I agree - especially this part of Dodson's comment:

"When sub-prime borrowers began to default in droves and the value of the private label MBS tumbled, investors also pulled away from the conventional MBS market as well, even though these borrowers continued to make their payments. However, with a short period the domino effect of defaulting mortgagors spread and then began the recession."

I've always viewed the housing crash as the result of the bottom falling out of the housing market. I don't know how common it is now, but in the early 2000s, it was very common for people to view homeownership as some sort of magic escalator to riches - one would buy a home, then basically be guaranteed to resell it for significantly more later, and the gains would be used to buy a more expensive home.

I went to a free "how to buy your first home" presentation around 2002, and this was exactly the model recommended by the people giving the presentation - people who worked in the home loan and real-estate field. Basically "buy the most expensive house you can possibly afford now, because you'll be making more money in a few years and what you think is an expensive monthly payment now will seem like nothing. Then you can resell your home and buy something even fancier."

Obviously, this depends upon a constant influx at the bottom of the "escalator", which is unsustainable because it's a pyramid scheme. The collapse of that pyramid is exactly what happened, IMO, and it wouldn't have been possible without the sub-prime lending.

> The collapse of that pyramid is exactly what happened, IMO, and it wouldn't have been possible without the sub-prime lending.

imho, housing prices would have declined sooner. The valuation of houses was already wacky in 2001 by many measures. For example, look at the price-to-rent:

https://3.bp.blogspot.com/-GVhHsBNhPfE/WP-6gJXNhTI/AAAAAAAAq...

In 2001, prices were already at the level of the 1989 real-estate bubble: Older folks will remember the savings and loan scandal, which was the result of the 1989 bubble collapsing. The Fed thought it needed to compensate for the internet bubble collapsing, which was a large contributor to the ensuing mess in housing.

It has to make us wonder: If compensating for the internet bubble lead to the housing bubble (and collapse), what will the result of compensating for the housing bubble be?

It's bubble-compensation all the way down.

"...but in the early 2000s, it was very common for people to view homeownership as some sort of magic escalator to riches - one would buy a home, then basically be guaranteed to resell it for significantly more later, and the gains would be used to buy a more expensive home..."

I'm not so sure that perception has changed. Sure, the magic escalator might be moving slower, but most people buy believing values are guaranteed to go up. Likely. But once you factor in the true total cost of the mortgage, taxes, repairs, etc. The profits are slim.

Kids might be a justification for home ownership. But most other favor the Homeownership Industrial Complex, as well as gov. Let's not forget Big Inc who love it when you're locked into a mortage.

A lot of speculators were indeed left 'holding the bag', as it were, when the credit game collapsed and there were no more greater fools to sell to. But the reason there were no more such fools is that the lenders had scraped the bottom of the barrel, and there was no one left to lend to. There's no question that credit standards were loosened across the board, and it was possible for almost anyone to get a loan. For a while, foreclosure rates were low as long as it was possible to refi or sell your way out of a problem. Another thing that happened was a lot of people borrowed against rising equity and spent the money as if it were free cash, and found out the hard way later that it wasn't. And that's before we even get into the effects of fraud--underwriting fraud, appraisal fraud, fraudulent bond ratings, forged paper trails, and on and on. The bubble floated on an ocean of fraud. It was an unrestrained orgy of greed and criminality on every level.

An interesting note from his comment:

"By 2006 many property markets across the U.S. were destined for a serious correction. Property prices had become unsustainable in an environment of stagnant household incomes, employment insecurity, diminished household savings and a heavy reliance on credit card debt to meet everyday expenses. Interest rates would have had to fall to near zero to keep the bubble from bursting."

Lo and behold, our interest rates are basically zero... Sounds like the bubble hasn't quite burst yet.

what makes the whole article junk?

It ignores the whole cycle of leveraging and recycling that occured when weaponizing mortgage and asset backed securities into CDOs and insurance risk swaps. Sub-prime mortgages were the gasoline on that fire, they took what was perhaps a cabin burning in the woods and turned it into a 10,000 acre wildfire. With out sub-prime mortgages as an accelerator the who CDO mess burns out slowly and in when it starts burning the market moves away in a controlled manner.

To discount or even disconnect the sub-prime lenders from that fire is disingenuous at best in my opinion.

Put another way: if you've seen the movie The Big Short, it's like they cut out all the Florida scenes.

If you haven't seen The Big Short, it's still on Netflix.

Not the Florida scenes, they say subprime grew but it was still small compared to prime. The layering and diving and combining is the Jenga scene.

It ignores the role of government in demanding the issuance of more sub-prime loans.