House flippers triggered the US housing market crash, not poor subprime borrowers


#1

The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.

Dark arts notwithstanding, that’s not what really happened, though.

Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that 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.


#2

How many flippers are there?

What percentage of borrowers are flippers?

MIT professor? Is she a joke professor or is the news article misreported? http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=41193

Is she a joke reporter who misreports to attract eyeballs?

Gwynn Guilford is a reporter for Quartz who writes about the global economy, China, and her obsession with the sea. Before joining Quartz, she spent six years in China researching the economy for hedge funds. She also blogged under Andrew Sullivan at The Dish during the 2012 US election. Gwynn has worked in Myanmar, including reporting on the 2007 military crackdown. Her writing has appeared in Slate, the Christian Science Monitor and the Far Eastern Economic Review. Gwynn speaks and reads Mandarin, as well as basic Burmese.


#3

Look at two movies

  1. Big Short

  2. Too Big to Fail

Flippers are, just actors or doers, last straw of the 2008 subprime, but banks are main reason. These two movies core story is based on actual issue root cause.


#4

https://www.stlouisfed.org/publications/regional-economist/october-2008/did-credit-scores-predict-the-subprime-crisis#figure1


#5

We all know the banks caused the problem, with Greenspans help…And were never punished…in fact given free money…
And they are still f**king us all over again…


#6

Righ, it’s the fault of the bank. Subprime borrowers are not as knowledgable as banks so the fault is on the banks, not the low income subprime or high income flipping borrowers. That’s why there was no criminal or civil suits against subprime borrowers.

This journalist tries to incite class hate and class war, pathetic. Journalist should work hard to make people happy, why bring unhappiness to everyone?


#7

The biggest bailout was AIG who’s an insurance company. They sold the most credit-default swaps on the MBS. They were on the hook for billions and billions in insurance payouts when the defaults started. Most of the AIG bailout went to payoff hedge funds who owned the CDS contracts.

If you want to trace back the start of subprime, it was initiatives under Clinton that created it. It was the mindset that credit scores were discriminatory and everyone had the right to own a home. They bullied banks into underwriting stuff they didn’t want. To get them to do it the government agreed to use Freddie/Fannie to buy the mortgages and take them off the banks’ books. That’s why Fannie/Freddie failed so spectacularly.

The banks only failed because the MBS they owned were suddenly worthless due to lack of liquidity in the market. They had to mark-to-market the MBS down to near zero which ruined their financial reserve ratios. They needed to urgently raise cash in a panic and couldn’t. Mark-to-market is horrible is there’s a panic. It just throws gas on the fire. It’d be far smarter to use accounting similar to warranty reserves where you adjust for future expected losses. You increase that as defaults increase, so the MBS lose some value but not 90% over night.

You can blame the banks, but they were only doing what the government forced them to do. The banks all knew it was a horrible idea which is why they didn’t want the mortgages on their books.


#8

Yes, Entire story was covered in “Big Short” !