Talk:Causes of the 2000s United States housing bubble/Archives/2013

Readabilty
This reads very much like a research or position paper, rather than an encyclopedia reference. As such, it may be a prime example of using Wikipedia as a Soapbox. I have not tagged it for deletion, however, as the author appears to have done an awesome amount of research and should get a chance to defend the article. RayAYang (talk) 03:38, 11 July 2008 (UTC)

Ah. Apologies. I didn't realize this was an article split. I thought it was a new page out of the blue, and reacted differently. RayAYang (talk) 03:41, 11 July 2008 (UTC)

CartoonDiablo (talk) 02:14, 3 August 2010 (UTC)

Seriously?
The text "The following paragraphs are oversimplified, right wing talking points devoid of any informational value. Read at your own risk, you will likely become stupider" does not belong in an encyclopedic reference. I don't know who put that in there, and I am not in the mood to check... but please, if you have a problem with the neutrality of the article, why not bring it up in the discussion page instead of vandalizing the article. 69.0.12.208 (talk) 05:32, 10 July 2010 (UTC)

Experts Needed
This is an important article that deserves attention by experts on the subject - economists, sociologists, etc. It should be formatted to be more encyclopedic - however, the nature of the subject means that information on the bubble is largely retrospective, ongoing and conjectural in nature. We can't know the true circumstances of the event until it is conclusively over. By the looks of things, it probably won't be over for awhile. Any reputable information on the subject is therefore appropriate, at least for another year or two.

My question to the experts is this: Is there any conclusive link between George W. Bush's efforts to promote the so-called "Ownership Society", to the issuance of government-backed loans to individuals and families that could not afford them (causing the historic rise in foreclosures), and the government's causative role in the US housing crisis? MisplacedFate1313 (talk) 21:10, 13 July 2008 (UTC)


 * No, but there is a clear link from Congress when they insisted that "poor people" deserved loans "like everybody else" and insisted on it, so poor people could "get in on the action."Student7 (talk) 02:11, 3 February 2009 (UTC)
 * Documentation for everything in the overview and answers to links between the presidents Carter, Clinton and the Bushes, plus the regulatory agencies who pushed these sub-prime loans can be found in the book Housing Boom and Bust by Thomas Sowell, http://en.wikipedia.org/wiki/Thomas_Sowell

Sguffanti(talk) 26 April 2010


 * It would be useful, and maybe essential to have this reference where needed to justify the appropriate text using page number. Those entries would be (more) credible at that time. Student7 (talk) 23:30, 28 April 2010 (UTC)

Article creation
I created this article by removing the contents from United States housing bubble which was over 100KB long. See the edit history of that article for history that pertains to this former section of it. Hmains (talk) 04:20, 14 July 2008 (UTC)

Image copyright problem with Image:Lereah BookCover 2005.jpg
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Rules of thumb
I didn't notice several old "rules of thumb" in the article, don't know where they would fit. One is that houses in a given area (presumably "large enough" area) should not cost over three times more than the average family earns. In San Diego (To take one example), the ratio was ten at its peak. I think cost of home ownership to income is discussed. The quick and dirty rule waa 1/4, but this started getting pushed to 1/3, as the cost of homes rose and then to 40%!!

The last was the average value of the house compared with the rental value. In the good old days (1950s) this was once 1% a month of total value of the house. In the 60s, this rose to 1.5%. The last figures I heard were structured differently, annual rent to total cost or something - I don't remember the exact figure. All these "rules' were eventually bent and broken as values rose. Some of these were unwisely violated. Maybe none of them should ever have been. Need reference and more accurate details. Student7 (talk) 02:19, 3 February 2009 (UTC)


 * Found it! There is a ratio of house price to annual rent. Men't Health (okay, I know!) Sept 2008 says this ratio is 16.9 for "major metropolitan areas", and to beware if over 20.


 * This used to be stated as a monthly rent of house value. In the 1950s this was 1%. This rose though house prices did too, to 1.5% in the the 1960s. The figure of 16.9 is about .5% of house value. The problem with this is that it reflects such a poor value for a prospective investor (non-owner) that investors go elsewhere. You can't make a financial plan that presents a .5% gross return that can make money. The reason. of course, is not that rents are low, but that house values are too high - double or triple, in real terms, what they were in the 50s and 60s. And this is presented as "optimal" in the article! This is not good and established a "floor" for the hyper-inflation that ran these prices way way above the ratios mentioned above. Student7 (talk) 19:25, 17 February 2009 (UTC)


 * The picture here is this: people are persuaded to buy houses at a price which does not return a profit on investment (rent is "too low"). They are persuaded that the poor investment will be repaid when they sell the house, levered by a small down payment, for a much higher price. The loss of net income is more than offset by the capital gain. Pretty much like stocks - okay to pay "too high" a price though their are low returns (always pushing future P/Es of course, never current, except now when profits are falling!). In fact, exactly analagous to a stock market bubble.Student7 (talk) 01:34, 20 February 2009 (UTC)

Role of stagnating real wages in key job sectors coupled with the aforementioned loosening credit standards (from expansionary monetary policy) in fueling the housing/financial bubbles
Real wages in unskilled and low-skilled job sectors, including housing construction, have stagnated and even declined over the past few decades.

At the same time, expansionary monetary policy pushed consumer interest rates low enough that job holders in these sectors were able to purchase real estate in unprecedented numbers. And, of course, these job sectors are often tied to some of the industries with the greatest vulnerability to economic downturns/contractions (again, e.g. housing construction).

It is hard to nail down expert consensus on this phenomenon, especially since real wage stagnation/decline in the U.S. is directly related to mass illegal immigration, one of the many third rails of American politics. I will try to find credible sources (e.g. labor economists) who dare to take a stand on the controversial role of wage stagnation/decline in accelerating housing supply and demand that ultimately led to a glut of available housing stock by the mid-to-late 2000s.

--Iguana Scales (talk) 14:26, 14 February 2009 (UTC)


 * I posted a section from a Kondratiev wave point of view that was deleted as being original research. Kondratiev wave reasoning is that when leading technoligies compete their diffusion process (saturation or maturation) an economic stagnation occurrs. This causes a lack of investment opportunities. The stagnation was noticable since the 1970's and has gotten worse. The stagnation will last until a new leading technology comes to our rescue, assuming that there will be one. Much work on historical economics by leading economists has been done in recent decades, and there have been a number of papers written by engineers and scientists working with economists.  So there is a whole new branch of economics that provides a better explanation to the current situation.  Also see: Productivity and Kondratiev wave  Unfortunately, most people who know something about economics have never read this type of research, even though it was written by highly respected researchers. This is interdisciplinary reasoning that goes way beyond classical economics by bring technology into the argument.

Phmoreno (talk) 14:30, 24 September 2010 (UTC)


 * The work IIASA discussed in Kondratiev wave is particularly interesting, especially that of Cesare Marchetti. Applying a Marchetti type logistic analysis you will see that economic growth in the U.S. traced out a bell curve, the high point of which was the decades either side of 1900. The integration of the bell curve produces the S curve, meaning exhaustion of technology as an economic driver.  The INSEAD sponsored papers by Ayres-Warr that explain the role of energy in economic progress are also particularly important.Phmoreno (talk) 17:42, 24 September 2010 (UTC)


 * Also see Carlota Perez (2002) which of course predates the bubble, but nevertheless discusses the role of financial capital in craeating bubbles at the saturation/maturity phase of economic cycles.Phmoreno (talk) 12:28, 23 October 2010 (UTC)

Overview
I believe the Overview should stand because it puts into perspective the rest of the article. I would prefer a discussion here over the merits of the Overview rather than a wholesale deletion because someone doesn't like it. I will be heading home soon and have access to more supporting data. Over this next two weeks I will provide documentation for every paragraph and if you wish each sentence within the paragraph. And if you wish how it ties in with the rest of the article.

As far as documentation goes how much do I need to provide before it seems like overkill? --Sguffanti (talk) 30 April 2010

Fannie and Freddie and the CRA had almost nothing to do with this
This article seems to imply that Fannie and Freddie spurred this crisis when it had no such role. According to McClatchy,


 * More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions


 * Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.


 * Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

Plus "Between 2004 and 2006...Fannie and Freddie went from [insuring] 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance,"

http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html


 * Policy tends to be set by the larger institutions. If the smaller banks (they were all smaller than Freddie or Fannie) know they can unload their weak loans to these institutions, they will go on making them. BTW, still going on! Hasn't stopped! A borrower is told, "You have to sign this - Freddie requirement." Or "We have to submit 'this' report - Fannie requirement." The larger institutions were slack, so the smaller ones followed suit. This is the way things have been for several decades.


 * The question is not "What percentage of loans were made by private lenders." The question is "What percentage of loans were ultimately purchased by Freddie/Fannie. The answer, I suspect, is "most of them." That is, most of the loans met Freddie/Fannie's insufficiently high standards and were purchased by them. This is the seller's fault? Why? Student7 (talk) 20:12, 5 August 2010 (UTC)

I just added something that addresses some of the concerns stated above (i.e., why does this section imply that Fannie/Freddie "spurred this crisis when it had no such role"?) Critics believe they had a major role because they reject the government's subprime loan estimates. They argue that the government (in this case the Fed Reserve cited by McClatchy) grossly understates affordable housing subprime loans by always using this high-interest rate proxy: If a loan has an interest rate 3% or more over average it is presumed to be subprime; otherwise it is considered to be prime. Critics say it is a ridiculous assumption because many affordable housing loan programs for people with substandard credit have - by design - low or moderate rates of interest. In his book, Who Really Drove the Economy into the Ditch the author cites the case of a loan to a woman living in a car. This loan would be considered "prime" by the Fed because it carried a moderate rate of interest (a feature of the program). Another example: All NACA loans also carry low interest rates yet nearly half of NACA loans had FICO scores below 580 (extremely low). Nicholas007 (talk) 03:42, 27 December 2012 (UTC)

Kondratiev wave
In this edit I removed the new section connecting the housing bubble to Kondratiev waves. This is very much the sort of thing which would have to be attributed to a reliable source outside of Wikipedia. C RETOG 8(t/c) 02:45, 23 September 2010 (UTC)


 * Did you read the footnotes and any of the information at the link? There were two references connected to this short submission. One was featured in the Journal of Economic Issues and the other was written by A Senior Vice President of the Minneapolis of the Federal Reserve.  Joseph Schumpeter made important contributions to Kondratiev research, along with other prominent economists.  The evolution of historical economics and Kondratiev wave theory is discussed by Freeman and Louçã(2001) in: As Time Goes By: From the Industrial Revolution to the Information, Oxford University Press.  Impeccable credentials all references.   The referenced articles were links and you could have read them in their entirety.  The article that gets to the heart of the issues is: The Onset and Persistence of Secular Stagnation in the U.S. Economy: 1910-1990 which is an active link at Kondratiev wavePhmoreno (talk) 21:28, 24 September 2010 (UTC)


 * I only glanced at the articles. It seemed to me that since they all predated the housing bubble (or at least the identification of the housing bubble), that none of them could be saying that "the housing bubble can be interpreted a Kondratiev wave phenomenon". That's the essential idea of no original research: regardless of how appropriate the analysis, it would have to come from someone else, not a WP editor. C RETOG 8(t/c) 00:38, 25 September 2010 (UTC)

Carlota Perez (2002) talks about the role of financial capital in creating bubbles. She says they are most likely to occurr at tow times: 1) in frenzy surges of new technologies like the technology stocks of 1999-2000, and at the satruation/maturity phase of the long sycle, that is, like now.

Fannie and Freddie not at fault?
An editor recently made changes which suggested that by mindlessly purchasing the sub-prime, overinflated loans made by private banks, that Freddie and Fannie were not culpable. How could they not be culpable? This is naive. Without Fannie and Freddie the over extension by "stupid" or "greedy" "private" bankers goes nowhere. And in case he hadn't noticed, Fannie and Freddie were "private" as well, traded on the stock exchange. They were greedily and stupidly trying to meet projected earnings as well. Student7 (talk) 12:05, 23 October 2010 (UTC)
 * For the record, they were setting the policies that the banks had to follow, lest the banks not be able to resell their loans to one or the other. They called the tune, the banks followed. Student7 (talk) 13:12, 25 October 2010 (UTC)

Why no mention of the global savings glut?
The leading hypothesis among economists is that the housing bubble was initially caused by a global saving glut, due to excess savings in China and oil producing countries. Why does this get absolutely no mention in this article? --JHP (talk) 16:05, 11 April 2011 (UTC)


 * It is part savings glut and part lack of better investment opportunities as happens when there is an exconomic/technological stagnation. It is also partly inflation driven becasue much newly created money has always gone into real estate.  In the U.S. it was the price of land and not structures that was the primary bubble. See: Lincoln Institute for Land PolicyPhmoreno (talk) 01:25, 12 April 2011 (UTC)

Tax Policy
Clearly no economists have been involved in the writing of this article. I am appalled that tax policy, the main cause of the housing bubble, was ignored. I'll see what I can find for External links to point readers to reality-based explanations, but this article is a disgrace. Flatterworld (talk) 01:10, 8 May 2011 (UTC)


 * I'm sure there are lots of troubles with the article. When you're making changes, however, make sure to have them referenced to someone else who is making the point you want to make. In the section on tax policy, the references are to articles (or congressional material) on tax policy, but not analysis of how tax policy affected the bubble. Attributing the bubble to tax policy based on these references is original research. I'm going to pull that section out, and you can restore/rework it when you have appropriate references. C RETOG 8(t/c) 17:26, 8 May 2011 (UTC)


 * I agree with both! Flatterworld is correct in stating that the exemptions encouraged speculation in housing and were probably the primary cause of the bubble. But it is OR unfortunately, until a ref is found stating that.
 * It does seem to me that without stating they actually caused the bubble, that it can be said that the statutes "encouraged" home ownership, and allowed more frequent sales without the fear of heavy taxation (which had occurred before with the price of the home rising with inflation - the seller was paying "capital gains" on a supposed gain which was not in real dollars). Student7 (talk) 10:46, 10 May 2011 (UTC)


 * According to Wikipedia policy it is not necessary to cite a reference for something that is obvious or that everyone would agree with. There can be no doubt that tax policy, specifically things like the mortgage interest exemption, enabled borrowing and thus the bubble; however, saying that tax policy was the "major" cause of the bubble is an unsubstantiated claim and would need to be supported by studies.Phmoreno (talk) 11:37, 10 May 2011 (UTC)

Interest rate before and after 9/11 attack?
I know after the 9/11 attacks a key interest rate was cut, to 1% IIRC, and it was one of the factors that spurred the boom due to low mortgage rate. I cannot find the data, likely asking wrong questions. idea? Flightsoffancy (talk) 18:27, 3 August 2011 (UTC)

Tax policy
This is currently in the text:

"Economist and Nobel laureate Joseph Stiglitz blamed the Bush/Greenspan tax cuts designed to benefit the richest Americans but not to lift the economy out of the recession that followed the collapse of the Internet bubble, forcing Greenspan to then cut rates to maintain growth and employment.[93]"

I do not question that someone said this. But 1) what in the world does an overpriced .com stock market have to do with housing? If he really said this, it is nonsense on its face. Overpriced stock markets have a nasty way of correcting themselves, usually against what the majority is hoping for at the time. 2) What does "tax policy benefiting the rich" have to do with a very overpriced housing market where houses were selling at 6-10 times what people in the area earned (instead of 3 times)?

Maybe we can get rid of this after the election? It is total foolishness and is illogical because there is no connection between either of the two "causes" and the "affect" which is preposterously high housing prices.

And, in fact, I've recently read that Obama's proposed taxes on the rich will raise very little to help the budget (BTW, the Republicans ideas are equally weak. All nonsense politics on both sides) (forget housing "recovery." That has already happened. It's "recovered" as much as it's going to!). Student7 (talk) 19:05, 1 October 2012 (UTC)
 * Well, Stiglitz was part of the Clinton Administration and had to defend his policies, done, in the usual way, by attacking the succeeding administration. Allowing just anybody to buy a house tended to be a Democratic policy. Both parties ignored the fact that house prices were skyrocketing well beyond the "rules of thumb." Student7 (talk) 23:43, 6 October 2012 (UTC)

Deregulation
Changes I just made were to add a couple more defenders of GLB: Alice Rivlin and Bill Clinton.Nicholas007 (talk) 03:44, 27 December 2012 (UTC)

Not their fault?
An editor has added: "In their book on the financial crisis Business journalists Bethany McLean and Joe Nocera argue the charge "completely upside down; Fannie and Freddie raced to get into subprime mortgages because they feared being left behind by their nongovernment competitors."[32]"

They have $5 trillion of assets between them, plus. How big was the "competition?" The tone of the article seemed less than scholarly, BTW. Not sure it should be here at all. Student7 (talk) 22:59, 19 February 2013 (UTC)
 * The competition was the rest of the housing market, the private market. The authors are highly regarded journalists. The book is thorough and detailed, its reviews good. Many other researchers agree with them.  No reason to think they are not WP:RS --BoogaLouie (talk) 00:25, 25 February 2013 (UTC)
 * As for "scholarly", Here are 93 google scholar hits for Bethany McLean and Joe Nocera and All the devils are here http://scholar.google.com/scholar?q=Bethany+McLean+and+Joe+Nocera+%22all+the+devils+are+here%22&btnG=&hl=en&as_sdt=0%2C24&surl=1
 * Another more "gubment did it" book quoted several times in the article -- Joseph Friend, Who Really Drove the Economy Into the Ditch -- got one hit (and the hit is google books, not some scholarly journal) http://scholar.google.com/scholar?hl=en&q=Joseph+Fried%2C+%22Who+Really+Drove+the+Economy+Into+the+Ditch%22+&btnG=&as_sdt=1%2C24&as_sdtp=&surl=1 --BoogaLouie (talk) 00:43, 27 February 2013 (UTC)

Mandated loans
Almost everything written about the crisis is riddled with contradictions for two major reasons: (1)The early estimates of subprime lending by Fannie and Freddie (Pre-2010) were based on the amounts they reported in their financial statements. In December 2011 the SEC charged 3 ex-executives of Fannie and 3 ex-executives of Freddie with securities fraud because they (allegedly) understated their subprime loans by massive amounts. (2)The Fed Reserve and many academics use a high-interest rate proxy to estimate the amount of subprime loans. The assumption is that, if a loan does not carry an interest rate at least 3 points above average, it must be a prime loan. As pointed out in Who Really Drove the Economy Into the Ditch? this can be a ridiculous assumption because many loan programs sponsored or endorsed by government entities (such as HUD) expressly carry moderate interest rates. For example, in "Who Really...", the author cites a program that provided a housing loan to a lady living in a car. It was considered to be a prime loan because the interest rate was, by design, moderate.

For these reasons, the reader of this article may have his head spinning. In one place we say that 84 percent of subprime loans came from private institutions. That would be the amount you'd get if you take Fannie's and Freddie's financial reporting at face value and if you use the government's self-serving "high-interest rate" proxy. On the other hand, Wallison and Pinto estimated that the vast majority of subprime loans were held by Fannie, Freddie, FHA, or lenders subject to CRA. They based their estimate on an analysis of the specific traits of the loans (eg, the size of the downpayment or the FICO score of the borrower). At one point their estimate seemed to be the extreme outlier, but since December 2011 (when the SEC brought its fraud case against Fannie and Freddie executives) the Wallison/Pinto estimate appears to be more reasonable. I didn't remove any estimate that was in the article but I did try to describe the different methods used so that this would make more sense to the reader.

Any feedback is welcome.Nicholas007 (talk) 17:46, 23 February 2013 (UTC)


 * That different sources disagree should not surprise many readers or upset most. What caused the bubble and its collapse is a contentious issue. Many believe it was market failure, others that the government must be to blame because (they believe) the market is always self-correcting.
 * You may be right that sources are ignoring post December 2011 information, but we have to have WP:Reliable Sources saying so. Basing it on your reasoning is WP:NOR. --BoogaLouie (talk) 00:28, 27 February 2013 (UTC)
 * The big block of text arguing against Min ...
 * "The argument made by Min about 'parallel bubble-bust cycles' (above) is based on the assumption that the financial crisis of 2007/08 was caused by a the collapse of a real estate bubble, per se. However, others have asserted that there was a unique aspect to the U.S. residential housing bubble - not necessarily shared by the bubbles in the commercial real estate sector or in the residential housing sectors of other countries. The unique aspect, they claim, was the vast amount of substandard loans supporting U.S. residential housing mortgage loans. In his Dissent to the Financial Crisis Inquiry Commission, Peter J. Wallison wrote: 'It is not true that every bubble—even a large bubble—has the potential to cause a financial crisis when it deflates.' Wallison notes that other developed countries had 'large bubbles during the 1997–2007 period' but 'the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 1997–2007 [bubble] deflated.' According to Wallison, the reason the U.S. residential housing bubble (as opposed to other types of bubbles) led to financial crisis was that it was supported by a huge number of substandard loans – generally with low or no downpayments. ...."
 * that you or Student put in, is OK for a letter to the editor, but doesn't belong in an encyclopedia.
 * Unless you have a very good reason not to, I'm going to drastically trim it. --BoogaLouie (talk) 01:04, 27 February 2013 (UTC)