I kinda doubt it. The invaluable William Jacobson of Legal Insurrection makes the necessary point:
The housing bubble was created by Washington policies which created cheap money and lax lending practices, and millions of individual home buyers, mortgage brokers, and lenders who were all too willing to go along. Each of these people bet in favor of the bubble not only continuing, but growing.
Wall Street helped grease the wheels by packaging mortgages for resale, sometimes in confusingly (and sometimes misleadingly) structured products, which mostly were resold to sophisticated institutional investors. But as I have pointed out before, the mortgages were the core problem; no bad mortgages, no bad mortgage-backed securities.
The housing bubble burst for the same reason economic bubbles always have burst, since time immemorial: There were no greater fools left to pay higher prices. Only then did the people who bet in favor of the housing bubble, including most politicians, realize they had bet wrong. And the entire economy paid the price.
Jacobson is correct of course. The problem with bubbles is that it's hard to fight the urge to get in the game while the game is going well. I had a pretty good view of the game, too. As I've mentioned before, I worked for Bank of America during the boom years. Our division was dealing with some of the safest possible loans around, since our customers were people who were buying homes as part of a corporate relocation. It's pretty much axiomatic that an employee that a company is willing to move is a valuable employee and a very good credit risk. We had plenty of six figure incomes and 750 FICO scores, which meant that the loans we were providing were pretty much gold-plated. We weren't doing subprime in the B of A relocation program. At least in theory.
Even so, by 2005 many of the loans we were making were much riskier than they should have been -- we were doing a lot of interest-only loans and very short-term adjustable rate mortgages, often with big seconds that would essentially eliminate the need for any down payment. The money was sloshing around like crazy and everyone was getting rich. It was hard to turn it down and a lot of these very bright and valued employees we were relocating for our clients were using their homes as an ATM. It was a really nice scenario if you could keep it going.
As it happened, B of A decided to relocate our office to Portland, Oregon at the end of 2005 and I was offered the chance to relocate. After a lot of soul searching, we decided to stay here. Good thing, too, because the bubble that was feeding our business burst. Eventually, a number of my colleagues who moved out to Oregon ended up losing their jobs.
Why did that happen? Pretty simple, really. When the overall economy went under, even some of the loans we had done, which should have been gold plated, got pretty suspect in a hurry, given how leveraged many people were. Companies that were bullish only a few years before suddenly began shedding workers, rather than sending them to work in new locales. The business we'd cultivated was largely gone, almost in a flash. And meanwhile the securities that were based on subprime loans were even more toxic.
There's a story behind every bad loan -- it might be a buyer who is overly optimistic or naive. It might be a loan officer who is only concerned about the commission. It might a lender that figured that Uncle Sam would bail it out. It might be the politicians who think they can run an economy by fiat and whim. To get something as bad as what we've been through, you need all of the above. And we had all of the above. Sure, you can blame Goldman Sachs and the rest of the boys on Wall Street if you wish for making the problem even more fiendish. But they were hardly the only ones who deserve the blame.
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