BiggerPockets

Who is at fault for this complete mess - foreclosure victims, banks or the government? - Discuss

It starts with the money supply. We are at muiltiples 1:35, we were at 1:65 in EOY 2005

We need to be between 1:12 - 1:20 for the world to work again

it all boils to the money suplly

They dropped the ball by allowing this to happen. It goes back to Mr Volker jumping rates.

It is like blaming a diner for food poisoning that served chicken that was bad on delivery. They should have known but it goes higher than the diner

While I do think there is plenty of blame to go around, and there are many homeowners, investors, or speculators that jumped into the bubble with eyes wide open, I mostly put the blame on the securitization process and on government policies that encouraged home ownership.

Our educational system provides only the most rudimentary financial education. Most people do not really understand how loans work. When you throw in complex option pay ARMs, most peoples eyes just glaze over. They only care about the next payment they will have to make. We have a huge financial system, from banks to car dealers to furniture stores to credit card companies, that encourages people to buy what they can't afford. How many ads have you seen saying "buy now, you deserve it". As long as money was flowing freely, people could buy easily.

As investors figured out they could get good returns from securitized debt, and at the same time they were looking for a place to stash their money after the tech crash, the demand for CMOs, CDOs, SIVs, etc. skyrocketed. With banks, mortgage brokers, stock brokers, insurnace companies, rating agencies and others all taking a cut of these products, the demand was insatable. It was a huge attempt to shift risk, in the form of ARMs and especially pay option ARMs from the lenders to the borrowers. You have financially astute banks armed with armies of analysts vs. financially naive borrowers who are being strong armed by an industry who has a product to sell. You have a whole real estate industry, NAR and NAHB, pushing the "a home is your best investment", "buy the most house you can afford", and "house prices never go down" story and you have a recipe for disaster.

And, now we're living that disaster.

Good points everyone - Jon, you touched on something that I think is desperately lacking in the education system, and that is practical "life" knowledge - this especially pertains to financial know-how, even stuff as simple as balancing a checkbook. I am 31 years old, and I was lucky enough to have a responsible upbringing, but even with that I am still learning - I think that they need to instill life skills classes in every high school in Amercia