Heard a man I normally like make a statement that I totally disagree with. He argued energy had nothing to do with the housing bubble bursting. As a retired owner/operator truck driver and history buff. He blew it on this one. From 1995 till 2005 I watched many truckers fold and go out of business. Most of it was because they could not deal with escalating fuel prices. Many of them were driving trucks they could barely afford the payment on. The escalating cost pushed them over the edge.
That is exactly what happened to many in the housing market also. They got into houses that were really unable to afford. That was thanks to a program endorsed and pushed by the Clinton Administration. At the same time they passed the housing bill they also passed the largest cut in Capital Gains taxes in history. The capital gains tax was pushed by them Speaker of the House Gingrich. That set the stage for failure and laid the foundation for the economic crisis America finds itself in today. While they cut the capital gains tax they did not cut the spending it had paid for. Yes they balanced the budget for a couple of years. It looked good on paper. However the seeds of destruction were growing. Finance companies started making less than sound decisions and lending more and more. They did this so they could rake off the capital gains and put them in their pockets in the form of bonuses. It worked fine for awhile. As they say though, all good things come to an end. All those marginal loans started riding on very thin ice as energy prices continued to climb and climb.
People who had bought the houses had virtually no margin for increases in cost. As prices went up decisions had to be made. Not so suddenly but increasingly they had to make decisions about how and what to pay. When it came to a choice between eating, keeping the family wheels and usually their job or the house payment it was an easy decision. The house was the money eater. They had little commitment to it. They had not been forced to make the sacrifices many of the previous home owners had. They chose to bail on the house. They simply moved to a less costly place. Slowly the market started to fill with houses that had been bought and sold at inflated prices. I know this because I had friends who were wheeling and dealing in real estate. Banks simply wanted to move houses and get the papers to sell on the market. It waa a boom time. It was not uncommon for a real estate dealer to buy a house for one price, inflate the price 40 to 50% and then get it financed with someone who had a "guaranteed loan." The qualification standards were very, very liberal. The amounts and income of many buyers had nothing to do with reality at all. It was a game. Find the appraiser who would say it was worth what you wanted and who the bank trusted. Many appraisers got rich taking under the table payments to get a loan that all the parties involved, including the buyer, knew had nothing to do with the reality of the situation.
It was a period when money was fast and loose. When you could borrow almost any amount on anything as long as you knew how to ask for it in a way that made the bank feel they were making a good deal. Bankers often had no more knowledge of the real worth of the house they were lending on than they did of how many inches of snow might fall next winter. Many of them were just as gullible as the buyers, or as willfully blind, when they made the deals. None of them thought there would be a day of accounting in the matter.
Some of the ignorance was acquired because of market trends over a long period of time. When the oil embargo hit in 1973 and again in 1979 the American auto industry tried to respond and built a number of small cars in response to the crisis. They came out with the Chevette, Omni, Horizon, Pinto, Vega, Maverick and other small cars. However as the gas crisis eased Americans started trending back to the powerful cars they had always preferred. Cars my kids jokingly refer to as barges. When the next crisis came American auto manufacturers had decided Americans would pay any price for gas and ignored the rising prices. Bankers basically followed the lead of the auto industry.
Then in the late 90's the perfect storm hit politically. Politicians started playing fast and loose with the rules. As I said earlier compromises were made which led not only to the housing bust, bu to the very situation we find ourselves in today. The only solution is to come up with the funds for the government to manage it bills. The people who should pay are those who raped the system. However they have convince the government it is not their fault. It did not happen in a vacuum and somebody is responsible and should pay. My vote is those who benefited from it the most. As many average Americans contributed to their retirement accounts and the same flakey dealers were dumping paper and loans they knew to be worthless into retirement funds. Raping them along with the home buyers. It is a very tangled web and simply punishing the banks only continues to strip people of their retirement investments. The system does need to be changed. However the Congress that needs to fix the problem is the same one that caused the problem. They do not have the will to do so. If they do not fix the problem though America is headed for a depression that will make the Great Depression look like a cake walk. It is going to take them standing on their own two feet and passing tax increases and making very severe cuts in spending that will hurt everybody somewhat. Failure to do so though will carry much more disastrous consequences. It will be a world wide depression, much like the one that set the stage for World War II. With all the turmoil in the Middle East already that is something that I do not think the world really wants to see.
So yes John King whether you like it or not, Energy prices did drive the housing market and burst the bubble. It is still driving the economy. If you read my older post on what WMD really means. You will get the whole picture of what is wrong. It is not something that happened in the last couple months or years. It is something that has played out over a very, very long period of time. Much like the men who passed the Constitution with the statement that some men are only 3/5th's of a man. A day of accounting was coming down the road. It took almost seventy years to rectify, but the seed was planted with the passing of the Constitution. Just as it says all men are created equal. The rich are not better, just luckier or more blessed, but that carries obligations. They will pay them one way or the other, sooner or later. As they say, "the writing is on the wall" America has come up short of its ideals.
If you do not think actions in the past have consequences. Consider that our Constitution was created to deal with issues created by the Revolutionary War and the pirates of the Barbary Coast (Libya today) We find ourselves in the mess over there. Because we violated our own doctrines. That being the Monroe Doctrine which was our guiding doctrine for years.