaser rate to exhorbitant, the banks still made money cause they leverage-resold these anyway, several times. so the banks, making undocumented loans and reselling them, to people who were not able to, according to traditional banking guidelines, able to afford the loan. That was the first cause. when enough of those unsubstantiated loans lost value, and people realized there was junk in the trunk, the ponzi system (our economy) went into a free-fall. There were a huge amount of these junk loans, and even some educated people bought the smiling mortgage lender (and the appraiser's said oh this place has great, increasing value.) We all thought our salaries would go up. for many, that did not happen

[-] 0 points by NewEnglandPatriot (916) from Dartmouth, MA 12 years ago

I think this was all planned, they have control of levers.

Interest rates dropped, property values went up.....

People were buying and flipping houses, making money..

They raised rates. slightly opposite effect...

Backed off again, lower than before, caused housing market skyrocket.

Next , many that were comfortable w/ adjustable, stayed there. Many re-financed before, or flipped the home.

Many never could afford if the rate went up. Rates went up, people were stuck... First wave of foreclosures....Then , values stablized, rates came down....Then they struck again, and skyrocketed the rates this caused the bubble pop, many foreclosures on market, simultaneously with more on the way - a perfect storm to crash the values of existing property holders.

This drive the whole thing into the downward spiral. My home is worth almost 50+K less than what I owe. No equity....

Upside down, cannot sell and I have lost my job. I get work from time to time but end up stuck with no left over.

Many were never able to afford. I have been hanging on for about 3 yrs and 9 mos with no steady income. I had money put away, and have been getting contractor jobs from time to time.. Whatever I can

[-] 2 points by mvjobless (370) 12 years ago

Interesting post. There is some credibility to the idea that the bankers, mortgage brokers, etc. gave out as many mortgages as they could just so that they could securitize them, then sell the securities to some unsuspecting entity, bet on their failure, with credit default swaps and collect a handsome return all in the name of getting the most bang for their buck. Goldman Sachs even admitted in a congressional hearing to recommending a losing security to a client and then betting against it. It's all a big money game.

[-] 1 points by infonomics (393) 12 years ago

So, if I understand your response, the first cause was not so much an employment problem as it was an unexpected rise in mortgage payments due to interest rate adjustments contrived by Wall Street's exploitation of the up and down movement of the rates. I guess I could also sum that one's job did not provide the wage increases to meet the increased mortgage payment.

[-] 0 points by NewEnglandPatriot (916) from Dartmouth, MA 12 years ago

My payment never increased, I had a fixed rate and was living well within means still saving money. No debt, no car pmt, just house. The market and employment situation hit me since 2008, already paying on home since late 04.

There were many situations that caused the mess.

People financing closing costs in, no down payments, etc.

They even tried to slip an "adjustable rate disclosure" in my paperwork along with a higher rate. They told me I lost my lock. That was bull I had in writing and with me. I told them at the closing the deal was off, it took many phone calls to strighten out. I did not sign off, but banker lawer tried to shaft me telling me I could come back in a week and fix it. Or refinance and it won't be adjustable. I stood my ground, they all get higher commissions for the adjustables.

I said, I have 3 days by law, and it gets fixed now or the deal is off,, and I will be suing to get my funds back as this is negligence and obvious fraud on your part. Triple damages is what I will seek. Uh uh no big deal sir, Well its just 1/2% and just a glitch I said forget it and walked out of my closing. They called me back in and had the paperwork faxed over to the registry of deeds office...Took 3 hours everyone involved was pissed.

I bet so many people got scammed like this....No lawyer, or signed stuff like they were in a trance.

I know my s#i+.