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Thread: House flippers triggered the US housing market crash

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    Shrieking Violet Sprockey's Avatar
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    House flippers triggered the US housing market crash

    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.


    http://www.msn.com/en-us/money/reale...z&ocid=U143DHP
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    Shrieking Violet Sprockey's Avatar
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    Does this make sense?
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    Wishes reality was like comic books tpatt100's Avatar
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    I think it was a combination of both. Im still surprised with how easy and how much the bank approved my wife and I for our first home
    Opportunities are usually disguised as hard work, so most people don't recognize them.


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    Premier Sponsor Mare's Avatar
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    Quote Originally Posted by tpatt100 View Post
    I think it was a combination of both. Im still surprised with how easy and how much the bank approved my wife and I for our first home
    This. There were many fewer restrictions and much easier to get loans. Now, it's much harder from what I've heard.

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    Bubbles are never fun. Their is no single cause for the "madness of crowds" during craze. Federal policy, banking policy, risk management companies, investment banks, lenders, FNMA, and individuals all loved the housing market when it was going up and up. There were plenty of people warning everyone, but, no one likes a party pooper.

    The frenzy ended, the bubble popped and everyone wants to find the one bad guy that caused it. No one wants to admit to mass delusions.

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    Premier Sponsor Jasmine's Avatar
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    I only have a basic knowledge of economics but, during the house flipping frenzy, I remember thinking, "How long can people buy houses and sell them six months later for fifty to one hundred Grand more before no one can afford a house anymore?"
    "Life is about dreams. Teaching is about making them come true."

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    Premier Sponsor Jasmine's Avatar
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    Quote Originally Posted by tpatt100 View Post
    I think it was a combination of both. Im still surprised with how easy and how much the bank approved my wife and I for our first home


    Exactly!
    "Life is about dreams. Teaching is about making them come true."

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    Quote Originally Posted by Jasmine View Post
    I only have a basic knowledge of economics but, during the house flipping frenzy, I remember thinking, "How long can people buy houses and sell them six months later for fifty to one hundred Grand more before no one can afford a house anymore?"
    When everyone around you is thinking about house flipping or making money on Beanie Babies or some company that only loses money can make you rich, you might be in a bubble.

    Tulip Bulbs...

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    Nihongo dame desu villanelle's Avatar
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    Those flippers only had their industry because there was so much money for people to use to buy homes. The article makes it seem like these are separate causes/conditions, but they are inherently related.

    Also, I don't look at the crisis and think it was "poor people" or people with "shoddy credit". Yes, there were some of those, but I think it was at least as much middle and upper middle class people buying huge, new homes with fancy finishes. It wasn't just--or even mostly--poor people buying homes they couldn't afford.

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    Premier Sponsor Mare's Avatar
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    We bought our house in 1999. It was crazy how much they were willing to lend us. There's no way we could have afforded it had we had borrowed as much as they said we could. Many people fell into that trap because the bank said they could.

    I'm glad of the truth in lending laws now that spell out realities for people unwilling to do any critical thinking when it comes to finances.

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