Thread: Government is responsible for housing bubble, not banks

Report: Government is responsible for housing bubble, not banks

3:12 PM 07/05/2013
Neil Munro
White House Correspondent Banks' unfair treatment of African-Americans and Hispanics did not cause the housing bubble that crashed the economy in 2007, a new economic study found.
Claims of racism are undercut because "black and Hispanic homeowners had much higher rates of delinquency and default in the downturn," even when they had similar credit scores, according to the 41-page study titled "The Vulnerability of Minority Homeowners in the Housing Boom and Bust."
"Our findings [...] raise serious concerns about [government policies that boost] homeownership as a mechanism for reducing racial disparities in wealth," said the report, which was authored by three university professors.

The question of who gets the blame for the housing bubble is increasingly important now because some politicians claim they can remedy the damage if they can continue stimulus spending and import tens of millions of new workers and consumers.
The housing bubble was inflated by federal policies created by President Bill Clinton, then expanded by President George W. Bush. The policies were supported by Senator and then President Barack Obama.
The policies were intended to help low-skilled Americans ” especially African-Americans” and Hispanic immigrants gain housing wealth by pushing down mortgage requirements, such as down-payments.
But the government policy had the reverse effect, and the housing collapse after 2007 eliminated much of the wealth held by African-American and Hispanic families.
Since the 2007 crash, Obama and his Democrats allies have argued the crash was caused by greedy bankers' unfair and illegal treatment of African-American and Hispanic borrowers.
Obama also used that argument to deflect media attention and public blame away from Washington policies that inflated the bubble after the mid-1990s.
Obama's focus on the banks helped him pass new regulations in 2010 that extended government control over the banking sector.
This blame-the-banks strategy also helped justify Obama's effort to revive the economy by spending more than $7 trillion in borrowed funds via the 2009 stimulus — dubbed the American Recovery and Reinvestment Act of 2009 ” and other spending programs.
The effect of that policy remains contentious, partly because more than 20 million Americans are still looking for full-time jobs or part-time jobs, and the national debt has risen past $17 trillion.
In the four years since the recession ended in June 2009, the economy has added 5.3 million jobs, thanks to the resilience of the American people and policies like the Recovery Act, which helped bring the recession to an end and put us on the path to recovery, said a June 5 statement from Alan Krueger, chairman of Obama's Council of Economic Advisers.
Obama and his deputies are now arguing that an influx of new immigrants can help the economy recover from the housing bubble.
The Senate’s controversial rewrite of immigration law “will drive growth by bringing highly skilled scientists, engineers, and entrepreneurs to the United States… [and] create a new wave of consumers who will fuel demand and generate economic activity,� Treasury Secretary Jacob Lew claimed June 3 during a naturalization ceremony.
“The effect will be enormous. More new businesses. More new jobs, and more exports,� Lew said.
“We have always been a nation of immigrants… It is what makes our society and our economy so vibrant,� he said, downplaying the role of Americans in the American economy.
Lew’s exhortations notwithstanding, the United States is not a nation of immigrants. In fact, native-born Americans comprise 87 percent of the population in 2013. That’s down from 92 percent in 1980, but far above the 83 percent projected by 2033 if the Senate bill becomes law.
The claim that an influx of immigrants will improve Americans’ economic prospects has been widely praised and criticized.
If enacted, the bill would expand the economy by boosting immigration to roughly 46 million people — the vast majority of whom would be low-skilled — over the next 20 years. The bill would also double the inflow of low-cost blue-collar and university-trained guest-workers.
But a June 16 report by the Congressional Budget Office said the report would reduce average education levels and wages, would increase unemployment for a decade, and would shift more of the nation’s annual income from wage-earners towards investors and owners for at least two decades.
The new report about the housing-bubble was published by the National Bureau of Economic Research, by authors Patrick Bayer, Fernando Ferreira and Stephen Ross.
“More than 1 in 10 black and Hispanic homeowners in our sample had a delinquent mortgage by 2009, compared to 1 in 25 for white households, and a similar pattern held for foreclosure rates,� said the report.
However, “racial and ethnic differences in foreclosure are tiny for homes that were originally purchased from 1998 to 2003 [when the bubble was beginning], but substantial for homeowners who originally purchased their homes between 2004 and 2007,� the report said.
“These results call into question the [government policy] of encouraging homeownership as a general mechanism for reducing racial disparities in wealth… [because] such a push may backfire, leaving vulnerable households in a difficult financial situation and adversely affecting their wealth and credit-worthiness for years,� the report concluded.
Advocates for greater federal control of housing criticized the report June 4.
“The paper suffers from serious methodological flaws,� claimed Debbie Gruenstein Bocian, an analyst at the Center for Responsible Lending.
The authors used a poor technique to analyze the statistical data, and ignored critical details, such as whether the borrowers inflated their income or wealth, or took loans with “risky product features, such as prepayment penalties, teaser rates, interest-only or negative amortization payment schedules,� Bocian wrote.
The authors didn’t consider whether the 2007 bust was unique, and they didn’t consider the value of home-ownership to poor Americans, she wrote.
“Even if default rate disparities were found, the proper policy response would be to identify and address the root causes of such disparities, such that all racial and ethnic groups and communities could fully achieve the benefits of homeownership,� she wrote.
That policy, however, would be contentious, because it would require more regulation of the housing and financial sectors.

http://dailycaller.com/2013/07/05/re...#ixzz2YHeKAI8h

Help to Buy scheme fuelling housing market bubble, warns Labour You +1'd this publicly. Undo The Guardian-Jul 5, 2013 Property market experts who as recently as December were predicting flat or even falling house prices this year are rapidly backtracking as ... + Show moreShow less

Ben Thompson : Bubble , toil and housing market trouble ?Money Marketing-Jul 5, 2013




all 3 news sources »

Are Concerns of a Housing Bubble Credible? You +1'd this publicly. Undo Fox Business-Jul 2, 2013 Are Concerns of a Housing Bubble Credible? ... and Banking Solutions President David Lykken debate the outlook for the housing market.

SF housing market, other large metros showing signs of a bubble ... You +1'd this publicly. Undo San Francisco Examiner-by Mike Billings-Jul 5, 2013 Dramatic gains in home prices in San Francisco and other large American cities point to a potentially new housing bubble in those areas, according to Robert ...

Canada's House Prices Are Way Too High You +1'd this publicly. Undo Slate Magazine (blog)-by Matthew Yglesias-Jul 2, 2013 ... suggesting that the one chart I used is hardly conclusive evidence of a Canadian housing bubble. And I agree. Except that the bubble is real.

9NEWS.com

Surging home sales raise new housing bubble fears You +1'd this publicly. Undo CNNMoney-Jun 20, 2013 Home sales and prices continued to climb in May, raising the prospect of a new housing bubble unless there is a significant increase in home ... + Show moreShow less

Could the furious home market fuel another housing bubble?9NEWS.com-Jun 20, 2013

Bubble, Bubble, Toil and Trouble as Existing Home Sales Rise for ...Economic Populist-Jun 21, 2013


Realtors: Rising home prices are 'unsustainable'Blog-NBCNews.com (blog)-Jun 20, 2013




all 147 news sources »

Are we creating the next housing bubble in Mass.? You +1'd this publicly. Undo Boston Globe-Jun 29, 2013 The housing recovery is only in its early stages in Massachusetts, but already there's an eerie sense of déjà vu. The inventory of homes for sale ...

As the Second US Housing Bubble Inflates: Month 10 You +1'd this publicly. Undo Town Hall-Jun 29, 2013 With that updated data, we find that since the second U.S. housing bubble began to inflate in July 2012, the median sale price of new homes ...

There's A Risk Of Housing Bubbles In Some US Cities: Shiller You +1'd this publicly. Undo Huffington Post-Jun 27, 2013 June 27 (Reuters) - Dramatic home price gains in some of America's largest cities point to a potentially new housing bubble in those areas, ...

Livemint

New Developments Threaten To Burst China's Staggering Housing ... You +1'd this publicly. Undo Business Insider-Jun 30, 2013 In late 2011 many were expecting China's property bubble to burst. It looked as though housing prices had peaked and signs of stress were ...

Did Uncle Sam Cause the Housing Bubble? | Mother Jones

www.motherjones.com/kevin.../08/did-uncle-sam-cause-housing-bubble‎

• Cached

Matt Steinglass is arguing with his "Hayek-inflected" colleague W.W. about the origins and causes of the housing bubble. Roughly speaking, the two sides take ...