Big Differences Between Our Recession & The Great Depression

Here’s a guest blog on the NYT’s Freakanomics blog:

We had a huge real estate boom between 2000 and 2006. We’re now paying the bill for cheap money and lack of regulation for new financial vehicles. There were so many financial innovations and so many ways to buy and sell mortgages that regulators could not keep up. Europe is socialist but it didn’t see this recession coming and they didn’t adequately regulate mortgages either.

The US thinks home ownership is as all American as apple pie and motherhood and subsidizes it to an absurd degree to the detriment of our overall economy.

The Bush administration and many members of Congress pushed for an “ownership society,” in which a larger share of people owned their own homes. One way to achieve this was to find ways to loan to people who had long been considered bad credit risks because they lived in neighborhoods where housing values were at risk or because lenders considered them to have inadequate capacity to repay the loans. Some of the efforts were designed to correct the discrimination in lending to minorities that many once perceived to be commonplace.

Fannie Mae and Freddie Mac, the government-sponsored entities established to create markets for mortgage loans, were given more incentives to purchase subprime and alt-A mortgages. The subprimes are the highest risk loans; the alt-A mortgages carried less risk than the subprimes, but were risky nonetheless because they lent to borrowers who provided minimal or no down-payments and were not required to document their incomes and assets. Fannie and Freddie eventually bought 44 percent of the subprime loans in 2004, 33 percent in 2005, and 22 percent in 2006. The plan was for Fannie and Freddie to use their rigorous standards and procedures to monitor and ensure that these risky loans did not default. The goals of the ownership society were met to some degree as home-ownership rates rose from 67 percent in 2000 to an all-time high of 69 percent in 2004 and 2006.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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