Subprime borrowers didn't cause the subprime crisis
September 10, 2017 10:02 AM   Subscribe

 
I can't wait to read this and construct some really vivid revenge fantasies.

I wish there was more distinction made in law and taxes between primary and secondary (collectively) residences.
posted by rhizome at 10:21 AM on September 10 [14 favorites]


Too bad this won't change the narrative.
posted by wittgenstein at 10:28 AM on September 10 [24 favorites]


Not with that attitude it won't.
posted by rhizome at 10:29 AM on September 10 [35 favorites]


The fact that sub-prime default wasn't as large as it was spun matches my experience in Assigned Risk auto insurance IT from like 20 years ago.

The people in the assigned risk pool had loss ratios in line with everyone else. They did require more re-writes when they stopped paying, but that was a source of fees too.
posted by mikelieman at 10:32 AM on September 10 [6 favorites]


We bought during this time, and what was happening was really obvious. We had a tight budget, and there was a very specific type of house/neighborhood we were going to have to buy in, and the flips were the same type of houses, but priced up by 40-60K, and you could tell even from the pictures that everything had been cheaped out with attractive veneers and they were going to be a fucking nightmare.

We had friends during that time who could afford the flips, moved in, and then found out what you get when Brad from Marketing decides he can make a dollar if he only spends a dime doing a remodel with no experience in construction or contracting. We knew people who bought a house like the one that had the blog.

And the sellers couldn't afford to come down at all, or they'd lose every bit of their margin, and whole neighborhoods were sitting empty (especially the 80s McMansions developments, which I guess is where a lot of Texas Brads first tried their hands at flipping and they just made ugly houses uglier and too expensive) because if you had the money for that price range you could buy either new in nicer developments or real renos in older nicer neighborhoods. If you tried a flip in many of the neighborhoods we were looking in, you'd end up with the most expensive house on the street and the comps would kill you.

One of the biggest giveaways would be that the back yards looked like shit. They'd spend every dime on the front and inside then you walk out back to bare fence and dead grass. They'd put in sprinkler systems in the front but not take them around to the back. If there were smaller trees or landscaping they'd cut it out so they could remove part of the fence and do all the construction work in the back. The kitchens, you could tell, had been redone by someone who didn't cook and just liked shiny things.

On the few occasions we ended up inside one, even our agent would be like "nope". I suspect the sellers usually represented themselves and there was just no negotiation room, and they were probably awful to deal with. Brad just wasn't worth it.
posted by Lyn Never at 10:50 AM on September 10 [93 favorites]


I don't think blaming any particular class of people, rich or poor, is helpful when diagnosing the recession. The banks were also extending ridiculous loans to developers with no coherent plan to make money. You could just as well say it wasn't the rich people, but the banks who threw out reasonable underwriting requirements. Or Congress for repealing Glass-Steagall. Or on the Clinton and Bush administrations for not appointing regulators who effectively regulated. Or on Congress for not funding those agencies to do their jobs.

There are always people, poor and rich, willing to borrow craploads of money to do dumb shit. Our system depends on lenders not lending to them (at least not too much), and on our regulators to structure things so they don't.

It's really dumb to say "it was the RICH and their PERFIDIOUS WAYS that caused the recession," as if the rich spontaneously got more perfidiously profit-seeking around 2004. The more mature question is, how can we structure things now so that this shit doesn't happen again? And these FPP articles do very little in that department. The first article mentions "regulations" (not further specified) as a good thing, which is certainly better than "BLAME THE RICH!", but it's only concrete suggestion is to oppose gutting Dodd-Frank. Yes, we should probably not let the GOP gut a regulatory half-measure that constitutes lawmakers' only substantive regulatory response to the financial crisis.
posted by andrewpcone at 10:50 AM on September 10 [29 favorites]


I may be wrong about this, since there may be complicating factors, but it seems that the end result would've been better if more subprime borrowers had been lent money to buy first homes, instead of lending money to prime borrowers to buy second homes.

Perhaps part of the pre-crisis narrative was right all along: Mortgages are solid loans because people work very hard to keep their own homes. This research seems to say that that stayed true of subprime borrowers through the crisis. Even though they were hit hard as unemployment spiked during the post-crisis recession, they held on to their homes as hard as they could. Unlike top-quartile borrowers, they didn't drop the keys in the mail and walk away.

But when it's just a house, just an investment property, and not your home, it's an altogether different emotional and financial calculation.
posted by clawsoon at 10:54 AM on September 10 [55 favorites]


This was clear from the supply side. Of the top mortgage originators in 2006, over half of them (including the biggest, Countrywide) weren't banks or thrifts--i.e., they weren't even covered by the Community Reinvestment Act, which is what slow-witted conservatives blame subprime lending on.

It's really dumb to say "it was the RICH and their PERFIDIOUS WAYS that caused the recession," as if the rich spontaneously got more perfidiously profit-seeking around 2004.

If circumstances align to allow you to get away with more shittier behavior than you could in your constant previous attempts (with a little help from you, of course--uh, who do you think the banks and Congress are, other than rich people?), do we then just ignore the fact that you are always trying to get away with shitty behavior, as if it were simply some kind of force of nature?
posted by praemunire at 10:55 AM on September 10 [42 favorites]


andrewpcone: The more mature question is, how can we structure things now so that this shit doesn't happen again?

I think rhizome got it in the first comment: First properties should be looked at very differently by lenders in terms of default risk compared to second (or third or fourth) properties. Loans should be priced and regulated accordingly.
posted by clawsoon at 10:59 AM on September 10 [39 favorites]


> ou could just as well say it wasn't the rich people, but the banks who threw out reasonable underwriting requirements. Or Congress for repealing Glass-Steagall. Or on the Clinton and Bush administrations for not appointing regulators who effectively regulated. Or on Congress for not funding those agencies to do their jobs.

There is plenty of blame to go around. What is new here is the data that shows that blame was disproportionately assigned to the subprime borrowers that should be shared more equitably with speculators and wealthier borrowers. I see nothing wrong with ensuring that those who acted the most irresponsibly are assigned the most blame. Moral hazard, and all that.

Nobody is saying "this is 100% rich peoples' fault." However, the wealthy, particularly those within the finance industry, are the ones who lobby politicians to make regulations more lax, resulting in the lowering of lending standards. This means that several of the other factors you cite as responsible are just doing what the money tells them to do. And most of the money pushing for those changes isn't in the hands of subprime borrowers -- if they had that money, they wouldn't have needed the loans in the first place.
posted by tonycpsu at 11:00 AM on September 10 [32 favorites]


I absolutely believe this. I live in the PNW and it was clear that there was no way that there were enough high paying jobs to support the idea that every family could own a 700k+ house and pay that mortgage for its lifetime. People were renting from the bank for long enough to see some appreciation and then cashing out...until the bubble burst. It was stupid and I have no sympathy for them, especially since it's happening again.
posted by OHenryPacey at 11:05 AM on September 10 [4 favorites]


If circumstances align to allow you to get away with more shittier behavior than you could in your constant previous attempts (with a little help from you, of course--uh, who do you think the banks and Congress are, other than rich people?), do we then just ignore the fact that you are always trying to get away with shitty behavior, as if it were simply some kind of force of nature?

I see your point, and I would find it more compelling if "the wealthy" had acted, with coherent class interest, to facilitate the deregulation in question. They did not. A tiny fraction of wealthy people engaged in flippery that could be called "shittier behavior," and a vastly tinier fraction had any hand in adjusting regulations, or even understood the degree to which that was going on.

If you mean to say "monied developers who used their political influence to gut financial regulations bare vastly more responsibility than any subprime borrowers," then yes, I agree, and I would not trust anyone who did not. But that is a far cry from the "blame the rich as a class" tone that I believe is reflected in the FPP and in your comment.

What is new here is the data that shows that blame was disproportionately assigned to the subprime borrowers that should be shared more equitably with speculators and wealthier borrowers. I see nothing wrong with ensuring that those who acted the most irresponsibly are assigned the most blame. Moral hazard, and all that.

Certainly, and I concede that is is important to look at what actually defaulted, and not buy into mainstream media bullshit wagging fingers at the undeserving poor. To that, end, I agree that this data is important. What the data does NOT say is that the bad behavior in question was shared by a majority, or even a significant minority of the wealthy. The vast majority of wealthy people did not flip houses.

Blame the people who actually did things, not the socioeconomic groups they belong to, even if they come disproportionately more from one than the other.
posted by andrewpcone at 11:12 AM on September 10 [4 favorites]


> But that is a far cry from the "blame the rich as a class" tone that I believe is reflected in the FPP and in your comment.

Where in the FPP is blame assigned to the rich as a socioeconomic class? The FPP quote from the Quartz piece is:
It was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
"Wealthy or middle-class house-flipping speculators" is not a socioeconomic group -- it is a specific set of people engaging in a behavior. This broadside attack on the wealthy exists only in your mind as far as I can tell.
posted by tonycpsu at 11:26 AM on September 10 [64 favorites]


Eat the rich.
posted by The Whelk at 11:48 AM on September 10 [34 favorites]


I just watched The Big Short, so I am freshly pissed off that the people who tanked the economy did not get prosecuted and in some cases profited and/or got bonuses.
posted by theora55 at 11:56 AM on September 10 [30 favorites]


No, subprime LENDERS were the cause of the subprime crisis.

Duh.
posted by hippybear at 12:30 PM on September 10 [8 favorites]


That's what's interesting about this, though, hippybear: It was prime lenders, not subprime lenders, who were the cause of the crisis.
posted by clawsoon at 12:33 PM on September 10 [16 favorites]


There are always people, poor and rich, willing to borrow craploads of money to do dumb shit. Our system depends on lenders not lending to them (at least not too much), and on our regulators to structure things so they don't.

is as succinct a take on mainstream Democratic politics as any I've seen.
posted by escabeche at 12:36 PM on September 10 [4 favorites]


Too bad this won't change the narrative.
For the Fox news crowd, "brown people and their government programs caused the collapse" is too perfectly in line with their already deeply held beliefs to ever change.
posted by Bee'sWing at 12:36 PM on September 10 [9 favorites]


As long as the blame lands on the lenders who should have known better and not people applying for the loans, because the landers were the first gatekeepers in place to guard against that sort of thing.
posted by hippybear at 12:38 PM on September 10 [3 favorites]


I think the interesting conclusion about this was that the lenders were basing their lending decision on what would be considered objective - credit scores - and yet those scores did not predict the behaviour of the borrower in the way that lenders thought it should.

I don't think that this is different now from a regulatory or lending standards perspective - they would still look at your credit score. Maybe it's harder to get a non-recourse loan now?
posted by pulposus at 1:18 PM on September 10 [2 favorites]


I wish there was more distinction made in law and taxes between primary and secondary (collectively) residences.

There is in Canada, and surprise, surprise it results in all manner of tricksy behaviour so people can claim investment properties as tax-sheltered primary residences.
posted by Jon Mitchell at 2:26 PM on September 10 [4 favorites]


they weren't even covered by the Community Reinvestment Act, which is what slow-witted conservatives blame subprime lending on.

since the housing bubble and collapse was not limited to the US, I always thought it was particularly pathetic to claim that it was caused by the CRA
posted by thelonius at 2:29 PM on September 10 [9 favorites]


since the housing bubble and collapse was not limited to the US, I always thought it was particularly pathetic to claim that it was caused by the CRA

That, and the fact that the CRA was passed in '77 and significantly revised in '95. If it blew up the economy, it had one heck of a long fuse. But it's always easier for the banking elites to blame "making us help poor people have homes" rather than "our ridiculous credit default swaps and unethical practices."
posted by Pater Aletheias at 2:44 PM on September 10 [24 favorites]


As others have already pointed out, blame the banks. They converted mortgages into securities, then offloaded the risk of bad background checks to investment customers and stopped vetting who they gave loans to properly. People wanting mortgages - especially poor customers, but even the shitty house flippers - are operating at a huge information gap compared to banks when trying to figure out 'should I sign?'

If we form up into an angry mob at some point, my vote will always be to start with the bankers.
posted by mordax at 2:51 PM on September 10 [17 favorites]


"credit default swaps" has always read to me like "we're making loans we shouldn't make, let's cover our ass somehow"

But that's an unwieldy acronym.
posted by hippybear at 2:53 PM on September 10 [9 favorites]


I seem to recall a couple of stories about how the risky securitized mortgage bundles turned out to be profitable in the end. I wonder if it was because of what these studies found: People freaked out about subprime borrowers, but in the end they mostly paid their mortgages.
posted by clawsoon at 3:16 PM on September 10 [2 favorites]


Having seen, well, a shitload of mortgage transactions as a title examiner, this kind of matches the gut feeling I already had. But sometimes it's nice to have your gut feeling validated by academics.

mordax has it right: it was the invention of mortgage-backed securities that broke the system completely, because their existence eliminated the financial incentives for anybody on the supply side to deny a mortgage, ever. In 2006-2008, even people involved in closing a mortgage who simply didn't close mortgages as quickly and indiscriminately as possible were regarding as costing everyone else on the supply side money and pushed aside/gradually put out of business. (Go on, ask me how I know!)

And let me be very clear: this structural flaw is not fixed. People are still a bit skittish, now, because after the crash the whole machine came grinding to a halt for a while, and nobody was lending anything to anybody, and all the mortgage brokers and bankers who had previously been making money as fast as they could print mortgage applications were sitting around with nothing to do but read in the papers about how they had Done A Bad Thing. But the structural flaws remain; on a personal, individual level, nobody involved on the supply side of mortgage has a financial incentive to deny a mortgage. Gradually the wariness is wearing off and the machine is starting to pick up speed. Literally last month I stopped taking work from of one of my biggest clients because they are getting increasingly fast and indiscriminate about and pressuring me to do the same. Same shit all over again.

This is why I believed at the time, and still very strongly believe, bankers needed to go to jail - not because of some abstract "fuck the rich" principle or vague gut feeling that bankers screwed everybody else (although they did!), but because it is necessary to fix the system. Every bit as necessary as the bailout loans themselves were. People on the supply side of mortgages need to have an incentive to deny bad mortgages, and if that incentive isn't going to be financial, then the very least we can do to jury-rig the system and keep it functioning is make the incentive "I don't want to go to jail". You only have to jail a few guys at the top - as everybody knows, shit rolls downhill, so while trickle-down doesn't work for money it works great for punishment. But it needs to be done. I would say "needed" to be done, but it wasn't done and as a result, in probably three to five more years we'll have another opportunity.
posted by mstokes650 at 3:23 PM on September 10 [61 favorites]


There is plenty of blame to go around. People who bought way more house than they could afford, just because the bank let them, are part of the blame pool. Saying it is 100% the lender's fault is divesting those buyers of agency and saying it is OK if they do that again, which it is very clearly not.
posted by grumpybear69 at 3:44 PM on September 10


Wow, someone should tell Fox News about this immediately. They'll want know, right?
posted by hwestiii at 3:52 PM on September 10 [2 favorites]


Saying it is 100% the lender's fault is divesting those buyers of agency and saying it is OK if they do thay again, which it is very clearly not.

Saying 'everybody was at fault' really lets the banks off easy. This was a scam. Banks walked into this situation saying that they were selling securitized products with a historical failure rate close to government bonds, while removing all the safeguards that made those products reliable. The market went bonkers for a lie. This wasn't like Beanie Babies or tulip bulbs or something where people were just being dumb, banks specifically misrepresented what they were selling all around.

Making this about individuals who just really wanted a house, or even just really wanted money doesn't address the structural problems that mstokes650 and others have discussed. (Which are, as pointed out, very much still on the books just waiting for people to forget about this and leap at again.)
posted by mordax at 3:59 PM on September 10 [43 favorites]


If someone wanting to buy a house can wreck the world economy, then there are major structural problems with that economy.
posted by Zalzidrax at 4:06 PM on September 10 [26 favorites]


Well said Zalzidrax

The 2008 crisis is still to me, as formative of my political views as 9/11 and Iraq, combined. This paper was an interesting read that was a surprise to me - I had, unfortunately, bought the 'blame the poor' and included the banks as the largest source of blame (since they are supposed to vet their customers carefully). Reading this was eye opening - it showed just how much our popular narrative is 'fuck poor people! they're responsible for ALL THE BAD THINGS EVAR' and how much the wealthy and middle class, do exist in a second tier of society, immune to the rules of the lower tier.

Fuck this unjust system.
posted by thebotanyofsouls at 4:10 PM on September 10 [10 favorites]


Saying 'everybody was at fault' really lets the banks off easy. This was a scam.

The people who are being let off easy in this discussion are the credit rating agencies - Standard and Poors, Moodys, Fitch et al. They rated the mortgage-backed security as AAA securities, when they knew that they were comprised of junk. This played into and fed high demand, which in turn eliminated any incentive for lenders to not lend to people who couldn't service the loans.

When the pitchforks come out, they deserve to be up against the wall. They were the keystone of the scam. They were the ones who put the labels on the snake oil.
posted by His thoughts were red thoughts at 4:11 PM on September 10 [24 favorites]


If circumstances align to allow you to get away with more shittier behavior than you could in your constant previous attempts (with a little help from you, of course--uh, who do you think the banks and Congress are, other than rich people?), do we then just ignore the fact that you are always trying to get away with shitty behavior, as if it were simply some kind of force of nature?

It's not a law of nature, it's a law of economics. Rich people don't act all shitty because of some quirk in their genes, they act that way because they're rich. The problem with blaming the rich, rather than the systems they construct, is that it creates the illusion that what we need is better rich people, when what we actually need is no rich people. Making arguments about the morality of individuals, rather than the morality of systems, is, I think, one of the things that keeps our societies so unjust.
posted by howfar at 4:14 PM on September 10 [40 favorites]


If someone wanting to buy a house can wreck the world economy, then there are major structural problems with that economy.

The problem isn't a single someone... it's tens of thousands of someones who all bought under invented rules that were supposed to provide insulation against the loans going bad while at the same time invented rules made it possible for anonymous strangers to invest in a *tiny slice* of those loans because spreading the risk dilutes it across the board, right?

There's several levels of disconnect about how exactly the 2008 crisis happened, but most of them devolve into "hey, let me do a financially risky thing" "okay, you can do that thing because we've made another thing that make you doing that something that others don't see as a financial problem" "okay I'll do that think, sure hope all those other people don't have problems because I did that" and so on.

If there's any other explanation for what happened, please tell me because that's what I've understood for years and years.
posted by hippybear at 4:21 PM on September 10 [1 favorite]


It was never the poor to me. It was morons who signed up for 0% down interest-only 5-1 ARMs on $1M McMansions. They were the mortgages that got securitized into "high quality" bonds. It is not that they were primarily responsible for the outcome, but their foolhardy behavior was a necessary and critical component of the whole house of cards. The bankers should have gone to jail and the ratings agencies should have been shut down. But to say there was nothing damaging about reckless home buying then is to say we as individuals should continue that behavior if we can because the ill effects are not our fault, full stop. Which is flat out stupid.
posted by grumpybear69 at 4:34 PM on September 10 [3 favorites]


Making arguments about the morality of individuals, rather than the morality of systems...
Economics (and capitalism) has no morals. To me, this is the problem; the 'philosophy' of captialism is that of a a cancer cell. Cancer kills its host, but first by consuming everything in its path. For capitalism to 'work' for the rich, everything has to grow, endlessly - the market, housing prices, incomes, etc. That is not sustainable, nor moral, but systems don't have morals, people do (or should). So yes, we blame the people, and the institutions they run - rightly so.
posted by dbmcd at 4:41 PM on September 10 [12 favorites]


hwestiii: Wow, someone should tell Fox News about this immediately. They'll want know, right?

You just have to spin it the right way. For example, this research means that George W. Bush was right to push home ownership for minorities and the New York Times got it wrong.
posted by clawsoon at 4:49 PM on September 10


Let me chime in with an echo of "STOP SAYING that there's enough blame to go around!"

The (often racist based) bullshitery about CRA has always be incorrect when trying to blame Jimmy Carter/'Clinton Housing Policy'/'HUD quotas' - as CRA based loans were (by definition) not Subprime. They were defaulted on way less than Subprimes were and it is also not a foregone conclusion) that they were a 'root cause' of the Financial Crisis. It's an often parroted 'lie of omission' that attempts to place full blame on 'the government' and mortgagees while excluding all the amazingly complex and misrepresentational instruments (see 'spoofing') created by Wall Street to both evade regulation/transparency and satisfy the greed of the .01%.

If you listen to the Giant Pool of Money podcast a core issue is the huge number of fabricated Collateralized Debt Obligations obscuring bad mortgages and creating that vacuum that sucked all the lenders and homeowners into the spiraling bubble. That bubble was accompanied with Credit Default Swaps creating a monstrous net of failure that dragged everyone into the crash.

The reason banks reduced lending standards was because these new CDO fraudulent creations, supported by Ratings Agencies lies, gave way better returns than the market in general. The unregulated (not due to Clinton or Bush, but that they were new creations) financial instruments (CDO/CDS - specifically the horrific naked CDS) fostered and fed the ever inflating bubble.

While the is crash complex, a useful strategy is to 'follow the money', which leads me to a fairly simplified summation:

If there was transparency, and no lies by the Ratings Agencies and Wall Street, there would have been no balloon of liar loan Prime and Subprime Mortgages (again - by definition NOT CRAs) fraudulently smuggled into AAA bundled mortgages for sale as CDOs.
posted by CheapB at 5:09 PM on September 10 [18 favorites]


It's the idea that land can be owned by a human is the failure. Everything after that is speculation.
posted by Samuel Farrow at 5:57 PM on September 10 [5 favorites]


Saying 'everybody was at fault' really lets the banks off easy. This was a scam.

I agree with mordax. Really. Take a look at these advertising documents from JP Morgan Chase, not subprime Countrywide, but the largest bank in the country. These are ads going out to independent mortgage brokers to encourage them to write more loans so that JP Morgan can pack them into phony CDOs.

"Stated income": Which means make up a number to qualify. No documentation required.
"Unlimited cashout": Which means write as big a loan as you can with a phony appraisal and give cash back to the borrower.
"No asset verification": Which means make up a number for how much cash the borrower has in their bank account. We won't check.
"660 credit score, non-owner occupied": That's all it takes for a flipper to buy a second spec home.
"No income verification required. Income taken from application."
"Check out our great line of no income verification programs."

JP Morgan is encouraging brokers to lie on the forms. Anything to generate more loans and more fees.

To blame this on borrowers is perverse. Most people buy one or two homes in their lives. They are not experts on real estate. Here is the chairman of JP Morgan, Jamie Dimon, telling people they don't need any documents to get a loan. They can borrow up to 95% of value.

Can they afford it? Well why would they doubt it if CEO Jamie Dimon tells them they can. He gets paid $20 million a year to know such things. He has a room full of multi-million dollar computers to work out the risks. He has physics graduates from Harvard and MIT to do all the complex math. Some poor slub in the suburbs is supposed to know better than Jamie Dimon?
posted by JackFlash at 6:00 PM on September 10 [20 favorites]


JackFlash, I think your link is broken.
posted by clawsoon at 6:03 PM on September 10


Sorry, here is the correct link. You really should look at this to get a flavor for the mortgage stampede at the time. It was big "reputable" banks that were pushing this garbage.
posted by JackFlash at 6:07 PM on September 10 [7 favorites]


The hurricanes might cause hundreds of thousands or even a million homeowners to default, leaving a worthless flooded home to the bank as collateral. Is there any concern that this could cause another systemic collapse?
posted by miyabo at 8:07 PM on September 10


Its the rich -gasp!
Article about prime borrowers (upper & middle class) caused the mortgage collapse, and walked away to leave the mess....AND we in the comments are trying to hair split about which people are to blame who just happen to be rich, or you can't blame a whole group. We even are going back to argue who lent all that SUBprime anyway! Nothing sticks to the rich. They can gentrify, they can slumlord, they can walk away underwater and blight a neighborhood and some how the blame isnt theirs alone, isnt theirs at all.

Its like how blancos will look for obscure hidden variables when you describe a study showing racism or sexism exists. Like: "and the resumes were the same just the names were different" and they go: "maybe the names are longer and people dont hire people with long names!" Like we fought a civil war over name-length... like we only gave longnames the right to vote in the 1920s...

its the rich. Its The Rich. ITS THE RICH.
you dont need to read the next article, we all know the answer..
who told wells fargo to invent fake accounts? a) a homeless dude, b) a serivce worker c) a rich dude

who decided equifax should be all up in our business telling people who can get apartments, who can get jobs and who can get fucked. A) donald duck, b) daffy duck, C) Scrooge McDuck

Who want to repeal your healthcare, who wants to vote against fema in their own state, who wants to have another war, who wants to deny climate change. ITS THE RICH.
posted by Anchorite_of_Palgrave at 8:28 PM on September 10 [31 favorites]


andrewpcone: "It's really dumb to say 'it was the RICH and their PERFIDIOUS WAYS that caused the recession,' as if the rich spontaneously got more perfidiously profit-seeking around 2004. The more mature question is, how can we structure things now so that this shit doesn't happen again?"

This is an excellent point; the rich always have been that way, and the rich always will be that way. The answer is clear: socialism.
posted by koeselitz at 8:40 PM on September 10 [7 favorites]


The answer is clear: socialism.

You misspelled Fully Automated Luxury Gay Space Communism.
posted by mikelieman at 9:09 PM on September 10 [23 favorites]


The house-flippers were shitty shitty shitbags, but what enabled them to do what they were all-too-frequently doing -- misrepresent investment properties as primary residences, mostly -- was the lax lending standards of the banks.

There's no way that we're ever going to stop people from trying to make a fast buck. If there's an opportunity to take a $200k house and put in $50k of upgrades and sell it for $300k and pocket the other fifty grand, people are going to try and do it. And as well they should, because that price spread is an expression of consumer preference for the completed upgrades (it's a stupid preference, but I think a lot of things people spend money on are stupid; that's not a good guideline). If everyone is upfront about what they're doing throughout the process, there's no reason this is intrinsically wrong, or that it's going to lead to some systematic problem in the economy.

But what happened was that the banks stopped paying attention to fundamental stuff like loan documentation, and were happy to look the other way at sketchy paperwork. They claimed this was due to, and for the benefit of, sub-prime borrowers, but it was really just to run up the volume in loans. Because that's how the big mortgage companies made their money -- it was all about volume. They loved flippers, because they generated a shitload of mortgages.

Someone flipping a house every three months is going through mortgages, and thus creating work for the mortgage broker, at a rate that's something like 48 times greater than a typical borrower (who on average is going to live in a house something like 12 years, last I checked). Those are great customers. And so the big mortgage writers were happy to let flippers take out loans that were designed for purchasers of a primary residence, even though everyone involved in the transaction knew that it was really an investment property being bought for speculative purposes, and that the buyer/flipper probably wouldn't be able to stay in the house if the price didn't continue to increase. This last bit is what makes house-flipping deals fundamentally different and more dangerous than a "real" mortgage loan: someone taking out a loan for a house they're planning to live in presumably wants the underlying price to increase, but with the exception of some "innovative" (read: shady as fuck) products with variable rates and balloon payments, very few people care or are going to necessarily default if the house price doesn't climb in the short term. A flipper, on the other hand, needs that constant price increase or they'll be screwed and can't exit the deal -- and may be financially ruined (if they've sunk their savings into the down payment, as a lot of get-rich-quick schemers were advising people to do).

The rise of house-flipping as a sort of bourgeois hobby / sport was, in retrospect, one of those warning signs that This Is Going To End Badly. When I see those gross shows come back on HGTV for 4 hours a day again, I'll know it's time to beat the rush back to cash and T-bills because we're gearing up for an encore.
posted by Kadin2048 at 10:12 PM on September 10 [17 favorites]


Margin Call (2011), directed by J.C. Chandor:
Will Emerson: Jesus, Seth. Listen, if you really wanna do this with your life you have to believe you're necessary and you are. People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have no idea where it came from. Well, thats more hypocrisy than I'm willing to swallow, so fuck em. Fuck normal people. You know, the funny thing is, tomorrow if all of this goes tits up they're gonna crucify us for being too reckless but if we're wrong, and everything gets back on track? Well then, the same people are gonna laugh till they piss their pants cause we're gonna all look like the biggest pussies God ever let through the door.

Seth Bregman: Do you think we're gonna be wrong?

Will Emerson: [long pause] No, they're all fucked.
[Emphasis mine.]
posted by runcifex at 10:24 PM on September 10 [4 favorites]


I dunno about shows on TV, but I know there are flippers active in the housing market near me. I don't know how many but the number is bigger than zero.
posted by nat at 11:14 PM on September 10 [2 favorites]


In San Francisco, it seems like every third house has a flipper in between each legit buyer.
posted by rhizome at 11:25 PM on September 10 [2 favorites]


...how much the wealthy and middle class, do exist in a second tier of society, immune to the rules of the lower tier.
--thebotanyofsouls


__Below & Above__
Those below you whore themselves
Those above you know
--Low, 1995

Bill Clinton's My Life was my first reference for understanding the politics of the Glass-Steagall repeal (Clinton claimed naivete about its value to conservatives) and I recall Google producing an informative Powerpoint about the crisis in which I first learned about tranches along with Moody's ratings...all topics covered in subsequent documentaries.

But I am quoting what I have below because despite having cursory knowledge of the mechanics of these investment "instruments" (banks are so kind to themselves) 99 Homes(2014) attempted a larger context that is being explored in this thread.

I don't recommend this movie because its dramatic arc fails (imo), but this scene at its midpoint floored me...

RICK(dreamy Michael Shannon): Because who in their right mind wouldn’t rather put someone in a home than drag them out of it. Up until three years ago I was a regular ol' real-estate agent, putting people into homes and speculating on properties. That was my job. Now, in 2006, Robert and Julia Tanner borrowed thirty thousand dollars to put an enclosed patio on their home that they had somehow managed to live without for twenty-five years. Why don't you ask them about that when they’re spitting in your face while you walk them to them curb. Why don't you ask the bank what the hell they were thinking giving these people and adjustable rate mortgage. And then you can go to the government and ask them why they lifted every regulation and sat there like a retarded step-child. You, Tanner, the banks, Washington and every other homeowner and investor from here to China turned my life into evictions. I’m not...an aristocrat. I wasn’t born into this. My daddy was a roofer. Okay? I grew up on construction sites watching him bust his ass off until he fell off a townhouse one day. A lifetime of insurance payments and they dropped him before he could buy a wheelchair, but only after they got him hooked on pain killers. Now, do you think I’m going to let that happen to me? Do you think America 2010 gives a flying rat's ass about Carver or Nash? Uh-uh. America doesn’t bail out the losers. America was built by bailing out winners. By rigging a nation-- OF the winners, FOR the winners, BY the winners. You go to church, Nash? You go to church?

DENNIS(upcoming Andrew Garfield): Yeah.

RICK: Only 1 in 100 is gonna get on the Ark, son, and every other poor soul’s going to drown. I’m not going to drown.
posted by lazycomputerkids at 11:26 PM on September 10 [8 favorites]


Metafilter: There are always people, poor and rich, willing to borrow craploads of money to do dumb shit.
posted by Faintdreams at 2:03 AM on September 11 [3 favorites]


Kadin2048: When I see those gross shows come back on HGTV for 4 hours a day again, I'll know it's time to beat the rush back to cash and T-bills because we're gearing up for an encore.

Here in Canada, we've been making and watching as many flipping shows as possible since things blew up in the US. It's as if we saw that our banks survived the American crash and we got jealous. Some of us have been waiting a decade for the Canadian bubble to pop, but I guess we must've hired Mr. Bubbles from Thomas the Tank Engine to make ours because we're getting the biggest, best bubble of all.
posted by clawsoon at 3:21 AM on September 11 [3 favorites]


I dunno about shows on TV, but I know there are flippers active in the housing market near me. I don't know how many but the number is bigger than zero.

I'm not house shopping, but even just casually glancing at listings once in a while I can see lots and lots of what are almost certainly flippers. If it's done legally, meaning permits are pulled and inspections passed, with quality work performed, I have no problem with it. But in practice, the way to make money as a flipper is to avoid permits to the extent possible in order to save money by doing shoddy work. Permits are cheap; what is expensive is doing work right compared to half-assing everything and covering it all with the same veneer of paint and granite counters that you see on all the shows.

So big picture, I agree with the comments above about better separation of mortgage lending between primary and secondary (or investment) properties. But smaller picture, I wish there was a better system for holding people responsible for low quality "renovations" -- the person doing the work illegally for a flip needs to know that if caught they are liable for years and years, instead of knowing that if the sale is made they are free and clear.
posted by Dip Flash at 5:52 AM on September 11 [2 favorites]


// When I see those gross shows come back on HGTV for 4 hours a day again, I'll know it's time to beat the rush back to cash and T-bills because we're gearing up for an encore.//

Flip or Flop has expanded to 3 cities, and it seems like about 1/2 the HGTV lineup is people fixing up a house to sell it. The other half is the people buying those houses (House Hunters.)

Time to start buying gold bars?
posted by COD at 6:59 AM on September 11 [1 favorite]


This house I currently live in was new construction bought by (in retrospect it's obvious) an investor/flipper who rented it to us. After a lawyer showed up at our door offering us $500 to move out in a week, because the owner/landlord hadn't paid the mortgage in 4 months, we ended up buying it from the bank as a short-sale.

Every damn thing in the house is the cheapest contractor grade. Laminate countertops that aren't level, appliances with a lifetime measured in months, the cheapest vinyl and/or carpet everywhere, an undersized A/C unit, etc. We've spent so much time and effort ripping out the cheap stuff and re-modelling everything. Luckily I'm a handy DIY guy, but I curse the builder and purchaser (for not caring) every time I do something, because it's such shoddy workmanship everywhere.

I have grown to HATE flippers/"investors" because all of the problems are hidden behind cheap and quick fixes that only need to look good during a 5 minute walkthrough. Also, all they are doing is driving up the price for "normal" families that just want to but a reasonable house. Whenever the wife is watching those flip/flop shows, I root for them to lose their ass on a renovation, but of course they never do, because Home Depot and/or Lowes wants it to work out just fine.
posted by Mr. Big Business at 7:34 AM on September 11 [8 favorites]


If you mean to say "monied developers who used their political influence to gut financial regulations bare vastly more responsibility than any subprime borrowers," then yes, I agree

If you think that's who responsibility was limited to, you have so little understanding of the dynamic that allowed the crisis to develop that I can't write a post in response--I'd have to do a reading list.

I spent roughly 2.5 years where the majority of my work was cleaning up after the mess the banks left. I assure you, nothing about my position is immature or ill-informed.
posted by praemunire at 7:39 AM on September 11 [6 favorites]


The easy way to spot a cheap flip is this backsplash in the kitchen.
posted by grumpybear69 at 9:45 AM on September 11 [6 favorites]


My sister and her husband recently used tiles just like that in their own kitchen, grumpybear. They liked the promise of cheap, good-looking, and easy to install.

They're both perfectionists, though. They said that it took hours and hours of extra work to actually make everything line up properly. If you don't care whether it looks perfect, they're the easiest thing ever; if you do, they're a nightmare.
posted by clawsoon at 10:16 AM on September 11 [2 favorites]


Flip or Flop has expanded to 3 cities, and it seems like about 1/2 the HGTV lineup is people fixing up a house to sell it. The other half is the people buying those houses (House Hunters.)

I'm sorry, but this kind of false statement cannot be allowed to pass uncommented upon: 50% of HGTV's lineup is clearly Fixer Upper, which is at least ostensibly people buying a house and fixing it up for them personally to live in, as opposed to flipping.

(The rest, sure, half flipping and half buying shitty flips.; also, I think Flip or Flop's expansion has been largely because of crazy marital problems reported for the original couple leading to divorce, and HGTV wanting to diversify its talent pool ahead of likely fallout.)
posted by tocts at 11:22 AM on September 11 [2 favorites]


Yeah, whatever other sins can be attributed to Chip & Joanna, what they're doing is not really in the same category as all the flipper shows.
posted by tobascodagama at 11:59 AM on September 11 [2 favorites]


Don't mean to thread-jack, but: when Chip & Joanna say "shiplap," isn't that just what the rest of us call "tongue & groove" panelling? There's no overlap or anything!
posted by wenestvedt at 12:36 PM on September 11


the credit rating agencies - Standard and Poors

How is this the name of a credit rating agency?? Even Charles Dickens would think think that was a little on the nose.
posted by Jon Mitchell at 1:23 PM on September 11 [1 favorite]


Actual people taking out actual mortgages were just a small piece of this mess. There actually weren't enough of them to fuel demand for mortgage-backed securities. So -- totally legally and unregulatedly! -- the investment world made up a little fantasy stock market where you could use real money to bet on the performance of those bonds without actually owning them -- synthetic CDOs.

So at the same time that people were buying bonds comprised of real mortgages, other people were placing bets on whether those bonds would increase or decrease in value without owning the bonds themselves. Most of them bet wrong, which dramatically increased the fallout from the crash of that market. Not only did institutions who owned the actual bonds lose money, institutions that bet those bonds would stay good lost money. (A couple of hedge funds bet the bonds would lose money, those guys made a bunch of money, this is basically the story of The Big Short).
posted by mrmurbles at 2:14 PM on September 11 [4 favorites]


stolen from fb
Dear Equifax Hackers,
Can you please program your computers to look specifically for Equifax members of the board as well as Equifax's high level executives? Since they don't seem to care a whole lot about what potentially can happen to the little people of the world, make them pay for this. Leave the rest of us alone, we don't deserve to have your evil greediness ruin our lives. Thank you for your attention to this matter. Your cooperation is greatly appreciated.
Sincerely,

posted by theora55 at 9:47 AM on September 17 [4 favorites]


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