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Trickle down theory, did it work?
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<blockquote data-quote="variant" data-source="post: 49227769" data-attributes="member: 114463"><p><span style="color: black"><span style="font-family: 'Verdana'">Who says I blame home buyers? The lax standards came from banks reducing their risk by selling it to someone else, and sincerely underestimating that risk. Lax standards will encourage people who shouldnt get loans to get them. Banks should not give out loans unless they think they have a very good chance of being repaid.</span></span></p><p> </p><p><span style="color: black"><span style="font-family: 'Verdana'">After they bought a home, they could refinance it based upon its inflated value. The bank thinks the inflated value is real value, so, it hits them doubly when the mortgage holder defaults on the original mortgage plus the refinancing, and the home doesnt cover it. The credit is extended further in a refinancing situation than an original mortgage. If enough people foreclose, the very price of housing falls, and the banks cant recoup their investments. Refinancing increases the risk that a mortgage holder will default and lends instability to the housing market, where, people who could originally afford their mortgages now can not.</span></span></p><p> </p><p><span style="color: black"><span style="font-family: 'Verdana'">The lending standards were lax across the board, the defaults started in the sub-prime loans because they are the riskiest, and when houses started foreclosing the price dropped drastically. But that doesnt mean that loose credit didn't exacerbate the demand for housing in the first place.</span></span></p><p> </p><p><span style="color: black"><span style="font-family: 'Verdana'">This means that sub-prime lending was a symptom of the disease and the eventual cause for collapse rather than the cause.</span></span></p><p> </p><p><span style="color: black"><span style="font-family: 'Verdana'">The cause of the run up in housing has the same root causes though, easy credit, a mentality that the price of housing will only go up, and people willing to extend themselves further than they really should to buy a home. The first is the fault of banks, the second is the fault of everyone, and the third is the fault of the buyer.</span></span></p></blockquote><p></p>
[QUOTE="variant, post: 49227769, member: 114463"] [COLOR=black][FONT=Verdana]Who says I blame home buyers? The lax standards came from banks reducing their risk by selling it to someone else, and sincerely underestimating that risk. Lax standards will encourage people who shouldnt get loans to get them. Banks should not give out loans unless they think they have a very good chance of being repaid.[/FONT][/COLOR] [COLOR=black][FONT=Verdana] [/FONT][/COLOR] [COLOR=black][FONT=Verdana]After they bought a home, they could refinance it based upon its inflated value. The bank thinks the inflated value is real value, so, it hits them doubly when the mortgage holder defaults on the original mortgage plus the refinancing, and the home doesnt cover it. The credit is extended further in a refinancing situation than an original mortgage. If enough people foreclose, the very price of housing falls, and the banks cant recoup their investments. Refinancing increases the risk that a mortgage holder will default and lends instability to the housing market, where, people who could originally afford their mortgages now can not.[/FONT][/COLOR] [COLOR=black][FONT=Verdana] [/FONT][/COLOR] [COLOR=black][FONT=Verdana]The lending standards were lax across the board, the defaults started in the sub-prime loans because they are the riskiest, and when houses started foreclosing the price dropped drastically. But that doesnt mean that loose credit didn't exacerbate the demand for housing in the first place.[/FONT][/COLOR] [COLOR=black][FONT=Verdana] [/FONT][/COLOR] [COLOR=black][FONT=Verdana]This means that sub-prime lending was a symptom of the disease and the eventual cause for collapse rather than the cause.[/FONT][/COLOR] [COLOR=black][FONT=Verdana] [/FONT][/COLOR] [COLOR=black][FONT=Verdana]The cause of the run up in housing has the same root causes though, easy credit, a mentality that the price of housing will only go up, and people willing to extend themselves further than they really should to buy a home. The first is the fault of banks, the second is the fault of everyone, and the third is the fault of the buyer.[/FONT][/COLOR] [/QUOTE]
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