Housing Price Conundrum (part 3)

[sakthikrishna91]

I'm having a bit of a doubt:The no. of houses increased substantially,whereas population and income were nowhere near able to keep pace with the supply.So prices should have been driven down,meaning more people would have been able to afford houses anyway.So why did lending standards drop? Did it have something to do with 9/11i.e.measures taken to promote spending & prevent recession? Im not from the US, and have no economics background, so pls go easy on me if i've missed something fundamental.

[miinyoo]

@sakthikrishna91 actually this isn't too far off. However it had more to do with switching bubbles from the tech credit expansion of the mid 90's to the housing credit explosion of late 90's to 2k6. 9/11 was more of a foreign policy blowback issue, but it did scare the pants off of many people so it certainly contributed something.

Ultimately it was reflating bubbles to preserve fiction wealth built on credit. The bubble eventually exceeded the previous one by orders of magnitude.

[animals0feel1pain2]

Ah I see. It seems in principle to allow the standards to drop so that more people who aren't as wealthy can buy homes. But the reality is that this only confuses the market and messes up the value of everything, creating a mess. Very interesting. There needs to be a balance between those ideals of compassion and fair market.

[Humiinabox]

I was reading about this topic for ages and couldn't understand it completely.

your 3 videos were like a miracle!!

Love from Israel to you and your team!!

[andersbuer]

This is so spot on Khan. :) I cant believe this video is uploaded march 15 2008. :)

[illestp1mp]

Abolutely amazing as always keep uo the great work

[illestp1mp]

Abolutely amazing as always keep uo the great work

[ungfu88]

Does the selling of Mortgage back security a recent phenomena or has it been in existence a long time ago and was botched up recently by Investment Bank? REALLY WANT TO KNOW THIS PLEASE QUOTE REFERENCE THANKS

[MuseseekerMan]

What I'd like to know is how does a mortgage company or even a bank for that matter get started? How do do they acquire their lending money?

[MarvelsofaLifetime]

So essentially, the banks just take our lones and then sell them to investors. And then take the payments made from the investors and funnel it all the way back to us. Lol, am I right here because this doesn't really sound like a very secure method of dealing with other peoples money.

[mediblue9]

I worked for my brothers insurance agency from 1998-2005, and I couldn't believe the clowns that were getting insurance for a new home. I even had discussions about the the buyers with loan officers from countrywide, which was pretty crazy. Example: a single mother of four with no child support from her ex's, $12/hr job no money down, and allright credit. Ok, we will insure them for $275K. No wonder my brother lost 20% of his agency. Get the picture folks????

[fuckooo]

@mediblue9 ...and the clowns giving the insurance?

[tociph]

text Comments satands for writing your comments on the video being presented, but tima ad time again people start to comment about eachother instead of the video.

STOP COMMENTING ABOUT OTHER PEOPLE! IT'S INSANE! FOCUS PEOPLE.

[jhaverivivek]

Its a well throught transition by mastermind who did not care about anyone but themselves. Its a big scam put up together by bankers, rating housing , audditors and government officials who allow such thinsg to happen. There should be a way to sue the rating conmpanies and others responsible HANG them.

[toti35]

now i understand why in the location were i moved you can see people with very low income owning huge houses.....and rusted cars parked on the driveway!

[3waybar]

Because people get a false sense of self worth from owning a home, even if its 95% indebt, thats especially true for minorities with lower self esteem.

[ambyyt]

amazing...great job !

[Lukeeeeo]

absolutely awesome. ive never understood economics and financial systems, the housing market etc that im starting to now, thanks to you!!

[ch00bz0rzz]

Wait so why did financing get easier in the first place again?

[QuickLister27]

I can't find the Freddie Fannie video he says he made.

[U2BHistory]

Good Job. You are missing the MI aspect of the loans. But you are still right on at the end, lowering the standards just so they could create more paper to sell to make their bonus. And the interest rates were blended more in the 8.5 to 9.5 at the end with what they thoght were still AAA ratings. And don't forget the Servicing for a point they wree holding. I'm looking forward to Vid 4. Glad they were all done and I didn't have to wait for them to come along as you did them. U2BHistory

[RonDuane]

ACORN audited my friend, a bank president, to ensure that ~20% of his mortgages went to blacks. To avoid hassles, he granted mortgages to families who would NOT have gotten those loans if they were white. I deem such reverse bigotry as necessary, but I will not ignore the fact that it led directly to our current economic crisis. It is an unintended consequence of our admirable efforts to achieve a fairer society. TINDW would prefer to pretend that gains come at no cost.

[jgposner]

If you break it down scientifically and use a handicapping system similar to the way they do in sports, then a tall, handsome, intelligent, responsible, hardworking, well connected, charismatic white male would have no handicap. Then based on a scoring system, the government could supplement the purchase of your home. Race could be rated heavily because you can't choose your race and responsibility could have almost no weight since you determine that. Sarcasm intended. Can you say Communism?

[ThatIsNotDeadWhich]

Yeah, burn the witch. And the commie. *Yawn* I've seen that movie before.

What you describe is not communism by any stretch of the imagination. Although providing sound and affordable housing for all *is* a sound policy, it is not one that communists - or even socialists or social democrats - can lay exclusive claim to.

But hey, if you're so ideologically clueless as to be unable to tell a conservative from a communist, why do I even bother...

[ViraIVideos]

Well said my friend, Very well said.

[jgposner]

Conservatives don't want a handicapping system like I've described. Also, if you put in place a system like I described then you would eliminate ALL incentive to work because the government would make sure you still got your home. It isn't communism in the sence that you would still have private property but in effect it would be because they will be redistributing so completely. To each according to their needs.

I'm not sure what you mean about the burning a witch.

[ThatIsNotDeadWhich]

Shorter jgposner: If the poor don't starve occasionally, they won't be willing to work.

[lloydreggie]

@jgposner No, but what i can say is that you are a retard who basis his opinions on vile hate for minorities that also had possibilities to purchase homes because of the lower requirements. You seriously believe, in your little world, that the bulk of all people that couldn't really afford their homes were people of color? Any real stats to show for that? and REAL studies please, not fraudulent newsmax!

[lloydreggie]

@jgposner You truly believe that 90% of all poor American are minorities don't you? Hence, white = always rich. Housing bubble = minority lending = economic downturn, hence minorities = main cause for global financial crisis. You are as repulsive as your mind reveals.

[jgposner]

@lloydreggie - What are you doing reading posts from 10 months ago? Don't you have to go to work or something? My comments have nothing to do with my opinion of minorities. My comments are based on simple math. And I'm not even going to try to figure out why you think I believe that 90% of all poor Americans are minorities because I'm sure it isn't based on any real logic. Good luck in the future.

[jgposner]

... Furthermore, what ever happened to good will. When you make good will and charity law, it replaces people's consciences, not only do people have less desire to give, they also have a lessen sense of responsibility to give, AND they have less ability to give.

[ThatIsNotDeadWhich]

Charity, however, is not an objective for a sound socity: A significant impact of charity on your political economy signifies either that you're a third world country or that your government isn't doing its job.

[jgposner]

Sure, that makes sense. It would be nice to set the market completely free and see if we would need charity at all.

[lloydreggie]

Based on pure math? hahaha what a joke you are. I wonder why real economists like Stiglitz and Krugman haven't come to the same conclusion you have that minorities are the problem?! I wonder why no one except for neocon tea baggers seem to consistently use that argument!? Golly gee, i really wonder. And you dare talk of math! go back to school you illiterate kid, America has enough of you fools roaming around already!

[jgposner]

This is my last comment because I don't have the time. I realize this is the internet and you can feel brave to say what ever you want but this stuff you are saying affects who you are in the real world. I never took your words seriously because you're just looking for a cyber fight. You can be pissed right now but in the future if you want a serious discussion, acknowledge the person's point of view and offer an alternative. And don't exaggerate what you think they may be thinking.

[jgposner]

Krugman needs better public speaking skills. Especially during question and answer session. He seems to always miss the mark in his responses. He's not too quick on his feet and he's always too eager to inject some irrelevant and what he considers humorous story. I don't know who Stiglitz is. Maybe I'll download some of his talks. You see, if it's not in audible format, I don't read it. I read as little as I can get away with.

[jgposner]

Sorry, this is the last one, I promise. I just reread your response. I think you probably know this and just want to pick a fight but you mention that my conconclusion is that minorities are the problem. But if you gave my comments some thought, you will see that that is not at all what my conclusion is. It's government intervention. If government totally got out of the way, factories would be profitable here in the US and we would have good jobs. Also, we need business 101 in Jr high schools.

[unytcommsys]

@jgposner The only thing I agree wit is that Economics and Business needs to be instructed in schools. Everything else is what is obviously is.

[ThatIsNotDeadWhich]

Well, seeing as "setting the market completely free" is what has resulted in a thridworldization of the USA and a skyrocketing need for charity to paper over the failings of their economic system, I'd say that experiment has been done already.

It's really quite remarkable what the American anti-government ideology has accomplished. You don't often see deliberate deindustrialisation on a scale comparable to that outlined in the Morgenthau Plan.

[jgposner]

The market was never set free. Laws and regulations have been fine tuned to serve the rich.

Question, you write like you know what your are talking about so answer this. Do we really need every Man and Woman working? Couldn't we get by with just one adult per household working for a living. It seems like there is a lot of wasted effort out there. It just seems like we get ourselves in over our heads during the boom part of the business cycle.

[ThatIsNotDeadWhich]

We have a need for every man and woman to have an adequate income and access to the basic necessaries and conveniences of life.

In a modern industrial society, as long as you are willing to tax and distribute, this does not automatically entail a need for every able body to be working 60 hours every week. You can run a perfectly functioning society on full employment at 30 h/week, or on half employment at 60 h/week. Which version you pick is a political question, not a technical one.

[RonDuane]

Good explanation. However, you attribute the banks offering loans to poor risks as reflecting a simple market desire for more loan volume. In fact, it was the aggressive action of ACORN in forcing banks to offer loans to poor risk minority recipients that actually drove us over the cliff.

[brh986]

Yes that is exactly the real reason.

[ThatIsNotDeadWhich]

That's the standard wingnut dolchstosslegende.

It has nothing to do with the real world.

First, banks were not being forced to lend to "bad risk minorities" - they were being forced to not treat minority status as a risk factor *in and of itself* - in other words, to look only at real risks, not at skin colour.

Second, even if they had been forced to lend to kinda sorta riskier people, banks should have had a cushion against this if they were practicing sound lending in the first place.

[ThatIsNotDeadWhich]

Hmm...

That was a reply to RonDuane, in case the placement is confusing.

Dunno why it didn't attach properly to his comment.

[ivar197]

Banks have had their cushion since 1913. Without it, any wild speculative action made by banks would result in bank runs and be forced for banks to have decent standards

[ThatIsNotDeadWhich]

That's what Alan "Bubbles" Greenspan thought too, when he obstructed proper regulation of credit default swaps. We know how well *that* worked out.

[jgposner]

That cushion you are talking about doesn't exist so banks can make bad loans. Ideally the cushion is never used, just because there is one, doesn't mean we should look for a way to use it, please. Also, here's a reality check, what if the percentage of colored people that have good credit and are seeking loans is only 10 percent of all the loans available. Forcing a 20 percent of the mortgages to be given to colored people forces banks go give bad mortgages simply to fill a quota.

[ThatIsNotDeadWhich]

And if pigs could fly, they'd be an air traffic hazard. You need a citation on both those numbers.

And once more for Crown Prince Knud: If the banks know that they have bad loans on their books - irregardless of how they got there - they are supposed to set aside capital to cover future losses. That they failed to do so is nobody's fault but their own.

[jgposner]

I took those numbers from RonDuane's comment starting with ACORN. Look up the real number and my point is the same.

On to your real point. I hear what you are saying. Bottom line is banks need to keep their balance sheets healthy. I agree.

So passing on loans to safe white people is necessary to make sure you can cover your bad bets with minorities. Where do the rejected white people go for a loan then? Maybe they can rent from the minorities.

FYI- I'm not racist, I married a minority.

[ThatIsNotDeadWhich]

In a properly managed political economy, most of the population does not own its house: It rents.

But as an aside the banks would not have needed to substantially change front-end operations. They could just have fired a handful of CEOs, and the accumulated savings (both from their ridiculous bonus schemes (scams?) and from their bad decisions) would've provided plento of cash cushion.

[jgposner]

So if renting is ok then why the urgency in increasing ownership among minorities? Are you for the community reinvestment act or is your beef only with the banks?

Fire the CEOs AND make healthy loans.

Lets do more than fire the CEOs, lets trim ALL the fat. In a fiat currency, banks are merely accountants. Give me a computer and the authority to make loans, and I can leverage my $100,000 in my own personal savings 10 times to create $1,000,000 of loans at 2% interest very profitably.

[ThatIsNotDeadWhich]

IF your political economy is structured in such a way as to make home ownership advantageous, AND IF your political economy is structured in such a way as to make home ownership require leverage, THEN you have to ensure that there is no racial barriers to obtaining leverage.

So given the current American political economy, yes, you need equal protection acts to prevent racism in mortage origination.

OTOH, I think that the way the American political economy is structured is rather stupid...

[vesman81]

isn't saying "FYI- I'm not racist, I married a minority."

sorta like saying "I'm not gay, i married a woman?"

[jgposner]

Yeah, well... I'm not gay either. I married a minority woman. So there.

[vesman81]

just because you married a minority doesn't mean your not a racist.

didn't you marry a person, not a minority?

did you marry her just because she was a minority?

marrying a minority doesn't make you a racist either, it really doesn't mean anything.

"FYI I'm a vegetarian because i have a pet made of meat."

it just doesn't fly.

[jgposner]

I don't have a pet, so I can eat meat.

[lloydreggie]

@jgposner Where exactly and in what memo does it say that banks were FORCED to give loans to negroes and latinos?? Just spit it out, cuz that's what you are saying. And are you that stupid to believe that if there were NO minorities AT ALL that took loans for houses during that period, the economy would never have crashed? Hence, all America's ills are to be blamed on minorities? You are such filthy scum, no wonder nobody takes you seriously. I mean, what type of argument is that anyway?!

[querzer]

Your videos are fantastic mate, thank-you!

[lazmedina]

Here in Puerto Rico where the avg income is no higher than $22K per year, there are no houses in the metropolitan area <160K--and don't expect to find a new home. Of course construction here is concrete based, so it tends to be more expensive, but some people have bought houses at those prices with a combined income of less $40K. The thing is that here people buy at 30 year fixed rates. That's why our housing crisis isn't as bad but it ain't great either.

[vickiormindyb]

You see yourself as a happy dude, Sal. You always put a smile on the faces you draw. But this is a good thing.

It seems like people who work hard at keeping a good credit rate are getting the shaft when people with LOUSY credit can buy a house as easily as the hard-workers get one.

My brother bought a home and his credit is terrible.

My grandma worked her whole life, kept good credit, but still had almost nothing to show for it when she died.

[brco2003]

Great vid's! But what about interest rates? Did everyone go take out loans with little or no money down and poor credit notwithstanding the increased interest rates?

[busrider85]

Excellent explanation. There was no negative feedback in this system b/c everyone was benefiting. Home owners with no money, mortgage brokers, investment banks and investors. Cancer in the human body also has no feedback.

[busrider85]

Excellent explanation. There was no negative feedback in this system b/c everyone was benefiting. Home owners with no money, mortgage brokers, investment banks and investors. Cancer in the human body also has no feedback.

[wmacorlando]

watching this today is comical - (country wide isn't bankrupt yet - hahahahaha)

[milofonbil]

This is a Ponzi scheme.

[alphaferrari]

just amazing videos man..

i just cant get em off my monitor...

i watching them sometimes thrice a day...

[arminko90]

once you start watching you cant stop....

[wigleboy]

the standards were lowed because interest rates dropped in 2001 and their cash cow was gone. So they had to give sketchy loans to boost the investors yield. At very low nation-wide interest rates, mortgage securities should dry up.

[cvalmart]

Excellent videos!

[smedheat]

These videos are like crack.

[suave286]

awesome video...this derivative stuff isnt that complex as it may seem

[worthrisking19]

excellent video. thank you for taking the time and explaining this stuff. You make a great presenter.