Originally Posted by
NuGuy
Yes, there was market "exuberance" over mortgage based securities, but the collapse of the real estate markets due to defaults on sub-prime lending wasn't what torched the world's economy. Yes, it was bad, but alone would have been just "Savings and Loan Crisis" bad.
Rather, it was the all the derivative products (the bets on bets, and bets on bets on bets), that truly magnified the result exponentially, and sank the whole world.
When I see crap being hawked on late night TV (gold, real estate, etc), that's my indication to exit the pattern.
Mostly agree. But to really identify what happened and why, in addition to the things you mentioned (all correct), we also have to look at foundational thing that contributed to the runups that the leverage was based on in the first place. Everything from numerous "community reinvestment acts" to mortgage interest deductions (massive subsidy to banks, huge boosts to malinvestment and wrecking ball destroyers of honest price discovery) all helped build that Tower of Rabble in the first place. Rather than allow values to settle to actual true market value that buyers could afford with fair and honest money, they went right back in and pumped them up with artificially low interest rates. That "helps" people "afford more house" which in turn drives up the prices of real estate.
Same thing with "education". Every cycle the people beg to help make it more affordable. So the lobby machine writes gifts for themselves like ever more financial aid, easier loans (even for extremely expensive joke degrees) and 529 tax scams, all of which help make the already artificlally expensive product even more expensive because the more they "help" the more expensive it gets and the more help you need because it keeps getting expensive, That's why colleges quickly started burying the money avalanche in as many little holes as they could; opulent new buildings and student centers with cafes and rock climbing walls and architecture and landscaping that rivals where the 0.1% live. Hiring mutipiles of fake make-work admin jobs (often from poorly performing educators and/ or idealogically minded outsiders) than actual teachers. Meanwhile as the speed of information became instant and the cost of delivery of it nearly free, "education" costs went nuts.
Both education and real estate are massive bubbles and no politician on either pretend side will ever allow either to be fixed in a sustainable way. They'll just keep pumping til they pop then hope they can bail it out.