Origins of the Crash

One of the complexities of analyzing causes of the financial crash was that there were two simultaneous leveraging events.  Clearly, financial firms were over-leveraging securitized mortgages and their derivatives.  But at the same time, home buyers were over-leveraging their real estate assets:

In 1989, only 1 in 230 homebuyers bought a house with a down payment of 3% or less.  In 2003, the ratio was 1 in 7.  By 2007, it was 1 in 3.

These charts make the case that government policy had a lot to do with this change.


  1. Josh:

    Wow, and I was uncomfortable only putting 10% down on our house... The previous time we put down 20%!

  2. hanmeng:

    Yes, government policy encouraged this, but what kills me is the buyers who later can't keep up with payments. Hey, they got to live in a nice house for awhile. Not to mention the banks that couldn't be allowed to eat their loss. Hey, if I buy a stock that plummets in price, who's going make my loss good?

  3. Matthew:

    I fail to understand how the bubble is blamed on deregulation when it in fact came from direct action of the government, which is a politicized form of regulation.
    Can anyone enlighten me how this isn't, in large part, the government's fault for encouraging destructive behaviors rather than staying out of the fray?