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0 pointsnot2b4y ago0 comments

"Prices will keep going up" was a key belief that triggered the 2008 real estate crash. They keep going up until they don't, and then the house-flippers who weren't careful enough and the lenders that approved "liar loans" get burned badly.

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chii4y ago

> the lenders that approved "liar loans" get burned badly.

the lenders "knew" of the bad loans, but because these lenders are going to on-sell the loan to some other investor, they didn't care as they profit off the sale, rather than the loan repayments. It's a moral hazard.

erik_seaberg4y ago

The loans were also bundled into opaque securities and the “low-risk” tranches were rated and priced for a typical rate of uncorrelated defaults, not a widespread crash.

aaronwall4y ago

The rating agencies would rate just about everything https://www.cnbc.com/id/27321998

Official #1: Btw (by the way) that deal is ridiculous. Official #2: I know right...model def (definitely) does not capture half the risk. Official #1: We should not be rating it. Official #2: We rate every deal. It could be structured by cows and we would rate it.

And the parts that were so junky they couldn't be rated got remixed into another deal to get rated.

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angelzen4y ago

They keep going up until they don't, and then the Fed quantitatively eases the losses. Sounds like Zillow's problem was they didn't sink enough money into their scheme.

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