| >if you're someone who doesn't really know finance that well Well, you don't have to be a financial expert to understand the generalities of what you can and cannot afford. The rest of what you describe can be equally attributed to greedy people thinking, "if the price doesn't rise, I'll bail in 3 months. No loss." I know some of those people. >But if you think it's a precise 50/50 split or anything close to that, I think you are a terrible judge of the situation. I know you read stories about the strawberry picker who can't speak english "pressured" into buying the million dollar home, but those cases were extremely rare. The majority were people with $40,000 in income deciding to buy the $750,000 house, rather than the $200,000 house, because, you know, the American Dream says renting is bad and looking wealthy is a necessity. Give me the most money you can for the biggest house possible! This happened across the globe. Oh, and you're forgetting the other major factor of the American specific bust: people who used their home equity to fund consumption. Mostly boomers. I guess those were also the unfortunate, duped poor, buying vacation homes, jet-skis and third cars? It seems that your understanding of the situation is drawn from the mainstream, "evil-bankster" meme. But that only works because it's a populist sentiment. There is plenty of blame to go around; give it to the greedy. |
The industry which sprung up around CDOs did two extremely dangerous things:
1. Because of the demand for mortgages from the CDO industry, created an incentive for lenders to make as many loans as possible.
2. Disconnected the people who were actually issuing the loans from the consequences, if and when the borrowers defaulted (since the actual lenders could immediately sell the loan into the CDO-bundling food chain, thus recovering their money so they'd no longer need to worry about the loan being repaid).
The combination of the pressure of (1) and the lack of consequences in (2) meant lenders drastically relaxed their policies, issuing loans to people who they knew they never would have lent to if they (the lenders) were going to be on the hook financially in case of default.
Meanwhile, it has been demonstrated beyond doubt that the larger entities which were offering CDOs to investors were promoting them as high-grade investments, with help from ratings agencies who either utterly failed in their function or were themselves complicit in the deception, even though those entities knew otherwise and were taking their own private actions in the market, aimed at profiting when (not if) CDOs failed to perform as advertised.
The result of this is was a large-scale transfer of wealth, largely from duped investors and duped borrowers (for make no mistake: knowingly issuing a loan to someone not qualified for the loan is a form of duping), largely to a relatively small and select group of people who were either involved in the lending and bundling food chain, or in offering CDOs to investors.
These are not memes. These are facts. This was a massive fraud perpetrated upon multiple groups.
You can, if you wish, say that the desire to play real-estate mogul or conspicuously consume played a part in driving people to take out loans, and assign some part of the responsibility to those people. You cannot, however, support in any way, based on the known and undisputed facts, the assertion that the borrowers bear (to quote precisely the original words to which I replied) "the majority of the blame" for this. The deliberate and knowing fraud in the CDO industry outstrips that as the noonday sun does a candle.