Where Did the Fire Start?November 14, 2012 Posted by: Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Take all your overgrown infants away somewhere
And build them a home
A little place of their own
The Fletcher Memorial Home for Incurable tyrants and kings
- Pink Floyd
Quick quiz: What started the financial crisis that led to today's sluggish economy?
I bet your answer has something to do with the mortgage industry.
Follow up: What substantive changes have been implemented to address the failing mortgage industry?
Cue the crickets.
Since 2008, north of 90 percent of new mortgages have come with some government guarantee as regulatory foot-dragging and drawn out lawsuits keep private lenders on the sidelines. Perhaps this would be ok if the government was any good at making mortgage loan decisions.
But we know they are not.
The latest evidence comes this week with the Federal Housing Administration (FHA) likely reporting it will run through its reserves and come to the taxpayer, hat in hand, for the first time in its 78 year history. The FHA has accounted for about one-third of new mortgages since the crisis.
When a fire starts in the kitchen, you don't run to dump water in the living room, bathroom and bedrooms - (that is, healthcare reform, Dodd Frank - which specifically ignored mortgage reform - and an unnecessarily contrived budget crisis).
Instead, you address the problem head on. But for some reason Washington is completely ignoring 2008's mortgage sector blow up.
Oh, by the way, is it possible recent good news in the housing sector is being driven by this new batch of bad loans the government is pumping out?Read More