This week and the past week, we talked about the speculations bubbles and housing prices. I specifically want to talk about the NINA loan. From what I learned, the NINA stood for no income no asset. It was a degraded version of the original type of loan that only people with enough money could get. The original loan was made so that the people who could actually pay it off and get the bank more money along the way would get it. Over time however, The original loan was decreased in value until it became easy for anyone to get a loan. My question was, why would you need to decrease the value that much? Wouldn't they know that the people who but the NINA can't actually afford it and will fault? If you think that they do know, why do you think that there would even be a speculation bubble? Wouldn't it pop before it even started? My thoughts on this are that if they stuck with the original amount of money with the original loan, the NINA crisis in 2007 wouldn't have happened. The crisis could have definately been averted. It just needed to be stopped by not having greed. The no income no asset loan, was a child of greed from the Speculation bubble. The Morgages went up without a need and suddenly crashed in 2007. When the bubble popped, a lot of people lost their jobs and some of the houses being built were never completed. NINA Loans were the downfall in economy, hopefully they won't show up again in the future.
I agree completely that the NINA loans were the downfall of the economy. To answer one of those questions, I think that they had some idea that those people would default, but they believed it wasnt really their problem. As long as they sold the mortgages up quickly enough, they figured that a person defaulting wouldn't impact them, but someone else.
ReplyDeleteYes, in an idealistic world people would predict bubbles and be completely rational in their economic decisions. However, people want the most money possible and hence are sometimes blinded by positive statistics and the drive for money. So I agree that in a way the crash was a child of greed, but as we read in class, we can't blame history's figures for things they did. What we should do is try to prevent future bubbles and prepare for should they happen.
ReplyDeleteI disagree that it is as easy as predicting the future and averting a crisis. I think it is an overall problem with the American Economy. Continuously, banks and the Treasury and people in charge of the economy (yes even citizens) have a goal of short term happiness economically, which creates our economic cycle that unavoidably ends in a crash. The only way to fix this would be to reset the cycle, which would set people back way further with money than they are willing to go.
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