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Reply #23: This is the age old argument of Government vs Private sector [View All]

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humbled_opinion Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Dec-05-11 08:24 PM
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23. This is the age old argument of Government vs Private sector
It boils down to this, the Government through agencies like Fannie Mae and Freddie Mac as well as Ginny Mae FHA and VA were backing zero down homeloans. The goverment than told the banks to make homeownership available to as many people as it could. This sparked a building boom and a homeownership record boom, it also brought out the CAPITALIST (greed) in a whole host of people. Thousands of people were making money by filing for multiple mortgages and flipping houses, others where cashing out the booming equity in refi's and spending like crazy, the banks were selling the risky loans (subprime mortgages) as CDO's etc, so everyone was taking advantage of the entire boondoggle up and down the entire chain. According to the Teaheads at my job, this is what has got them so riled up, because the government involvement in the private sector essentially caused this chaos. They point out that Historically, the banks (private Sector) always required 20 percent down that is why homeownership was never guranteed to everyone and the poorer among us could never afford to buy a home, because you had to save for a long time to meet the downpayment requirement. Once you invested the downpayement you were less likely to walk away from your mortgage when times got tough and more likely to do whatever it took to keep paying your mortgage so you didn't lose the 20 percent, additionally, when you did stop paying and got foreclosed, the bank happily took your deposit and easily unloaded the house on the market at a 20 percent reduced cost, this kept property vaulues continually moving up never down and made mortgage assets a very stable investment for the banks to use as collateral. Of cours there are degrees of seperation the people made small amounts of money or walked away from realatively small amounts of total debt, where the banks were dealing with amounts in the Trillions.

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