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Kasz216 on 04 August 2011
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richardhutnik said:
Kasz216 said:

Because they didn't know it was THAT financially stupid.

It was financially stupid because the government forced them to give loans to people who can't afford them.  (And is doing so now, see "Government assistance counts as a legitamite form of income for loans.")

What they DIDN'T know what that it would create a nation wide downswing in real estate, because it's completely unheard of.

The only other time it sorta happened was during the great depression, and even then the evidence seems to show it wasn't everywhere but just most places.

I don't have volacano insurance, because i don't live next to a volacno, if the government somehow finds a way to drop lava onto my apartment and burn all my stuff I don't think i should be blamed for overleverging my assets vs the chance of having my objects burned by lava.

If you are in an environment where you believe keeping up with the Joneses requires you to build your house out of combustable materials, the end result is that you have collective stupidity that actually has been shown to happen like clockwork.

Nova did an episode on this happening and here is a clip that goes into it.  Blame what you like and keep thinking that the big bad government was responsible EXCLUSIVELY, and if it just left well enough alone, there wouldn't of been the overleveraging, and you end up having a piece of fiction that offers you security and makes you feel comfortable about what life is, but it will end up meaning you are setting yourself up to be blindsided...

So, onto the Nova clip.  Show where government meddling produces this effect (not to say it can't make it bigger and OH YES the cheerleading by Washington did do that):


The complete episode can be seen here:

http://video.pbs.org/video/1479100777/


Is the average american home lavaproofed?

Which was the point, the assets were only overleveraged because the risk management matehmatics didn't take into account a nation wide housing slump.  Something that was considered impossible by people and by the numbers.

Under normal market circumstances, there would of never been a nation wide housing slump where prices go down nationwide practically EVERYWHERE.

The housing bubble was protected from crashing because they grouped a number of derivatives in different markets versus each other which greatly lowered risk since the chances of ALL of them being in down markets and defaulting was thought to have been impossible because it had never happened before.

and more or less was until the US made a giant drive for increasing home ownership which ended up crashing the market in so many sectors at the same time.

They found a way to make neither red nor black appear on a roulette wheel that wasn't sporting any green.

As such, it caused the chain reaction meltdown.


It took government to create a match so inconceivable, nobody planned against it.  Is it really risk modlers fault that government created a negative enviroment that nobody thought could even happen?