Greg,
Interesting that you first cite 1929 and then say this sort of decline has not happened since the 30's. But, there is a lot of info in there that you fail to address.
First, did real estate run up at all similar to the extent it did in the last few years? No. That decline was fueled by the great depression. Want a real problem in real estate? Engineer another great depression. Oops! Looks like the economy is not headed that way.
But, if the liquidity is taken out of the market, the situation changes.
When was Fannie Mae formed and for what purpose?
Randolph,
Perhaps yes and perhaps no. I listened (and believed) all the hype back in the late 90s about the internet changing the face of business investing forever, but, alas, that was not to be. I remember all the talk about the new paradigm and the like, but in the end, the market crashed for those dot.coms. Why? All the betting was "on the come" as we say in craps. Few, if any, of those firms actually made a profit.
The basic economics of investing were ignored.
So, does this level of exotic lending mean that all these guys will default? Of course not. What we do not yet know, as you pointed out, is whether or not the causal effect of exotics will really substantially exacerbate the overall market.
So, it may come to pass or it may not- but it is certainly still too early to tell.
100% financing is really not new. Today, however, it is being done with the 80/20 vs. the PMI, and that costs the consumer less vs. more. So, the next question will be whether or not historical rates for foreclosure for the former 100% financing type vs. today's financing type would be where I would look. So far, we have not seen a material difference.
Basic forces in real estate economics continue to exist.
Moh!
The Consumer Federation of America? I had lots of contact with them back when licensing was being debated. Of course they were fully in favor of licensing. Did not work.
Neither, I suspect, will more federal regulation.
BTW, the feds, AFTER looking at the default rates. decided to not issue the stringent requirements that were/are being proposed.
What is different now from the way it used to be is Wall St.'s ever growing investment in these products. If something were to happen with the exotics it will be Wall St. who occasions the change rather than the OTS or the CFA.
They have already shied away from the 20 portion of the 80/20s but have shown no signs of backing away from the other exotics- yet.
Brad