Explain the housing market bubble of 2007, is it possible we could all be that fucking stupid?
>>1164738
There have been a number of films on this.
Subprime CPOs get packaged together to form A,AA, AAA.
People take out multiple shit loans for no reason, 2007 comes around and millions of people cant repay.
Banks sell these holdings asap, millions of people lose their jobs and homes. Like one person goes to jail for it.
I'm paraphrasing here but you get the gist. Watch Margin Call, The Big Short and a few documentaries on it.
Take a look at Australia right now. Exponential rises with no fundamentals.
>>1164748
Inside Job is good too.
>>1164748
>This
Watch The Big Short first tho as that will give you the idea of the mechanics of everything, then Google anything else, then finally watch Margin Call because it has a lot of assumed knowledge in it so if you know the background youll understand whats happening, which makes it truly an 11/10 film desu.
>>1164738
Lehman Brothers found the edge of the bubble and decided to pop it. Blame John Kasich. He was managing director of Lehman Brothers in 2007 and 2008. Kasich was paid a $180,000 salary and a $430,000 bonus in 2008, the year that Lehman Brothers popped the bubble and declared chapter 11 bankruptcy.
>>1164738
Interest rates were at record lows, it was stupid at that point to not finance up and buy real estate.
Think about this concept, your uncle buys a house in 2005, gets a mortgage and flips it a year later for 50k. Sounds like something you should get involved with too, right?
That was the mentality of America at that time. There was never a situation before where people just didn't pay back their mortgages, it is just "un-American".
Think about this Biz, there is no way you could have looked at the world and said "wow, this manager at Target owns three houses on a variable rate? Maybe if there were 100,000 people like him the variable rate would spike causing catastrophic situations."
It is just unheard of. Combine that with people making huge gains from flipping and rental properties for 6 years straight and you get a perfect storm.
Sure looking back we can see the complex situations culminating together, but no one is walking around pointing out insane black swan situations all the time.
No one was stupid, the regulations that were supposed to be in place to protect people got thrown out the window.
The mortgage companies that were supposed to credit check didn't care because banks would buy the notes immediately.
The banks thought that their notes were bundled so well that the few failures wouldn't crush them.
The bundlers thought that the statistics of everyone defaulting at once would never happen, so they sold options on their own bundles to pad out the bundles.
Then, banks started buying the bundlers, and bundlers started buying the mortgage companies. The checks and balances stopped because everyone became one system moving together to meet investment demand.
It was the smartest, most profitable thing to happen this decade. Calling it stupid is like saying you could have guessed how Enron swapped debt.
>>1164830
Deffonitly watch The Big Short fist like >>1164823 said. It breaks the fourth wall to explain stuff like the CPOs and why they kept getting bought.
Another bizzare bubble to look into is the Tulip crisis the Dutch had in the 1600s.
https://en.wikipedia.org/wiki/Tulip_mania
Student dept is probably going to be the next one. Just have to figure out how to profit from my classmates being clueless about money.
>>1164841
How do you expect student debt t cause something similar?
The CDOs from 2007/8 were MBS/ABS hence why they were taking the risk, I cant udnerstand how it would happen with something like student loans.
>>1164834
interest rates are at record lows today...
>>1164832
He was managing director of the LB branch in Columbus, Ohio. Hardly the center of power from where to collapse the bank...
https://www.youtube.com/watch?v=bx_LWm6_6tA
Essentially,
>Interest rates are kept too low, creating a situation where there's a lot of money available to be invested but nothing really to invest in
>Housing is the one investment where the value continues to go up
>Investment banks start creating, buying, and selling securities backed by mortgages
>These are so popular that demand for mortgages rises, leading lenders to lower their credit standards
>Nobody sees the problem with this because if they default the security-holder just gets the house back and, since housing always goes up in value, they can sell it for a profit
>The increase in people eligible for a mortgage increases demand, which increases prices, reinforcing the bubble
EVENTUALLY,
>housing market is completely saturated, prices plateau
>people who shouldn't have been given mortgages start defaulting
>as the banks put the foreclosed houses up for sale, the market's supply is flooded and they have to cut prices to sell them off
>home prices plummet by 50% or more
>banks had borrowed against the perceived value of their housing stock at the height of the bubble; given the new lower prices, they are now insolvent
>banking industry collapses
>>1165371
If they rise like they always do, many mortgage owners are dead in the water. That's also when the shorts start piling up.
Then again, everyone needs a roof over their head, if not, it's a third world country. It's a race to the bottom I think.
>>1164851
It won't. At least not in the "stock market crash and economic contagion" sense.
There is a bubble in student loan debt, that's not really debatable. The default rate for student loans is running at 9% +/-, which is far above the peak default rate for housing loans during the mortgage crisis.
But what people fail to account for is who took the risk for the loans.
The highest default rates during the mortgage crisis were on private label, non-GSE backed loans. These were securitized and leveraged, with all the losses falling on the financial sector. On the GSE backed loans, the government has collected more payments from the GSEs than they loaned in the bailout.
Contrast this with student loan debt, which is 95% government guaranteed. The small percentage of private student loans tend to be portfolio loans, held by the institution that underwrote them. They don't get securitized or leveraged.
So even if everyone defaults (which won't happen), 95% of the losses will be borne by the US government. They will then print enough money to paper over the losses. Crisis averted. At least until your kids need to borrow money for college at 11.5% interest.
In other words, the bubble will pop but it will be contained. The only ancillary fallout may be a reduction in the pace of tuition increases, as fewer students can borrow to attend college. But there really aren't a lot of other industries that depend on the education sector for sales, so there won't be widespread fallout.
