AHC: Avoid the Housing Bubble 2000's

The challenge here -- to avoid the ongoing Great Recession by avoiding the housing bubble that underlay it. If this is done by preventing certain legislation (e.g the repeal of Glass-Steagall), I'd like to know how that legislation is averted, etc.

(ICYW, this question inspired by Inside Job, which I saw today :))
 
I wouldn't say repealing Glass-Steagall was of itself overly bad... it's just regulators fell asleep at the wheel to monitor it.

What you want to avoid is Greenspan driving down interest rates that lead to the damn bubble in the first place.

Better regulation/supervision, business operating with more than half a brain, more proactive Bush administration less eager to shift the serious problems over to the next guy, etc.
 
I wouldn't say repealing Glass-Steagall was of itself overly bad... it's just regulators fell asleep at the wheel to monitor it.

What you want to avoid is Greenspan driving down interest rates that lead to the damn bubble in the first place.

On Greenspan, would you say getting (or keeping) him away from the Fed Chairmanship would be necessary for that? As to regulators, assuming that to be the case, what PoD and subsequent events are needed to make them do their job?
 
Don't push for more accessibility to owners who can't pay for a house. That may seem all well and good politically, in reality there are some problems with that as we have seen.

No interest only loan.
Loan only up to 80-90% of COST of house, no loan over the cost of the house because market value is supposed to be higher than cost.
At least 10-20% Cashdown, not some no-cashdown loans.
 
Maybe look at why housing is so expensive in the first place.

Could any effort be made to get prices low enough to make it a one time, but probable still expensive, cost? Then encourage saving plans to help the less fortunate afford them.

Makie it illegal to chop up and repackage mortages, the mortage(like the house it represents) must stay a single unit. Also better mortage tracking, or don't allow them to be sold away from the bank that issued them.
 
On Greenspan, would you say getting (or keeping) him away from the Fed Chairmanship would be necessary for that? As to regulators, assuming that to be the case, what PoD and subsequent events are needed to make them do their job?

Greenspan should probably in all respects be out, as for regulation, that's a whole can of worms unto itself... maybe someone significant enough in the investment world catching onto all the high-end mathematicians who saw the writing on the wall and tipping off the SEC.
 
Maybe look at why housing is so expensive in the first place.

Could any effort be made to get prices low enough to make it a one time, but probable still expensive, cost? Then encourage saving plans to help the less fortunate afford them.

Makie it illegal to chop up and repackage mortages, the mortage(like the house it represents) must stay a single unit. Also better mortage tracking, or don't allow them to be sold away from the bank that issued them.
Titrisation is not the problem, the problem was mostly that they accepted loan to people who CAN'T own a house or can't own a house that big.
 

NothingNow

Banned
The challenge here -- to avoid the ongoing Great Recession by avoiding the housing bubble that underlay it. If this is done by preventing certain legislation (e.g the repeal of Glass-Steagall), I'd like to know how that legislation is averted, etc.

MOAR REGULATION, stricter enforcement, and a development of the idea that Bankers are a Necessary Evil, and must be watched carefully after the Savings and Loan crisis.
Or have Greenspan shot sometime in 1986.
 
My cynical 2 cents

The Housing Bubble like many successes and failures has many fathers.
More regulatory oversight (and a lot of regulatory forward thinking about CDOs, derivatives trading et al), maintaining Glass-Steagall preventing the casino atmosphere of banking, and RICO prosecutions of corporate criminals might have resulted in a lot softer landing, and yeah, making it clear that 20% down was the minimum to get a mortgage might have cooled down the frenzied speculation.
It became your classic dumb money-chasing- dumb-money speculative lemming rush that hasn't changed since the Dutch tulip craze. Institutional investors jumped in thinking the Feds would backstop it via Fannie Mae and Freddie Mac who were greedy as everyone else believing gravity had been suspended. Having them say, "Sorry folks, market's too yeasty, the property's actual value's nowhere near what we're underwriting." would've sent shock waves through the system that would've made everyone reevaluate risk, but no such luck.
Same thing with the Fed raising interest rates. The lenders didn't want honest risk assessments. Nobody in local, federal or state government wanted to kill the golden goose that was showering them with revenue without raising taxes and so it went.

However, the elephant in the room is that for 98% of the US working population, incomes have been flat or declining in real buying power since 1980. That's due to a variety of factors, union-busting and general job insecurity that have made the US income distribution ever-more-skewed to the top 2% who have the spare cash to invest. Everyone else has to scrape by as health care, tertiary education, and retirement costs eat up more of our income every year. The only way folks maintain the expected lifestyle is working themselves to death and accessing and using credit to the limit.
Most of the folks flipping houses were rich to begin with, they just found a low-risk speculative enterprise that made them richer quicker and easier than gambling on the stock market. You had a few slick operators that played the system like a fiddle with no money down and became rich, but those were the exceptions proving the rule.

So what would've prevented this is average Americans accepting that houses cost a lot and aren't investment vehicles accumulating value but where they build a life because it suits their needs and what they can afford for ten years or more.
Average Americans need a situation that makes that strategy worthwhile.
They need stable, good incomes and work situations that don't force them to move every few years, though people move for all kinds of reasons.
Opportunities sometimes are thin on the ground where you are and it makes sense to move to a place where you've got a better shot. Balancing the goodies you get for going elsewhere/ doing something else vs the goodies where you are isn't a magic formula that applies to everyone.

Still, the American economy is still in love with the idea of entrepreneurship where pluck, luck, and hard work can make you rich. They can, but the odds suck. We need a strategy for other 98% that doesn't continue our current race to the bottom where the only individual hope is a lotto win. Socialism has its place when a public interest exists to provide a set of services to all that improve the public good, but that's a very slippery target. Who establishes that consensus of priorities and willingness to make those happen? Unfettered capitalism creates a Social Darwinist hellhole for all but the privileged class and their lackeys. The answer may be somewhere outside both concepts.
 
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I'm getting a lot of "what not to do" in avoiding this crisis, but I'm still wondering if anyone has an idea what the latest PoD could be to make them happen (plausibly)?
 
Prevent the 2002 move by the HUD to have Fannie Mae "...dedicate 50% of its business to low- and moderate-income families" and its goal was to finance over $500 billion in Community Investment Act-related business by 2010." This poured billions of taxpayer dollars into very questionable mortgages. Of you may want to go even a bit before this and prevent interest rates from dipping so low (again a part of the foolish drive to promote universal home ownership). This would slow the drive to refinance and limit the effect of sub-prime mortgages. It would also prevent banks from making the move to Mortgage Backed Securities to such a large degree, thus when the housing bubble did start to burst its effects would be limited and the credit crisis would be marginal.

Other ways to limit or halt the Greater Recession would be to never have Sorbanes-Oxley pass and allow the greatly reduced in value MBS to remain on the books but at lesser values instead of at zero value. This would force banks to be a bit more cautious in their investing as they would not be forced to write these assets off completely and they would be more willing to sell them off to smaller banks that were willing to do the work to ensure the mortgages are paid off without the need for foreclosures.

Of course having any of this done requires a POD that changes how the human nature works and how politicians pander to their voters. Good luck with that. Remember that all markets are cyclical but we have the choice...a short deep crash, usually confined to one or two sectors of the economy, followed by a correction that generally sees growth surpassing the original volumes or a moderate crash followed by massive government spending a long groaning recovery with high unemployment and huge public debt. I prefer the first one.

Also, ignore TxCoatl1970 as he seems to get his info straight from the Michael More Handbook of All Things Economicallish. No offense intended it's just when I read, "Unfettered capitalism creates a Social Darwinist hellhole for all but the privileged class and their lackeys.", I just had to comment.

Benjamin
 
Maybe look at why housing is so expensive in the first place.

Could any effort be made to get prices low enough to make it a one time, but probable still expensive, cost? Then encourage saving plans to help the less fortunate afford them.

Makie it illegal to chop up and repackage mortages, the mortage(like the house it represents) must stay a single unit. Also better mortage tracking, or don't allow them to be sold away from the bank that issued them.

Better yet, develop a better property tax mechanism in the states where such a tax exists to make long-term housing costs more manageable.
 
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