Behind the housing bubble: ‘greed on steroids’
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Recommended reading: The ‘dust-up’ in the L.A. Times Opinion section pitting consumer advocate Paul Leonard against economist Christopher Thornberg.
Leonard argues that Congress should rework bankruptcy laws so that homeowners, who were sucked into an unregulated world of reckless lending, can renegotiate their mortgages in bankruptcy proceedings.
In response, Thornberg argues that borrowers have only themselves to blame, and should not receive special breaks. You’ve heard that argument before -- sputtered angrily on the comment section of housing blogs like this one -- but rarely from an accomplished economist. I recommend you read the whole thing, but here are excerpts:
Thornberg writes: ‘At their root, all bubbles are driven by individual greed -- the desire to make money.’
‘Think of it this way: Every buyer over the last few years had a choice: Buy a home or rent an apartment until income was more in line with prices. Many leaped into the housing market even as prices climbed to such high levels because they thought they could sell at a higher price. To a degree, they were all speculators. ... This isn’t a sub-prime problem; it’s the same old greed problem on sub-prime steroids.’
‘No one likes to think of a family thrown out of a house. But many people made a very unwise decision in recent years: They bought a house they couldn’t possibly afford. ... Now that the house of cards is falling, all parties are taking a hit. But it all started with buyers who bought something they couldn’t afford and listened to the words they wanted to hear to help themselves justify that bad decision. You can’t have a lender without a borrower. To single out that one party as the hapless victim is to distort the true situation. Everyone had a choice -- and still has one. If you can’t afford to buy, you rent.’
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: A foreclosed house in Lake Elsinore, courtsey of Richard Novak.